The American Economy: The Story of Resilience, Recuperative Powers and Solidarity

Did you know that the United States of America is the world's largest economy, with a GDP of USD 21.4 trillion in 2019? In fact, the GDP of this nation alone is greater than the combined GDP of several countries at the top of the economic ladder, such as India, Japan, Canada, and the UK combined! Additionally, the US holds the No.1 rank in terms of GDP by a significant margin - it is USD 7.5 trillion ahead of China, No.2 globally. Accounting for a whopping 47% of the USA’s total GDP are the industries of healthcare, technology, construction, retail, and non-durable manufacturing!

USA is the world's third-largest exporter, primarily of products of the pharmaceutical and automotive industry. The above account for about 13% of the net GDP of the country, and enable it to be the second-largest importer of goods. The US imported USD 2.82 trillion worth of goods and services in 2020, a massive amount, but still a drop from 2019.

With the estimate of total government spending in 2020 to be USD 6.55 trillion, social security is the single most oversized obligatory spending item, accounting for 38% of overall government spending. The following highest spending categories are Medicare and Social Security, above Medicaid, the Veterans Benefits, and other programmes. The US government reported a USD 3.1 trillion deficit in the fiscal year of 2020, more than double the fiscal year of 2019. This year's GDP deficit was 15.2%, the highest since 1945. Indeed, the US national debt is at an all-time high, and it is not likely to start shrinking anytime soon, either, as the Congressional Budget Office expects the annual deficit to be average USD 1.2 trillion - that is, roughly 4% of the annual GDP. The only two other times the US saw such a dramatic increase was right after World War II, and during the financial crisis of 2008.

The United States' monetary policies attempt to manage the economy by regulating the money supply. Managed by the Federal Reserve System (FED), the nation’s central bank, it seeks to manage inflation and unemployment by making monetary changes. For example, when the economy is doing well, the government may boost interest rates to keep inflation under control.

Prior to the pandemic, unemployment was at a 50-year low, and inflation was below the FED's 2% objective. However, because a large section of the US economy was closed, real GDP growth plummeted by an astonishing 31% in the second quarter. The last time such figures were seen was during the Great Depression of the 1930s! Could such a drastic drop now warn the globe that even the strongest economies may still be prone to collapse?

Unemployment reached nearly 15% in early 2020, the highest percentage since the post-World War II era. Despite falling for five months in a row, the rate is still significantly above its February figure of 3.5%. Consumer spending is the main booster of the US economy as when customers spend money, businesses prosper and the economy benefits. Unfortunately, there are currently 6.8 million more people out of a job than there were a year ago, primarily due to lockdowns and the shutdown of non-essential services as a result of the COVID-19 pandemic.

Consequently, many businesses have gone out of business, leaving their employees to seek new employment, especially after March 2020. More people looking for fewer positions may result in a labour market that benefits the employer and impedes wage increases. Should these changes influence the future in the coming years, or should we return to how life was before the horrifying impact of the pandemic?

Nevertheless, since the advent of Biden's policies, a sign towards recovery is the USD 1.9 Trillion COVID-19 stimulus check, aimed to provide USD 1,400 in cash to most American households. This policy would focus on expanding the child tax credit, relaxing the stress on rental and utility assistance with state, local, and tribal relief, and in all, amounting to a staggering USD 395 Billion. Quoted to "rebuild the backbone of the country", the stimulus makes healthcare more affordable, allows businesses to enjoy tax cuts to keep them running, and simultaneously fund the government’s universal vaccination programme. While this may seem a bold approach to rebuilding the economy, many members of the Republican Party (GOP) and business groups including the Chamber for Commerce claim that the increased benefits are causing employment strain in industries such as hotels and restaurants, which in turn causes many such firms to increase incentives to attract labour. Perhaps this move would be seen by the public as compensation for the substantial portion of the American population that struggled financially this past year? Or perhaps none can truly say, due to the unforeseeable nature of the future. However, one thing is certain - tens of thousands are, at long last, getting their much-needed, long-awaited relief.

Before the horrifying impacts of the pandemic, The US was on the verge of breaking its economic expansion record, with a streak of more than eight years of consistent economic growth. Recovering gradually from the Great Recession, the economy climbed until 2020, where US stocks plummeted to 37% in March of 2020. With the advent of President Biden's economic relief plans, will the American Economy be able to restore its former economic prowess, or has the clock simply run out for the world’s largest capitalist democracy?

Written By: Kamya Someshvar, Arshad Shiju, Mannat Sachdeva, Ishita Bisen

Edited By: Yashas Ramakrishnan