The Economy Today Essay, Research Paper
The Economy Today
The United States has been the world’s leading industrial nation since early in the 20th century. Until the second half of the 19th century, agriculture remained the dominant U.S. economic activity. After the Civil War ended in 1865, great advances were made in the production of basic industrial goods. By the time of World War I (1914-1918), exports of manufactured goods had become more important than the export of raw materials; as manufacturing grew, agriculture became increasingly mechanized and efficient, employing fewer and fewer workers. The most important development in the economy since World War II (1939-1945) has been the tremendous growth of service industries, government, professional services, trade, and financial activities. Today, service industries make up the most important sector of the economy, employing almost three-fourths of the workforce. Industry employs approximately 23 percent of the labor force and agriculture, forestry, and fishing about 3 percent of the workers.
Beginning in the 1930s, the government of the United States played an increasingly active role in the economy. Even though the U.S. economy in the 1990s was based on free enterprise, the government regulated business in various ways. Some government regulations were drawn up to protect consumers from unsafe products and workers from unsafe working conditions; others were designed to reduce environmental pollution. Government also exerts tremendous influence on the economy through the jobs it provides and the money it spends. Government employs 15 percent of all the workers in the nation. The federal budget for fiscal year 1998-1999 included estimated expenditures of $1.67 trillion, or about 20.0 percent of the period’s estimated gross domestic product (GDP.) Revenue was estimated at $1.66 trillion, or 19.9 percent of GDP. That left a deficit of about $10 billion. The United States had consistently recorded annual budget deficits of $100 billion or more since the early 1980s; the amount of the deficit began declining in the early 1990s.
In the mid-1990s the United States led all nations of the world in the yearly value of its economic production. The nation’s annual GDP was $7.85 trillion in 1997. With a per-capita GDP of $29,400, the people of the United States had one of the world’s highest standards of living.
When the effect of inflation is not considered, GDP has increased at a rather high rate, increasing nearly seven fold between 1970 and 1995. When the impact of inflation is taken into account, however, the rate of economic growth has been much less. During the period from 1970 to 1995, the change in GDP, based on dollars adjusted for inflation, was 198 percent. GDP adjusted for inflation gives a more accurate picture of the performance of the economy than the unadjusted figure.
The U.S. economy consists of three main sectors-the primary, secondary, and tertiary. Primary economic activities are those directly extracting goods from the natural environment, including agriculture, forestry, fishing, and mining. The primary sector usually contributes about 2 percent of annual GDP. Secondary economic activities involve processing or combining materials into new products, and include manufacturing and construction. Each year the secondary sector accounts for approximately 26 percent of GDP. Tertiary economic activities involve the output of services rather than goods. Examples of tertiary activities include wholesale and retail trade, banking, government, and transportation. The tertiary is the most important sector by far and accounts for almost 72 percent of annual GDP.
Free-Market Economy, economic system in which individuals, rather than government, make the majority of decisions regarding economic activities and transactions. Individuals are free to make economic decisions concerning their employment, how to use or accumulate capital, what expenditures to make, and whether to use their resources now or to save them for later consumption. The principles underlying free-market economies are based on laissez-faire economics and can be traced to the 18th century British economist Adam Smith. According to Smith, individuals acting in their own economic self-interest will maximize the economic situation of society as a whole, as if guided by an “invisible hand.” In a free-market economy the government’s function is limited to providing what are known as “public goods” and performing a regulatory role in certain situations.
The stock market crash was just the first dramatic phase of a prolonged economic collapse. Conditions continued to worsen for the next three years, as the confident, optimistic attitudes of the 1920s gave way to a sense of defeat and despair. Stock prices continued to decline. By late 1932 they were only about 20 percent of what they had been before the crash. With little consumer demand for products, hundreds of factories and mills closed, and the output of American manufacturing plants was cut almost in half from 1929 to 1932.
Unemployment in those three years soared from 3.2 percent to 24.9 percent, leaving more than 15 million Americans out of work. Some remained unemployed for years; those who had jobs faced major wage cuts, and many people could find only part-time work. Jobless men sold apples and shined shoes to earn a little money.
In 1992, U.S. exports totaled about $447 billion, and U.S. imports, $553 billion. Machinery and transport equipment constituted 48.1 percent of all U.S. exports, and other manufactured goods constituted 33.9 percent. Major exports also included chemicals, grains and grain products, soybeans, and coal. Of imports to the United States, 10.1 percent were mineral fuels (mostly petroleum) and related materials; 42.8 percent, machinery and transport equipment; and 37.3 percent, other manufactured goods. Among essential materials imported were rubber, tin, graphite, sugar, coffee, tea, and energy resources. In the 1960s, the United States experienced an erosion of its dominant position in world trade, and in most of the years after 1970, it reported a negative trade balance. The U.S. share of world manufactured exports declined from 25.3 percent in 1960 to less than 15 percent in 1992. The American trade deficit with Japan was perceived to be a growing problem.
