The History of the American Economy: From Zero to One of the Largest Economies in the World Essay

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Introduction

Economy is defined as the activities surrounding the production and distribution of goods and services in a given geographical area. The Gross Domestic Product (GDP) is the measuring index for economies. Under this measure, the United States of America is the single largest country economy and is about a quarter of the world’s economy according to the CIA World Fact book. Although the democrats and the republican are differently opinionated over decisions on the economy, they both ultimately aim to improve it and the differences are just politics.

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History

Right from the formation the first federal government of the George Washington in the late 1700s, divisions on how to best run the economy emerged. Prominent differences were between the then Secretary of treasury Alexander Hamilton, a republican federalist, and Secretary of state Thomas Jefferson a democratic federalist.

Hamilton made several proposals to Congress to curtail the financial strain and to boost the struggling economy. Although these were passed, they were opposed by the Jefferson’s group. To begin with, all debts from issuing of bonds to both foreign and domestic holders were paid off. The federal government then assumed individual state debts. In so doing, creditors were now required to deal with the national government. This move was intended to increase the individual state’s obligations to the federal government. Hamilton further proposed to Congress that the Bank of the United States be created. This is what is today referred to as the Federal Reserve (Oates et al. 109). During that period, Congress had no constitutional authority to ratify a charter for the establishment of a bank. It however had authority to do anything “necessary and proper” to carry out its delegated duties (Berkin et al. 218). The constitution therefore implied Congress could establish a bank (Billington, 94). Jefferson opposed this on the grounds that it was unconstitutional and therefore illegal with support from James Madison, a prominent democrat. The banks’ purpose was to handle repository of national assets, issue paper money based on assets and source investment capital (Hofstadter 56).

Current economic situation

The current controversy over the U.S economy within the political cycles is the U.S budget. Issues around it include the bail out packages that were handed out in the midst of the financial meltdown, and the proposed taxation methods. Differences also emerge in the priority of expenditure. The democrats and the republicans, like on many other issues such as health and foreign policies, have taken different stands on the economy. It all started with the crash of the housing markets. Like the great depression, over speculation by financial institutions on high risk loans after decades of relative stability finally collapsed. These loans were invested mainly in real estate and in the stock market due to the high returns. When no one bought stocks and the houses anymore, the banks simply had no money to lend out or give the customers who had deposited it. The customers lost, businesses were affected and the entire economy went down. Several measures to improve the situation have been differed on by the democrats and republicans, but either way implemented by the current government. As it stands the economic situation is at odds with historical conventional suppositions of recession and boom. The stock market still shakily fluctuates from the recent crushes it has faced. Consumer confidence is low although unemployment figures are beginning to skew positively. Retirement funds are jeopardized although the economy does not seem to be shrinking. The government is facing large budgetary deficits yet it must allocate huge amounts for both the Iraq and Afghanistan wars. A wish to lower income taxes by Americans is a welcome to stimulate the economy, but the overwhelming deficit should be reduced in order to have a healthier economy.

It is worth mentioning that, the government is currently run by the democrats and the republicans are in opposition. Also that, the current economic crisis started when the republicans were in the government and the democrats in opposition. Now, the two groups take different views on how the economic situation should be handled.

Republicans

As outlined by the Republican National Committee (2008, Economic section, para. 2-15) in the party’s official website, the republicans take on the economy in a nutshell is to save every government penny available. It is on the basis of saving all you have to improve economically. They have discuss a number of measures to achieve this.

The republicans propose lowering of taxes paid by everyone so that people can keep more of the salary they earn. These include taxes on internet access and on new cell phones. They also propose scrapping off of the federal death tax while supporting tax credits on healthcare and medical expenses. In addition, republicans seek to do away with the Alternative Minimum Tax which is argued to be a burden on large families. All this is perceived by republicans to enhance individual savings improving their economy and the nation’s economy as a whole.

