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The United States entered the 21st century with an economy that was bigger,
and by many measures more successful, than ever. Not only had it endured two
world wars and a global depression in the first half of the 20th century, but it
had surmounted challenges ranging from a 40-year Cold War with the Soviet Union
to extended bouts of sharp inflation, high unemployment, and enormous government
budget deficits in the second half of the century. The nation finally enjoyed a
period of economic calm in the 1990s: prices were stable, unemployment dropped
to its lowest level in almost 30 years, the government posted a budget surplus,
and the stock market experienced an unprecedented boom.
In 1998, America's gross domestic product -- the total output of goods and
services -- exceeded $8.5 trillion. Though the United States held less than 5
percent of the world's population, it accounted for more than 25 percent of the
world's economic output. Japan, the world's second largest economy, produced
about half as much. And while Japan and many of the world's other economies
grappled with slow growth and other problems in the 1990s, the American economy
recorded the longest uninterrupted period of expansion in its history. As in
earlier periods, however, the United States had been undergoing profound
economic change at the beginning of the 21st century. A wave of technological
innovations in computing, telecommunications, and the biological sciences were
profoundly affecting how Americans work and play. At the same time, the collapse
of communism in the Soviet Union and Eastern Europe, the growing economic
strength of Western Europe, the emergence of powerful economies in Asia,
expanding economic opportunities in Latin America and Africa, and the increased
global integration of business and finance posed new opportunities as well as
risks. All of these changes were leading Americans to re-examine everything from
how they organize their workplaces to the role of government. Perhaps as a
result, many workers, while content with their current status, looked to the
future with uncertainty. The economy also faced some continuing long-term
challenges. Although many Americans had achieved economic security and some had
accumulated great wealth, significant numbers -- especially unmarried mothers
and their children -- continued to live in poverty. Disparities in wealth, while
not as great as in some other countries, were larger than in many. Environmental
quality remained a major concern. Substantial numbers of Americans lacked health
insurance. The aging of the large post-World War II baby-boom generation
promised to tax the nation's pension and health-care systems early in the 21st
century. And global economic integration had brought some dislocation along with
many advantages. In particular, traditional manufacturing industries had
suffered setbacks, and the nation had a large and seemingly irreversible deficit
in its trade with other countries. Throughout the continuing upheaval, the
nation has adhered to some bedrock principles in its approach to economic
affairs. First, and most important, the United States remains a "market
economy." Americans continue to believe that an economy generally operates best
when decisions about what to produce and what prices to charge for goods are
made through the give-and-take of millions of independent buyers and sellers,
not by government or by powerful private interests. In a free market system,
Americans believe, prices are most likely to reflect the true value of things,
and thus can best guide the economy to produce what is most needed. Besides
believing that free markets promote economic efficiency, Americans see them as a
way of promoting their political values as well -- especially, their commitment
to individual freedom and political pluralism and their opposition to undue
concentrations of power. Indeed, government leaders showed a renewed commitment
to market forces in the 1970s, 1980s, and 1990s by dismantling regulations that
had sheltered airlines, railroads, trucking companies, banks, telephone
monopolies, and even electric utilities from market competition. And they
pressed vigorously for other countries to reform their economies to operate more
on market principles too. The American belief in "free enterprise" has not
precluded a major role for government, however. Americans at times have looked
to government to break up or regulate companies that appeared to be developing
so much power that they could defy market forces. They have relied on government
to address matters the private economy overlooks, from education to protecting
the environment. And despite their advocacy of market principles, they have used
government at times to nurture new industries, and at times even to protect
American companies from competition. As the sometimes inconsistent approach to
regulation demonstrates, Americans often disagree about the appropriate role of
government in the economy. In general, government grew larger and intervened
more aggressively in the economy from the 1930s until the 1970s. But economic
hardships in the 1960s and 1970s left Americans skeptical about the ability of
government to address many social and economic issues. Major social programs --
including Social Security and Medicare, which, respectively, provide retirement
income and health insurance for the elderly -- survived this period of
reconsideration. But the growth of the federal government slowed in the 1980s.
The pragmatism and flexibility of Americans has resulted in an unusually dynamic
economy. Change -- whether produced by growing affluence, technological
innovation, or growing trade with other nations --- has been a constant in
American economic history. As a result, the once agrarian country is far more
urban -- and suburban -- today than it was 100, or even 50, years ago. Services
have become increasingly important relative to traditional manufacturing. In
some industries, mass production has given way to more specialized production
that emphasizes product diversity and customization. Large corporations have
merged, split up, and reorganized in numerous ways. New industries and companies
that did not exist at the midpoint of the 20th century now play a major role in
the nation's economic life. Employers are becoming less paternalistic, and
employees are expected to be more self-reliant. And increasingly, government and
business leaders emphasize the importance of developing a highly skilled and
flexible work force in order to ensure the country's future economic success.
This book examines how the American economy works, and explores how it evolved.
It begins by providing a broad overview in chapters 1 and 2 and a description of
the historical development of the modern American economy in chapter 3. Next,
chapter 4 discusses different forms of business enterprise, from small
businesses to the modern corporation. Chapter 5 explains the role of the stock
market and other financial markets in the economy. The two subsequent sections
describe the role of government in the economy -- chapter 6 by explaining the
many ways government shapes and regulates free enterprise, and chapter 7 by
looking at how the government seeks to manage the overall pace of economic
activity in order to achieve price stability, growth, and low unemployment.
Chapter 8 examines the agricultural sector and the evolution of American farm
policy. Chapter 9 looks at the changing role of labor in the American economy.
Finally, chapter 10 describes the development of current American policies
concerning trade and international economic affairs.
As these chapters should make clear, the American commitment to free markets
endured at the dawn of the 21st century, even as its economy remained a work in
progress. |
