X CURRENT TRENDS AND ISSUES
In the early decades of the 21st century, many different social, economic and technological changes in the United States and around the world will affect the U.S. economy. The population of the United States will become older and more racially and ethnically diverse. The world population is expected to continue to grow at a rapid rate, while the U.S. population will likely grow much more slowly. World trade will almost certainly continue to expand rapidly if current trade policies and rates of economic growth are maintained, which in turn will make competition in the production of many goods and services increasingly global in scope. Technological progress is likely to continue at least at current rates, and perhaps faster. How will all of this affect U.S. consumers, businesses, and government?
Over the next century, average standards of living in the United States will almost certainly rise, so that on average, people living at the end of the century are likely to be better off in material terms than people are today. During the past century, the primary reasons for the increase in living standards in the United States were technological progress, business investments in capital goods, and people’s investments in greater education and training (which were often subsidized by government programs). There is no evident reason why these same factors will not continue to be the most important reasons underlying changes in the standard of living in the United States and other industrialized economies. A comparatively small number of economists and scientists from other fields argue that limited supplies of energy or of other natural resources will eventually slow or stop economic growth. Most, however, expect those limits to be offset by discoveries of new deposits or new types of resources, by other technological breakthroughs, and by greater substitution of other products for the increasingly scarce resources.
Although the U.S. economy will likely remain the world’s largest national economy for many decades, it is far less certain that U.S. households will continue to enjoy the highest average standard of living among industrialized nations. A number of other nations have rapidly caught up to U.S. levels of income and per capita output over the last five decades of the 20th century. They did this partly by adopting technologies and business practices that were first developed in the United States, or by developing their own technological and managerial innovations. But in large part, these nations have caught up with the United States because of their higher rates of savings and investment, and in some cases, because of their stronger systems for elementary and secondary education and for training of workers.
Most U.S. workers and families will still be better off as the U.S. economy grows, even if some other economies are growing faster and becoming somewhat more prosperous, as measured per capita. Certainly families in Britain today are far better off materially than they were 150 to 200 years ago, when Britain was the largest and wealthiest economy in the world, despite the fact that many other nations have since surpassed the British economy in size and affluence.
A more important problem for the U.S. economy in the next few decades is the unequal distribution of gains from growth in the economy. In recent decades, the wealth created by economic growth has not been as evenly distributed as was the wealth created in earlier periods. Incomes for highly educated and trained workers have risen faster than average, while incomes for workers with low levels of education and training have not increased and have even fallen for some groups of workers, after adjusting for inflation. Other industrialized market economies have also experienced rising disparity between high-income and low-income families, but wages of low-income workers have not actually fallen in real terms in those countries as they have in the United States.
In most industrialized nations, the demand for highly educated and trained workers has risen sharply in recent decades. That happened in part because many kinds of jobs now require higher skill levels, but other factors were also important. New production methods require workers to frequently and rapidly change what they do on the job. They also increase the need for quality products and customer service and the ability of employees to work in teams. Increased levels of competition, including competition from foreign producers, have put a higher premium on producing high quality products.
Several other factors help explain why the relative position of low-income workers has fallen more in the United States than in other industrialized Western nations. The growth of college graduates has slowed in the United States but not in other nations. United States immigration policies have not been as closely tied to job-market requirements as immigration policies in many other nations have been. Also, government assistance programs for low-income families are usually not as generous in the United States as they are in other industrialized nations.
Changes in the make-up of the U.S. population are likely to cause income disparity to grow, at least through the first half of the 21st century. The U.S. population is growing most rapidly among the groups that are most likely to have low incomes and experience some form of discrimination. Children in these groups are less likely to attend college or to receive other educational opportunities that might help them acquire higher-paying jobs.
The U.S. population will also be aging during this period. As people born during the baby boom of 1946 to 1964 reach retirement age, the percentage of the population that is retired will increase sharply, while the percentage that is working will fall. The demand for medical care and long-term care facilities will increase, and the number of people drawing Social Security benefits will rise sharply. That will increase pressure on government budgets. Eventually, taxes to pay for these services will have to be increased, or the level of these services provided by the government will have to be cut back. Neither of those approaches will be politically popular.
