Introduction and the Current State of the U.S.A.’s economy
The United States of America, otherwise known as the U.S., the States or simply America, is the most powerful country in the world in terms of military capabilities and diplomatic influence. The U.S. is a confederation of 50 states, including Hawaii in the Pacific and Alaskan state located on the northwestern portion of the North American continent. Canada lies next to the country’s northern boundary and Mexico on the south.
Having a total area of approximately 9,826,675 square kilometers inclusive of the total land area of the 50 member states and the Columbian District.This country’s military superiority is also coupled with its ever-strong and recession-resistant economy, which is where this paper will focus on and will be discussed in detail in the following sections.
As a brief overview, the U.S. boasts of one of the world’s largest economy in terms of GDP (Gross Domestic Product). In fact, according to a statistical data published in the 4th quarter of 2011, the United States ranks number 1 in the list of countries with the largest economy in terms of GDP. The U.S., having a GDP worth 14,991,300 (in millions of USD) is on the top, followed by China (GDP worth 7,203,784 in millions of USD), and then Japan (GDP worth 5,870,357 in millions of USD).
Economic Growth Trends in the U.S. Economy
There are tons of objective ways of describing the growth trend of the United States’ economy. It can be described based on the annual GDP growth rate, the changes in the annual unemployment rate, Annual CPI Inflation (Consumer Price Index), changes in poverty rates, government debts (public and external), and even the total or average household net worth. For the purpose of comparison, let us monitor the trend of the U.S. economy since 2002 up to the latest in terms of the annual GDP growth rate.
The U.S. GDP growth rate (nominal) was 1.83% in 2002; 2.55% in 2003; 3.48% in 2004; 3.08% in 2005; 2.66% in 2006; 1.91% in 2007; -0.36% in 2008; -3.53% in 2009; 3.02% in 2010; and 1.7% in 2011. The U.S. real annual GDP growth rate on the other hand was somewhere around 1.8% in 2011. It can be inferred from the GDP data observed that the U.S. Economy, in the past ten years, has been developing quite well, hitting positive GDP growth rates most of the time and only hitting the negative spot two times, particularly in the fiscal years 2008 and 2009. Nevertheless, it is still clear that the overall GDP growth rate in the past 10 years is positive. Meaning, other countries, especially the ones that are dependent on the stability of the U.S. economy can be assured of a sustained economic growth given that there are no active recessions or economic crises.
Another good thing about the U.S. economy would be its relatively low unemployment rate compared to other country; which can also be used as a determinant in scaling the economy. According to a statistical report published by the United States Department of Labor Bureau of Labor Statistics Department (2012), the unemployment rate in the U.S. job market was 6% in 2002; 5.7% in 2003; 5.4% in 2004; 4.9% in 2005; 4.4% in 2006; 5% in 2007; 7.3% in 2008; 9.9% in 2009; 9.4% in 2010; and 8.5% in 2011. We can see that a few years before the great recession, the highest unemployment rate was 6% in 2002 and the lowest was 4.4% in 2006 which actually shows that the U.S. government as a whole managed to create enough jobs for its citizens.
The U.S. economy also features a free enterprise economic system which can be best characterized by presence of voluntary exchange. Voluntary exchange is simply a characteristic of the free-enterprise system wherein the ones who control the market are the consumers. It may also be interpreted as a behavior wherein buyers and sellers engage in trade transactions willingly and with little to very few restrictions. This is one of the features that contributed to the sustained economic growth in the U.S. because businesses could really capitalize and thus grow more from a less restricted economy compared to a more restricted one.
Everything was almost perfect until problems came up when the U.S. economy experienced a recession in 2008 and the following years which can be evidenced by the steep increase in the unemployment rate and decrease in GDP growth rate. Note that these years were marked as some of most economically recessive ones in world history. In fact, most analysts believe that what happened during the 2008 fiscal year could be characterized as a Great Global Recession or Economic Depression, caused by a diverse set of factors such as excessive debt levels in public and private financial institutions, uncontrolled sub-prime lending, government deregulation, over-leveraging of banks and financial privileges providers, credit creation, almost unpredictable fluctuations in oil process, emigration, etc..
The steep decline in annual GDP growth rates and incline in the unemployment rates were not just experienced by the U.S. but also by other countries, economically big and small alike. What happened was the so-called domino effect wherein the fall down of one giant economy affects all other countries especially the ones that are most connected to it.
