US Economy 2009
economy had had to adapt and change over the years. The country has moved from a nation where there were significant differences between the economic conditions as well as different policies which impact on the economic conditions of the states. A general trend over the last 200 years has been a movement away from manufacturing and towards white collar jobs, including high tech industries and the knowledge industries (Cadieux, 2009). The movement away from the manufacturing sectors has been caused by increased access to , were exporting countries, such as Mexico and China, have the benefit of comparative advantage.
The economy has shown some adaptability, as the shift from one sector has seen new sectors emerge and develop. The deindustrialization in the Northeast, which took place between the 1950s and 1960s, was also accompanied by increased activity in other sectors, such as universities and research which would help with the development of the in the area. Deindustrialization came to the Midwest later, between 1975 and 1985, when the comparative advantage of the imports reduced the demand for domestic goods and reduced the demand for labor; increasing unemployment. With firms under increasing pressure to reduce costs, many that did not leave the U.S. moved to the southern stated where labor costs were lower, partly due to lower welfare provision levels. Even the government leveraged the comparative advantage of the south with the placement of military expenditure. This period can be seen as the end of a business cycle, with the cycle with the depression or contraction stage, which then leads into expansion or growth stage.
The growth that followed was aided by the adaptability of the U.S. economy has been aided to a significant degree by the universities and the linkage between the universities and industry; where the former may develop innovations that can be leveraged by the latter. The government expenditure policies which and low expenditure placed the country in a strong position for growth; low taxes facilitated easier reinvestment and increased innovation lead to a boom period. Productivity in the 1990-2008 period may be attributed to the good growth conditions, and the creation of credit through a rapid cash flow cycle. The long-term growth also created a form of irrational optimism regarding the economic girth and length of the business cycle, during which the seeds of the next recession and depression were laid. The low level of government interference with business had also resulted in low levels of regulation in the financial services sector; which had been on of the services area that had grown. Lending had not been regulated and loans were made without sufficient checks and balances; especially in the subprime markets. Defaults on loans increased, and inline with any market, as the supply increases and the demand decreases for any goods, the real estate values dropped, and the value of security held by lending institutions fell to unsustainable levels. The problems of poor leading were proliferated across the financial markets with mortgage bonds containing toxic loans, and default swaps, where investors had decreased or worthless investments and insurance firms faced liabilities they could not meet. The overall impact was a negative pressure on growth; increasing interest rates decreased the available levels of disposable income, which decreased aggregate demand in the economy and increased unemployment, which further aggravated the situation, with fewer wages more firms and families could not afford to replay their loans with a negative cycle developing.
The lessons of the past had been learned, interventions with economic policies designed to help stimulate the economy and reduce the negative pressures or constraints were introduced; these included stimulus through government spending to help create jobs, intervention to support the markets, such as the nationalizing of Fanny Mae and Freddy Mac, support for specific industries that had been suffering, including the automotive industry and measure to support consumer confidence and spending, such as low taxes and low interest rates.
The policies which aimed to hasten the end of the depression and move the economy towards expansion appear to have worked. In the last quarter of 2013 the economy grew by 3.2% (Schwartz, 2014). The government deficit which was up to 10% in 2009 (Cadieux, 2009), which subsequently increased to 12% is now only a 4% deficit (Trading Economics, 2014), and unemployment is falling, in Jan 2014 it was 6.14% compared to 10% in 2009 (Trading Economics, 2014). Overall the economy is adapting and evolving, one may argue that earlier adaptations and a more forward looking approach may have prevented such a deep recession, especially in areas such as the automotive sector which had become uncompetitive and the financial sector where poor decisions were being made in an environment with weak regulation. However, with the contractions the market forces needed to create change manifested and the change has taken place.
Cadieux D, (2009), The U.S. Economy, 2009, Richard Ivey School of Business, 909M45
Schwartz, ND, (2014, Jan 30), Economy Is Expanding, but Obama’s Legacy May Be Slipping Away, The New York Times, accessed 3rd Feb 2014 from http://www.nytimes.com/2014/01/31/business/us-economy-grew-3-2-in-fourth-quarter.html?_r=0
Trading Economics, (2014), United States Government Budget, accessed 3rd Feb 2014 from http://www.tradingeconomics.com/united-states/government-budget
Trading Economics, (2014), United States Unemployment Rate, accessed 3rd Feb 2014 from http://www.tradingeconomics.