A few economists have called for radical changes in the Social Security system to deal with these problems. One suggestion has been to allow workers to save and invest in private retirement accounts rather than pay into Social Security. Thus far, those approaches have not been considered politically feasible or equitable. Current retirees strongly oppose changing the system, as do people who fear that they will lose future benefits from a program they have paid taxes to support all their working lives. Others worry that private accounts will not provide adequate retirement income for low-income workers, or that the government will still be called on to support those who make bad investment choices in their private retirement accounts.
Political and economic events that occur in other parts of the world are felt sooner and more strongly in the United States than ever before, as a result of rising levels of international trade and the unique U.S. position as an economic, military, and political superpower. The 1991 breakup of the Union of Soviet Socialist Republics (USSR)—perhaps the most dramatic international event to unfold since World War II—has presented new opportunities for economic trade and cooperation. But it also has posed new challenges in dealing with the turbulent political and economic situations that exist in many of the independent nations that emerged from the breakup . Some fledgling democracies in Africa are similarly volatile.
Many U.S. firms are eager to sell their products to consumers and firms in these nations, and U.S. banks and other financial institutions are eager to lend funds to support investments in these countries, if they can be reasonably sure that these loans will be repaid. But there are economic risks to doing business in these countries, including inflation, low income levels, high crime rates, and frequent government and company defaults on loans. Also, political upheavals sometimes bring to power leaders who oppose market reforms.
The greater political and economic unification of nations in the European Union (EU) offers different kinds of issues. There is much less risk of inflation, crime, and political upheaval to contend with in this area. On the other hand, there is more competition to face from well-established and technologically sophisticated firms, and more concern that the EU will put trade barriers on products produced in the United States and in other countries that are not members of the Union. Clearly, the United States will be concerned with maintaining its trading position with those nations. It will also look to the EU to act as an ally in settling international policies in political and economic arenas, such as a peace initiative in the Middle East and treaties on international trade and environmental issues.
The United States has other major economic and political interests in the Middle East, Asia, and around the world. China is likely to become an even larger trading partner and an increasingly important political power in the world. Other Asian nations, including Japan, Korea, Indonesia, and the Philippines, are also important trading partners, and in some cases strong political and national security allies, too. The same can be said for Australia and for Canada, which has long been the largest single trading partner for the United States. Mexico and the other nations of Central and South America are, similarly, natural trading partners for the United States, and likely to play an even larger role over the next century in both economic and political affairs.
It may once have been possible for the United States to practice an isolationist policy by developing an economy largely cut off from foreign trade and international relations, but that possibility is no longer feasible, nor is it advisable. Economic and technological developments have made the world’s nations increasingly interdependent.
Greater world trade and cooperation offer an enormous range of mutually beneficial activities. Trading with other countries inevitably increases opportunities for travel and cultural exchange, as well as business opportunities. In a very broad sense, nations that buy and sell goods and services with each other also have a greater stake in other forms of peaceful cooperation, and in seeing other countries prosper and grow.
On the other hand, global interdependence also raises major problems—political, economic, and environmental—that require international solutions. Many of these problems, such as pollution, global warming, and assistance for developing nations, have been controversial even when solutions were discussed only at the national level. Often, controversy increases with the number of nations that must agree on a solution, but some problems require global remedies. Such problems will challenge the productive capacity of the U.S. economy and the wisdom of U.S. citizens and their political leaders.
No nation has ever had the rich supply of resources to face the future that the U.S. economy has as it enters the 21st century. Despite that, or perhaps because of it, U.S. consumers, businesses, and political leaders are still trying to do more than earlier generations of citizens.
XI CHIEF GOODS AND SERVICES OF THE U.S. ECONOMY
The U.S. economy, the largest in the world, produces many different goods and services. This can be seen more easily by dividing economic activities into four sectors that produce different kinds of goods and services. The first sector provides goods that come directly from natural resources: agriculture, forestry, fishing, and mining. The second sector includes manufacturing and the generation of electricity. The third sector, made up of commerce and services, is now the largest part of the U.S. economy. It encompasses financial services, retail and wholesale sales, government services, transportation, entertainment, tourism, and other businesses that provide a wide variety of services to individuals and businesses. The fourth major economic sector deals with the recording, processing, and transmission of information, and includes the communications industry.