In 1990 world trade (exports and imports) was approximately $6.76 trillion, roughly double the figure for 1980. Driven by inflation and higher prices for commodities such as oil, the value of world trade in U.S. dollars increased nearly tenfold between 1965 and 1985.
In the 20th century, trade has increased, becoming a more dominant segment of the world’s economy. It is expected that the trend toward increasing interdependency among national economies will continue into the future.
The index of leading economic indicators rose by 0.3% in June. Averaged over the first half of the year, the index points to continued economic health through the end of the year. Seven of the ten components of the index rose, fewer than last month’s strong report, but still indicating broad strength among the indicators.
There is little evidence of cyclical imbalances that would unravel the economy’s expansion. The most significant positive contributors to the index were consumer goods orders, the money supply, and the yield curve.
The capital goods orders component was the main negative. The leading index is a barometer of the economy’s direction though not the magnitude of that change. On average, the index results for the six months of the year suggest continued expansion.
June’s advance was driven by strength among the consumer and financial indicators. In particular, this is the first time this year that consumer expectations have made a positive contribution to the index. While there are good reasons for the economy to slow in 1999, the economy will post another strong year of growth and low inflation in 1999. Joblessness will also remain low. The expansion will continue well into 2000.
A year has made a large difference in America’s economy and the world. At the beginning of 1997, economic markets were booming. People had put faith into “the new economy.” It was supposed to encourage growth and make recessions a thing of the past.
Several Asian economies collapsed, but the impact on the U.S. was believed to be minimal. American interest rates were low, and consumers were buying homes and goods.
This economic security continued into the summer of 1998. Now, the Asian market collapse is affecting world economies. There is a great deal of insecurity now. The amount of money American exporters earned is falling.
American’s have anxiety about the U.S. economy and the world economy. The problem now lies in long term investing. No one knows how long these conditions will hold up. It is wrong to take today’s conditions and project them into the future, but there is uncertainty in the future economy. The economic outlook on future decades depends on politics, trade, population, and technology.
It is estimated that the coming century will hold a global economic boom. Global growth will grow three percent a year. That is three times the annual rate of growth in the present century.
The middle class is expected to grow throughout the whole world. The middle class will become a competitive and important customer in the world. All of this growth will be generated by technology. The technology of today will be more widely distributed to those that cannot get it now. The world will be linked by technology. If this technology is to play such an important role, more workers will be required to generate these products. If more jobs are created, more people are working, they will have more money. This new amount of income will make more people becoming consumers.
It is also expected that trade barriers will come down. With the barriers down and more people trading between countries, the other economies in the world will get a boost.
All of the countries willing to trade will enjoy success. It is not to say that there will not be difficulties. There will be times when economies do not advance at all.
The world boom is not expected in the near future. It is only a projected outlook for the coming century. In the near future, the global economy is going to be drifting into very choppy waters. One third of the global production-Japan, South Korea, Southeast Asia, Russia and Latin America-are in recession. There is a slow down in growth in other economies, like the U.S.
The global economy is going to take a few years to stabilize between supply and demand. There is an influx in products, and demand is down. It is believed that demand is down because of falling currencies and new government policies.
Less developed nations will play a large role in the world boom. They will have a great supply of workers willing to work for less money than the U.S. workers.
The under-developed nations will be competing with large economies like the U.S, Japan, and the European Union. This may shake up the economies in the larger countries that are not used to the fierce competition. Everything will equal out because the larger-and more advanced-nations will become better educated, get better skilled workers, and work on more advanced technology.
Inflation will not be a problem. The competition around the globe will keep inflation within reasonable bounds. It is expected that prices on things like clothing, electronics, and other goods will decline with time.
The transnational corporation will become a new thing. Several multinational firms in different national areas will collaborate to form one corporation. These corporations are already one fifth of global manufacturing, but their popularity and regularity will increase.
The economic boom favors stocks. The regular citizen will be buying more stock, and the markets will give investors in stock safety and large returns. The downfall to this outlook is in science. There will not be as many breakthroughs in the coming century. But, nuclear fusion, the aging process, and cryogenics will be at the top of the science list.
The theory is contingent upon the idea that technology is going to be more widely distributed. This is a very good possibility. To make technology available in every area of the world would enable those that do not have it now to be up to date. There are people that have not seen the technology. But when it’s readily available, someone might have a totally different use for it, or could build from it. This could create new products, making now under developed countrie’s competitors in the global market.
Kiplinger, Knight A.(1998). “World Boom Ahead.”
Kipplinger Personal Finance Magazine. November, 105-110