In the early decades of the 21st century, many different social, economic
and technological changes in the United States and around the world will
affect the U.S. economy. The population of the United States will become
older and more racially and ethnically diverse. The world population is
expected to continue to grow at a rapid rate, while the U.S. population
will likely grow much more slowly. World trade will almost certainly
continue to expand rapidly if current trade policies and rates of
economic growth are maintained, which in turn will make competition in
the production of many goods and services increasingly global in scope.
Technological progress is likely to continue at least at current rates,
and perhaps faster. How will all of this affect U.S. consumers,
businesses, and government?
Over the next century, average standards of living in the United States will almost certainly rise, so that on average, people living at the end of the century are likely to be better off in material terms than people are today. During the past century, the primary reasons for the increase in living standards in the United States were technological progress, business investments in capital goods, and people’s investments in greater education and training (which were often subsidized by government programs). There is no evident reason why these same factors will not continue to be the most important reasons underlying changes in the standard of living in the United States and other industrialized economies. A comparatively small number of economists and scientists from other fields argue that limited supplies of energy or of other natural resources will eventually slow or stop economic growth. Most, however, expect those limits to be offset by discoveries of new deposits or new types of resources, by other technological breakthroughs, and by greater substitution of other products for the increasingly scarce resources.
Although the U.S. economy will likely remain the world’s largest national economy for many decades, it is far less certain that U.S. households will continue to enjoy the highest average standard of living among industrialized nations. A number of other nations have rapidly caught up to U.S. levels of income and per capita output over the last five decades of the 20th century. They did this partly by adopting technologies and business practices that were first developed in the United States, or by developing their own technological and managerial innovations. But in large part, these nations have caught up with the United States because of their higher rates of savings and investment, and in some cases, because of their stronger systems for elementary and secondary education and for training of workers.
Most U.S. workers and families will still be better off as the U.S.
economy grows, even if some other economies are growing faster and
becoming somewhat more prosperous, as measured per capita. Certainly
families in Britain today are far better off materially than they were
150 to 200 years ago, when Britain was the largest and wealthiest economy
in the world, despite the fact that many other nations have since
surpassed the British economy in size and affluence.
A more important problem for the U.S. economy in the next few decades is
the unequal distribution of gains from growth in the economy. In recent
decades, the wealth created by economic growth has not been as evenly
distributed as was the wealth created in earlier periods. Incomes for
highly educated and trained workers have risen faster than average, while
incomes for workers with low levels of education and training have not
increased and have even fallen for some groups of workers, after
adjusting for inflation. Other industrialized market economies have also
experienced rising disparity between high-income and low-income families,
but wages of low-income workers have not actually fallen in real terms in
those countries as they have in the United States.
In most industrialized nations, the demand for highly educated and trained workers has risen sharply in recent decades. That happened in part because many kinds of jobs now require higher skill levels, but other factors were also important. New production methods require workers to frequently and rapidly change what they do on the job. They also increase the need for quality products and customer service and the ability of employees to work in teams. Increased levels of competition, including competition from foreign producers, have put a higher premium on producing high quality products.
Several other factors help explain why the relative position of low-
income workers has fallen more in the United States than in other
industrialized Western nations. The growth of college graduates has
slowed in the United States but not in other nations. United States
immigration policies have not been as closely tied to job-market
requirements as immigration policies in many other nations have been.
Also, government assistance programs for low-income families are usually
not as generous in the United States as they are in other industrialized
nations.
Changes in the make-up of the U.S. population are likely to cause income
disparity to grow, at least through the first half of the 21st century.
The U.S. population is growing most rapidly among the groups that are
most likely to have low incomes and experience some form of
discrimination. Children in these groups are less likely to attend
college or to receive other educational opportunities that might help
them acquire higher-paying jobs.
The U.S. population will also be aging during this period. As people born
during the baby boom of 1946 to 1964 reach retirement age, the percentage
of the population that is retired will increase sharply, while the
percentage that is working will fall. The demand for medical care and
long-term care facilities will increase, and the number of people drawing
Social Security benefits will rise sharply. That will increase pressure
on government budgets. Eventually, taxes to pay for these services will
have to be increased, or the level of these services provided by the
government will have to be cut back. Neither of those approaches will be
politically popular.
A few economists have called for radical changes in the Social Security
system to deal with these problems. One suggestion has been to allow
workers to save and invest in private retirement accounts rather than pay
into Social Security. Thus far, those approaches have not been considered
politically feasible or equitable. Current retirees strongly oppose
changing the system, as do people who fear that they will lose future
benefits from a program they have paid taxes to support all their working
lives. Others worry that private accounts will not provide adequate
retirement income for low-income workers, or that the government will
still be called on to support those who make bad investment choices in
their private retirement accounts.
Political and economic events that occur in other parts of the world are felt sooner and more strongly in the United States than ever before, as a result of rising levels of international trade and the unique U.S. position as an economic, military, and political superpower. The 1991 breakup of the Union of Soviet Socialist Republics (USSR)—perhaps the most dramatic international event to unfold since World War II—has presented new opportunities for economic trade and cooperation. But it also has posed new challenges in dealing with the turbulent political and economic situations that exist in many of the independent nations that emerged from the breakup . Some fledgling democracies in Africa are similarly volatile.
Many U.S. firms are eager to sell their products to consumers and firms in these nations, and U.S. banks and other financial institutions are eager to lend funds to support investments in these countries, if they can be reasonably sure that these loans will be repaid. But there are economic risks to doing business in these countries, including inflation, low income levels, high crime rates, and frequent government and company defaults on loans. Also, political upheavals sometimes bring to power leaders who oppose market reforms.
The greater political and economic unification of nations in the European
Union (EU) offers different kinds of issues. There is much less risk of
inflation, crime, and political upheaval to contend with in this area. On
the other hand, there is more competition to face from well-established
and technologically sophisticated firms, and more concern that the EU
will put trade barriers on products produced in the United States and in
other countries that are not members of the Union. Clearly, the United
States will be concerned with maintaining its trading position with those
nations. It will also look to the EU to act as an ally in settling
international policies in political and economic arenas, such as a peace
initiative in the Middle East and treaties on international trade and
environmental issues.
The United States has other major economic and political interests in the
Middle East, Asia, and around the world. China is likely to become an
even larger trading partner and an increasingly important political power
in the world. Other Asian nations, including Japan, Korea, Indonesia, and
the Philippines, are also important trading partners, and in some cases
strong political and national security allies, too. The same can be said
for Australia and for Canada, which has long been the largest single
trading partner for the United States. Mexico and the other nations of
Central and South America are, similarly, natural trading partners for
the United States, and likely to play an even larger role over the next
century in both economic and political affairs.
It may once have been possible for the United States to practice an isolationist policy by developing an economy largely cut off from foreign trade and international relations, but that possibility is no longer feasible, nor is it advisable. Economic and technological developments have made the world’s nations increasingly interdependent.
Greater world trade and cooperation offer an enormous range of mutually
beneficial activities. Trading with other countries inevitably increases
opportunities for travel and cultural exchange, as well as business
opportunities. In a very broad sense, nations that buy and sell goods and
services with each other also have a greater stake in other forms of
peaceful cooperation, and in seeing other countries prosper and grow.
On the other hand, global interdependence also raises major problems—political, economic, and environmental—that require international solutions. Many of these problems, such as pollution, global warming, and assistance for developing nations, have been controversial even when solutions were discussed only at the national level. Often, controversy increases with the number of nations that must agree on a solution, but some problems require global remedies. Such problems will challenge the productive capacity of the U.S. economy and the wisdom of U.S. citizens and their political leaders.
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