A Natural Resource Sector
The United States, more than most countries, enjoys a wide array of natural resources. Agricultural output in the United States has historically been among the highest in the world. Rich fishing grounds and coastal habitats provide abundant seafood. Companies harvest the nation’s large reserves of timber to use in wood products and housing. Major mineral resources—including iron ore, lead, and copper, as well as energy resources such as coal, crude oil, and natural gas—are abundant in the United States.
A1 Agriculture
The United States contains some of the best cropland in the world. Cultivated farmland constitutes 19 percent of the land area of the country and makes the United States the world’s richest agricultural nation. In part because of the nation’s favorable climate, soil, and water conditions, farmers produce huge quantities of agricultural commodities and a variety of crops and livestock.
The United States is the largest producer of corn, soybeans, and sorghum, and it ranks second in the production of wheat, oats, citrus fruits, and tobacco. The United States is also a major producer of sugar cane, potatoes, peanuts, and beet sugar. It ranks fourth in the world in cattle production and second in hogs. The total annual value of farm output increased from $55 billion in 1970 to $202 billion in 1996. Farmers in the United States not only produce enough food to feed the nation’s population, they also export more farm products than any other nation. Despite this vast output, the U.S. economy is so large and diversified that agriculture accounted for only 2 percent of annual GDP and employed only 3 percent of the workforce in 1998.
During the 20th century, many Americans moved from rural to urban areas of the United States, resulting in large population decreases in farming regions. Even though the number of farms has been declining since the 1930s, overall production has increased because of more efficient operations. Bigger farms, operated as large businesses, have increasingly replaced small family farms. The owners of larger farms make greater use of modern machinery and other equipment. By the 1990s, farm operations were highly mechanized. By applying mechanization, technology, efficient business practices, and scientific advances in agricultural methods, larger farms produce great quantities of agricultural output using small amounts of labor and land.
In 1999 there were 2,194,070 farms in the United States, down from a high of 6.8 million in 1935. As smaller farms have been consolidated into larger units, the average farm size in the United States increased from about 63 hectares (about 155 acres) to 175 hectares (432 acres) by 1999.
Cattle production is widespread throughout the United States. Texas leads in the production of range cattle, which are allowed to graze freely. Iowa and Illinois are important for nonrange feeder cattle, which are cattle that eat feed grain provided by cattle farmers. The Dairy Belt continues to be concentrated in southern Wisconsin but is also prominent in the rural landscapes of most northeastern states and fairly common in other states, too. Hog production tends to be concentrated in Iowa, Illinois, and surrounding states, where hogs are fattened for market. Chicken production is widespread, but southern states, including Texas, Arkansas, and Alabama, dominate.
Corn and soybean production is concentrated heavily in Iowa and Illinois and is also important in surrounding states, including Missouri, Indiana, Nebraska, and the southern regions of Minnesota and Wisconsin. Wheat is another important U.S. crop. Kansas usually leads all states in yearly wheat production. North Dakota, Montana, Oklahoma, Washington, Idaho, South Dakota, Colorado, Texas, Minnesota, and Nebraska also are major wheat producers.
For more than a century and a half, cotton was the predominant cash crop in the South. Today, however, it is no longer important in some of the traditional cotton-growing areas east of the Mississippi River. While some cotton is still produced in the Old South, it has become more important in the Mississippi Valley, the Panhandle of Texas, and the Central Valley of California. Cotton is shipped to mills in the eastern United States and is exported to cotton textile plants in Japan, South Korea, Indonesia, and Taiwan.
Vegetables are grown widely in the United States. Outside major U.S. cities, small farms and gardens, known as truck farms, grow vegetables and some varieties of fruits for urban markets. California is the leading vegetable producing state; much of its cropland is irrigated.
Most fruits grown in the United States fall in the categories of midlatitude and citrus fruits. Midlatitude fruits, such as apples, pears, and plums, grow in northern states including Washington, Michigan, Pennsylvania, and New York. Citrus fruits—lemons, oranges, and grapefruits—thrive in Florida, southern Texas, and southern California. Nuts grow on irrigated land in the Central Valley of California and in parts of southern California.