State of the Economy, Essay Example

U.S. economy is based on the principles of free market capitalism according to which private sector is more efficient at utilizing scarce economic resources. The free market capitalism also believes that letting the private sector freely carry out its economic transactions results in a more prosperous society with higher average quality of life standards. The government’s role is to ensure that the competition remains alive and businesses do not engage in unethical behavior. But it could be argued that the U.S. in not purely capitalist economy if the government actions during the Great Depression as well as the recent financial crisis are any indication. The free market capitalist system lets inefficient businesses fail but during both crises, the government did come to the rescue of the private sector through economic bail-out. Some believe that markets do not always act logically as the capitalist theory implies, thus, minimum government intervention in market affairs is necessary for capitalism to function properly. The first U.S. President to adopt this position was arguably Franklin D. Roosevelt (Foner). As far as the current state of the U.S. economy is concerned, there have been some improvements since the financial crisis but the recovery process has been slow.

The U.S. is primarily a services-intensive economy now as compared to manufacturing. The U.S. is the world’s largest economy with a GDP of $15.29 trillion as of 2011. During the same period, 79.6 percent of the country’s GDP was being generated by the services factor while manufacturing contributed a little over 19 percent. In 2011, the country’s per capita GDP was $49,000 which is a slight improvement over $47,400 in 2009 and $48,500 in 2010. The U.S. per capita GDP is impressive given its population of approximately 314 million people (Central Intelligence Agency). The improvement in GDP is not surprising as the U.S. Department of Treasury reported earlier this year that private sector employment has grown for 23 straight months and the economy has grown for ten straight quarters in terms of real GDP. The growth in economy in terms of real GDP also means the country’s production possibility curve has been moving to the right. But at the same time government employment has also declined due to budget cuts (U.S. Department of Treasury) which means that despite large government spending through stimulation programs, the recovery is still largely being led by the private sector. There still needs to be done much to reduce unemployment rate which stood at 8.2 percent as of June 2012 (OANDA). U.S. is also one of the most innovative countries in the world in terms of technology and often leads the world in the adoption of new technologies at both consumer and corporate levels. The country has the second largest industrial output in the world (Central Intelligence Agency).

As far as U.K. is concerned, the country is also primarily services-intensive economy just like the U.S., with 77.8 percent of the GDP being generated by the services sector. U.K. was the world’s ninth largest economy as of last year with a GDP of $2.29 trillion. The country’s population was a little over 63 million while its per capita GDP stood at $36,600 in 2011. The per capita GDP was unchanged from the previous year i.e. 2010 which means the recovery in the U.K. economy has been slower than in the U.S. U.K’s unemployment root stood at 8.1 percent in May 2012 and was a decline of 10 percent over the previous month. The U.K’s GDP declined by 0.7 percent in Q2 of 2012 as compared to the previous quarter (OANDA)while the U.S. GDP has continued to grow for more than two years now.

The U.S. economic outlook is better than the U.K. First of all, U.K. is also being affected by the uncertainty surrounding the European Union. In addition, while the U.S. is enjoying slow recovery though not at a satisfactory pace, the recessionary concerns continue to persist in the U.K. By looking at U.K.’s quarterly GDP growth rates over the last few quarters, it is apparent that even when there were positive quarterly GDP growth periods, the actual growth rate often lagged behind the figures in the U.S. during the same period. (BBC). It was recently reported in the financial times that the U.K. economy is smaller than when the current Prime Minister David Cameron assumed office (O’Connor and Cohen) which means the country production possibility curve might have shifted inward. Unlike the U.S. where Obama Administration increased government spending to boost economic activity as well as employment levels, U.K.’s Cameron Administration took the opposite approach by scaling back government spending (O’Connor and Cohen) which is being blamed by some to further worsen the economic problems. The economists in the U.K. even fear that the country may actually suffer from the longest double-dip recession in half a century later this year (Wearden). Thus, it is clear that while the main concern in the U.S. is to get back to pre-crisis economic state, the U.K. continues to have serious concerns of negative quarterly GDP growth rates even today.

References

BBC. GDP figures to reveal UK economy recession status. 25 April 2012. 25 July 2012 <http://www.bbc.co.uk/news/business-17821436>.

Central Intelligence Agency. North America: United States. 25 July 2012 <https://www.cia.gov/library/publications/the-world-factbook/geos/us.html>.

Foner, Eric. “Franklin D. Roosevelt, “Greater Security for the Average Man” (1934).” Voices of Freedom. W.W. Norton Company, Inc., n.d. 172-173.

OANDA. U.S. Economic Statistics. 25 July 2012 <http://fxtrade.oanda.com/analysis/economic-indicators/homepage>.

UK Economic Indicators. 25 July 2012 <http://fxtrade.oanda.com/analysis/economic-indicators/united-kingdom>.

O’Connor, Sarah and Norman Cohen. UK economy smaller than when Cameron took office. 25 July 2012. 25 July 2012 <http://www.ft.com/intl/cms/s/0/4d4586da-d634-11e1-ba60-00144feabdc0.html#axzz21gAO305C>.

U.S. Department of Treasury. The U.S. Economy in Charts. February 2012. 25 July 2012 <http://www.treasury.gov/resource-center/data-chart-center/Documents/20120229_EssentialEcon.PDF>.

Wearden, Graeme. Shock figures show UK economy plunged 0.7% in second quarter –. 25 July 2012. 25 July 2012 <http://www.guardian.co.uk/business/2012/jul/25/eurozone-crisis-uk-gdp-recession#block-500fa00b95cbf53ae8fb1395>.