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The republican do propose increase of small businesses through out the nation. This they hope to achieve by reducing the energy costs through better delivery structures and improved efficiency in the energy sector operations. The tax reduction aforementioned increases savings and hence availability of capital for starting the small businesses. They also propose increased marketing of American products to foreign markets enhancing growth of the small scale businesses. The republicans want improved regulation of small businesses. Instituting legal reforms that protect small businesses from frivolous law suits is another strategy of improving this.

Other ways the republicans suggest for improving the economy include: improving technology and innovation, developing a flexible and innovative workforce. This they view will keep America ahead and attract professional expertise. Protecting union workers and reforming the civil justice system is another of the ways enhancing economic performance.

Democrats

The democrats’ view of solving the economic problem is to spend what they have in order to make the situation better now while embarking on the long term improvements. In the Democratic Party website by the Democratic National Committee (2010, Economic section, para. 1-14), they propose several measures under economic stewardship aimed at attaining a healthy U.S economy. The key component in this roadmap is the economic stimulus package. It is an effort by the government to inject money into the economy and encourage consumers to spend so that growth can be achieved.

As discussed in the New York Times (2010, Business section, para. 2-5), the $787 billion stimulus package approved by Congress on February 11, 2009 has so far been spent on several institutions in different sectors of the economy. No republican voted for the bill in the house and only three did in the Senate. The money bailed out: Lehman brothers and Bear Stearns, Merrill Lynch and Freddie Mac, AIG, GM, Chevrolet and Ford Motors among other financial and industrial institutions. The reason behind the expenditure by democrats is that, the economic repercussions of such institutions failing are more severe. While by November of last year several people agreed that the stimulus package was working, unemployment rates continued to increase. A further $15 billion bill of payroll tax exemption was passed to help reduce this figure. This kind of spending by the democrats has gone on in different sectors of the U.S economy in an attempt to revive it.

Other areas through which the democrats hope to improve the economy include increasing tax on people with higher income but not those with low income. Investing in alternative energy that is cheap and environmentally friendly is another means of attaining this. The democrats propose reforms on health care that they believe will make it less costly. In so doing they ease the average citizens’ economic burden and thus improve their economic standard. The bill is still in the house. There are long term plans to lower the cost of college education to have a more skilled workforce. There are also plans of increasing international trade to benefit U.S firms and focusing on innovation and technology.

Conclusion

Both the democrats and the republicans focus on the same subjects in the quest for strategies of improving the economy. These include taxes, energy, spending strategies, international trade among others. In both cases the strategies would work each with its pros and cons and culminates into an improved economy. The current economic situation the United States is facing is a glimpse to the scarcity of resources it possesses like any other country and the fact that no decision occurs without a component cost. Politics therefore creates the differences on which way to take in improving the economy. Had the republicans or the independents been elected to power, the economy would have still improved as it is doing now.

Works Cited

Billington, Ray A. American History Before 1877. Maryland: Littlefields, 1965. Print.

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Berkin, Carol, et al. Making of America. Boston: Houghton Mifflin, 1995. Print.

Democratic National Committee. ‘’ Economy’’ American Dream. Aug. 2009. Web.

Hofstadter, Richard. The American Political Tradition: and the Men Who Made It. Canada: McClelland, 1948. Print.

Oates, Stephen, et al. Portrait of America. Connecticut: Wadsworth, 2007. Print.

Republican National Committee. ‘’ Economy’’. 2008 Republican Platform . Web.

The New York Times. ‘’ Economic Stimulus’’. Times Topics. 2010. Web.

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IvyPanda. (2021) 'The History of the American Economy: From Zero to One of the Largest Economies in the World'. 9 December.

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IvyPanda. 2021. "The History of the American Economy: From Zero to One of the Largest Economies in the World." December 9, 2021. https://ivypanda.com/essays/the-history-of-american-economy/.

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IvyPanda. "The History of the American Economy: From Zero to One of the Largest Economies in the World." December 9, 2021. https://ivypanda.com/essays/the-history-of-american-economy/.

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