Economy of the United States

The Economy of the United States is the largest and one of the most technologically advanced national economies in the world, with a per capita GDP of $40,100. In this capitalist, market-oriented economy, private individuals and business firms make most of the decisions, and the federal and state governments buy needed goods and services predominantly in the private marketplace with taxes collected from firms and individuals. Business firms in the U.S. enjoy considerably less regulation than firms in many other states concerning decisions to expand capital plant, lay off workers, and develop new products, but there is a debate about how much relative regulation exists in the United States in the era of globalization. American firms are at or near the forefront in technological research and development, especially in computers, pharmaceuticals, and aerospace, although some advantages have narrowed since the end of World War II. The United States has transformed from being the world's largest creditor to having substantial fiscal and trade deficits; the significance of these deficits is disputed by economists.

A Mixed Economy: the role of the market

The United States is said to have a mixed economy because privately owned businesses and government both play important roles. Indeed, some of the most enduring debates of American economic history focus on the relative roles of the public and private sectors.

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The American free enterprise system emphasizes private ownership. Private businesses produce most goods and services, and almost two-thirds of the nation's total economic output goes to individuals for personal use (the remaining one-third is bought by government and business). The consumer role is so great, in fact, that the nation is sometimes characterized as having a "consumer economy."

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However, like in all modern economies, there are limits to free enterprise and private ownership. Americans generally agree that some services are better performed by public rather than private enterprise. For instance, in the United States, government is primarily responsible for the administration of justice, education (although there are many private schools and training centers), the road system, social statistical reporting, and national defense. In addition, government often is asked to intervene in the economy to correct situations in which the price system does not work. It regulates "natural monopolies," for example, and it uses antitrust laws to control or break up other business combinations that become so powerful that they can surmount market forces.

Related Topics:
Natural monopolies - Antitrust

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Government also addresses issues beyond the reach of market forces. It provides welfare and unemployment benefits to people who cannot or will not support themselves, either because they encounter problems in their personal lives or lose their jobs as a result of economic upheaval; it pays much of the cost of medical care for the aged and those who live in poverty; it regulates private industry to limit air and water pollution; it provides low-cost loans to people who suffer losses as a result of natural disasters; and it has played the leading role in the exploration of space, which is too expensive for any private enterprise to handle. All of this is paid for by a system of progressive taxation.

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In this mixed economy, individuals can help guide the economy not only through the choices they make as consumers but through the votes they cast for officials who shape economic policy. In recent years, consumers have voiced concerns about product safety, environmental threats posed by certain industrial practices, and potential health risks citizens may face; government has responded by creating agencies which aim to protect consumer interests and promote the general public welfare.

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The U.S. economy has changed in other ways as well. The population and the labor force have shifted dramatically away from farms to cities, from fields to factories, and, above all, to service industries. In today's economy, the providers of personal and public services far outnumber producers of agricultural and manufactured goods. As the economy has grown more complex, statistics also reveal over the last century a sharp long-term trend away from self-employment toward working for others.

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