The Beginner’s Guide to the American Economy
I have found that there is still a lot of confusion, particularly in my own age group, surrounding certain aspects of how our economy works. Kicking it back to 12th grade AP Government class, I decided I’d put together an unbiased guide, of sorts, that touches briefly on various elements of the American economy. Here goes!
The United States economy is mixed with elements of capitalism, which is a term formulated by social theorist Karl Marx. Capitalism is a system where a small group controls the majority of the money, with the power concentrated firmly in their hands. Maximized profits are the aim in a capitalist society, with a capitalist government generally in favor of lax business regulations and turning a blind eye to corporate crime.
Some European countries, such as Sweden, operate under a socialist economy, where an equal distribution of resources prioritizes the needs of citizens before profits. A common criticism of socialism ties into its most radical form: communism, where personal freedom and private property are under the state’s ownership.
Capitalist and socialist countries have risen and fallen throughout history, making it apparent that corruption and misdeeds can undo a country, regardless of its economic ideology. When capitalism favors the small group in power too much, the population majority can suffer from depleted resources and a lack of growth. When socialism puts too much power into the state, stifling personal freedom, ingenuity can be thrown out the window.
The American economy provides a good look at the pros and cons of a mixed economy that incorporates both free markets and government control, illustrating insightful examples of how the economy works, as well as the obligations of citizens within that economy.
The Power of Natural Resources
In the up-and-down history of humanity, natural resources have been a staple in the exchange of goods. It seems fair that each section of the world has their specialties, whether it’s a plethora of trees that produce paper or excellent soil for growing fruits and vegetables. The United States, with its fertile soil and moderate climate, touts a substantial number of natural resources. The ample coastlines also help, with the ocean ripe with resources. Additionally, the United States’ location on both the Atlantic and the Pacific oceans — as well as easy access to Canada, South America and Europe — makes trading easy.
Natural resources are a pivotal factor regarding economic growth. The United States is fortunate, with an ample number of various resources.
A Growing Labor Force
Labor in the American economy tends to fluctuate, with periods of high unemployment mixed with more prosperous times. The past century has seen an amazing number of immigrants, starting businesses and offering able labor. Their hardworking, multicultural experience combines with America’s longtime penchant for hard work — propelled by the early frontier days — to result in a labor force that’s both industrious and ingenious.
Even as a faltering contemporary administration attempts to put a hold on immigration, having migrant workers in our country helps it to prosper and become more culturally diverse to this day.
The American government has oft championed the prospect of an “American dream” to inspire a strong drive among its labor force. To avoid corruption, the labor movement and introduction of unions have made labor rights stronger than ever in the U.S., although there is arguably still room to improve in this area.
Corporations: Organizing Natural Resources and Labor
America relies on a top-down chain of command for most positions, from big-time Wall Street gigs to part-time fast-food jobs. This structure of hierarchy often rides on people who excel at management and task division. Still, the past few decades have seen America value more unconventional forms of command chains, as evidenced in places like Silicon Valley, where technological skill and innovative office settings have resulted in a unique market that attracts Americans and immigrants alike.
Regardless of the hierarchy method, a capitalist society like America relies on corporations to manage the flow of natural resources or provide services within their labor force, while also raising capital by selling stock to banks, individuals, insurance companies and others run by the small, powerful group mentioned in the first paragraph. Everyone profits in some way — though certainly the corporations, government and investors prosper ahead of the labor force.
Taxes, Stocks, Bonds, Investing and More as an American
Americans experience economic freedom regarding where they want to invest their money, whether safely in their bank accounts, or with a high-upside — though risky — proposition, such as investing. Of course, everyone also has to pay taxes on any earnings. Assuming you are an American under the age of 65 and earned more than $10,350 in a given year, you must pay taxes.
The taxes you pay are essentially an investment in the economy, with the tax money going to the government, which then feeds it into public services, roads and general development. Taxes are generally seen as a pain, though at least you’re able to file them online now. Everyone pays different tax rates, based on things like income, marital status, the number of dependents, state they’re living in and more. Many people pay taxes on a yearly basis, though many businesses and self-employed individuals do so on a quarterly basis as well.
General investments, such as stocks and bonds, are an option for those with money to spend, to try to get a return on their investment. You can purchase “shares” in stocks, which is equity in a company. When you own a share, you technically own a small part of the company. The revenue from shares allows many businesses to operate on a more flexible level. Stocks help boost the economy this way, by benefiting both companies and investors, though with a share of risk. Another potential way to bank some extra money is to invest in valued currencies, such as gold.
If you own a bond, you own part of debt. Companies can issue bonds, especially if they are seeking to pay a certain amount of money. For example, a company can issue a bond at $800 with a face value of $1,100, with a semiannual coupon of $50. With this, you get paid $50 twice a year as long as you have the bond, while also receiving $1,100 in 10 years, when the bond reaches maturity.
Both stocks and bonds are ways to help the economy by aiding businesses in need of capital, while simultaneously providing investors with an opportunity to get a nice return on their investment. Profits in these forms are then funneled back into the economy, as people spend on other businesses and goods.
The American economy, like many economies, runs on the organization of labor and resources, with a mixture of free-market and government control. Investment opportunities like stocks and bonds provide a way for people to gain a positive return on investment, while also injecting into the economy. The American economy works, for the most part, even in the present state of turmoil where governmental incompetence and greed often rear their ugly heads.