This is actually the bad thing about the U.S. economy. No matter how strong it is, it remains vulnerable to changes and recessions which would surely affect other countries’ economy. Also, statistics suggest that even though the world economy’s wounds due to the recent recession are already starting to heal, the U.S. economy still cannot fully get back on track at least when compared to its economy’s performance a few years before the global recession. Its performance in terms of annual GDP growth rates and unemployment rates remain at all-time low and high levels respectively which can be interpreted as a bad sign.
The Federal Reserve System in the U.S. Economy
The United States Federal Reserve, otherwise known as the Federal Reserve and by the locales as simply the Fed, is the banking system used in the United States. It is believed that its presence is one of the key reasons why the United States economy surpassed other countries’ economy which it used to trail before. Every state has its own techniques and policies when it comes to handling finances which can have a direct economy on its economy. The most commonly used banking system by other countries is the National or Central Banking System. There are actually a lot of similarities between how a CBS and FRS operates.
The Federal Reserve System, under the Federal Reserve Act, was established as the government’s response to the sequel of economic recessions—which were largely due to the financial panics which occurred during the early years of the 20th century. The system was originally intended to keep such panics from happening again and also to serve as a mitigation strategy should all preventive measures prove to be not good enough.
The FRS has experienced dramatic changes, particularly expansions in its roles and evolution of its structure, a few decades after it was established. This was largely due to the inevitable economic events that challenged the U.S. to come up with better prevention and mitigation plans and strategies.
Under the latest revision of the Federal Reserve Act, the FRS is defined as a body that is independent from the legislative and executive branches of the government—meaning, it can make operational decisions without requiring the signature of the president, whose role is to handle the U.S. monetary policies and objectives are to maximize employment, stabilize prizes, and have greater control over the confederation’s long term interest rates. It is also the government body that broadcasts the GDP growth rate predictions and forecasts to the public. All in all, it manages the monetary policy of the U.S. and helps the confederation to adapt to the highly volatile and sometimes, even hostile, world economy. Still, the FRS has proven to be of great help to the country which survived a great deal of lashes since the famous global recessions after the two world wars.
Competition, Monopolies, and the Job Market
It has already been established that there are a lot of international companies that are interested to invest in the U.S. despite the considerably higher minimum wage compared to other countries. This can be attributed to the U.S. economy’s business-friendliness which can be generally beneficial to the economy because it encourages more and more investors to plant businesses and create jobs in the country. However, one downside of that opportunity would be the theoretical increase in competition levels in the economy. Instead of purchasing commodities that are manufactured locally, there is a good chance that the consumers would go for the ones that are manufactured overseas, especially if the prices are low and the quality is high.
One advantage of a tighter competition between businesses is it lessens the likelihood of a single firm monopolizing a certain market segment. Competition between firms will theoretically benefit the consumers because companies would be compelled to offer the highest quality available for a certain price range compared to a monopolized market segment wherein the seller dictates the price because of the absence of a decent competitor if any.
The stability of the job market and the employment rates can be directly affected by the level of economic activity in the country. Naturally, a more active economy would equate to higher employment rates. The number of businesses and available jobs can also directly affect the economic activity and thus the employment rates in the country. In the U.S. economy’s case, it has been reported that some 133 out of the 500 companies in Forbes top 500 companies are headquartered in the U.S., a number that is more than double than that of other countries’. The latest forecast by the U.S. Labor Department suggests that only about 91.5% of the available workforce is employed which is actually acceptable even though such level is considerably lower compared to the usual employment rates.
Conclusion
The United States economy has many edges that other countries do not. It features a free enterprise economy which makes it more conducive for buyers and sellers to transact trades; unique and highly adaptive central banking system, the Federal Reserve System, which manages the country’s monetary policies and has proven to be an effective tool in mitigating recessions and even keeping them from occurring; a free competitive market where there are a lot of jobs available for the citizens. Over the years, the U.S. has secured sustained levels of economic growth. Even though it appears to have been badly scarred by the recent recessions, it is doing a good job, GDP growth and unemployment rate-wise. GDP growth rate remains to be on the positive side of the integer compared to the negative readings in 2008 and the unemployment rate is starting to decline again—it moved down from 9.4% in 2010 to 8.5% in 2011. The U.S. FRS has been releasing positive outlooks through economic forecasts since the second quarter of 2012 so far and the same thing goes for most economic analysts.
References
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The World Bank. (2012). Annual GDP Growth Rate: The United States of America. The World Bank.
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