In the United States economy private individuals and
businesses make most of the decisions. 90% of economic activity originates in
the private sector and 10% originates from government. 5.7 million privately owned businesses
employ 120 million Americans. Federal, state
and local governments employ 20 million more. Governments buy needed goods and
services predominantly in the private marketplace.
Economic activity measured by the Gross Domestic Product
(GDP) was $15.4 trillion in 2012. 70% of the GDP stems from personal
consumption of goods and services. 20% is direct government spending with half
of that federal and half state and local. 10% is investment activity,
predominately businesses buying equipment. Academic sources estimate there is
another $2T/year of underground economic activity with tax avoidance and
criminal activities contributing to that total.
In addition to managing the money supply, government exerts fiscal policy in a way designed to influence the economy as well as achieving other goals like social justice and environmental preservation. Fiscal policy, which had been guided by Keynesian economic theory since the Great Depression, entered a period of vigorous political debate in the 1980's when "stagflation" defied explanation and Republicans proposed "Supply Side" economics as an alternative. Since 1980 which ever political party has control has dictated which theory will govern how fiscal policy will be managed.
The European Union, Canada, China and Mexico are the USA’s
largest trading partners. NAFTA the
North American free trade agreement provides tariff free exchange among Canada,
the US and Mexico, making these three countries the largest trading bloc on
Earth. The US is the World’s largest trading nation with $2T per year in
imports and $1.6T per year of exports.
This is 15% of all international trade.
In real dollars, adjusted for inflation, the US GDP tripled
in size between 1970 and 2012. This corresponds to an average annual growth of
2.7%. This far outstripped the 1% per year population growth in the same period,
demonstrating increasing productivity and wealth. The growth rate varies across
time in a phenomenon called the “business cycle.” Many factors influence the cycle including
scarcity of materials and labor, consumer confidence, technology, and
government policy.
Triggered by the bursting of a housing price “bubble,” in
2006-7, the US economy entered a period of negative growth that lasted from the
4th quarter of 2008 until the third quarter of 2009. GDP dropped,
the credit markets froze, 30% of the nation’s wealth evaporated, and the US and
World economy staggered. The economy is still recovering and working through
the Great Recession. Housing prices
remain low and unemployment high. Although government has cut taxes, applied
fiscal stimulus, held interest rates near zero and executed three rounds of
quantitative easing, growth only managed to exceed 3% in three quarters in 2010
and it has slipped to 1.3% in the third quarter of 2012. That is just barely
ahead of 1% population growth.