The United States has the largest, most powerful economy of any single country in the world. Our gross domestic product – the value of all goods and services in the whole country – is more than double that of the next biggest economy, China. And the influence that the United States has on the world economy is huge. As economists like to say, when the U.S. sneezes, the world catches a cold.

The Wall Street credit crisis has just been the capper on a tough year for the economy. Rising gas prices have not only put the bite on drivers, they’re pushing up the cost of everything (because nearly everything you buy has to be shipped from somewhere). The crisis in the mortgage market has caused housing prices to plummet and foreclosures to rise. The stock market has taken a serious hit. And since a home is most Americans' most important asset, and many depend on stock saved in 401(k) plans for retirement, these are deeply personal matters for many people. Major financial firms like Lehman Brothers and Washington Mutual have gone under, while others like Bear Stearns and AIG only survived because of government bailouts.

Over the last few years the U.S. economy has outperformed much of the world, but more people are feeling the pain with both inflation and unemployment on the rise. Unemployment was at 6.1 percent in August (up from a 4.6 percent annual rate in 2007) and inflation so far this year has averaged 5.4 percent, compared to 2.8 percent in all of 2007. Productivity – basically a measure of how efficiently and effectively the economy is working -- has been rising steadily for decades.

There are two issues here, and political candidates sometimes mix them together. One is how to respond to some specific problems the country is facing right now, especially higher gas prices, problems caused by home foreclosures and an iffy stock market – in other words, how to head off a recession or at least make it less painful. The second issue is whether the U.S. economy, over the long term, is doing what most Americans want and expect from it.

Surveys show most Americans say the country is in a recession, but so far the situation doesn’t actually meet the definition used by many economists (a decline in the country’s gross domestic product for two quarters in a row). The economy actually grew in the first six months of 2008, partly because of the rebate checks the government sent out to goose the economy earlier in the year. Plus, it’s important to remember that recessions every once in a while are pretty much an economic fact of life. Since 1970, the U.S. has had five recessions lasting anywhere from six to 16 months. The government can ease the pain of a recession somewhat – maybe by cutting taxes or extending unemployment benefits – but the government can’t prevent it entirely.

Americans are borrowing more and saving less, and maybe that trend has finally started to bite us. The level of consumer debt has climbed dramatically over the last three decades, and the rate of individual savings has dropped. The federal government is as addicted to borrowing as everyone else, with the national debt at more than $9.5 trillion.

Now the underlying worry about the mortgage crisis and the "credit crunch" on Wall Street is that, after years of easy credit, we're overextended as a country. That means it'll be tougher for everyone to borrow for a mortgage or student loan, or to start a business. When credit dries up even for sound businesses, the economy slows down.

A bigger concern for many Americans are some of the long-term trends. Take income, for example. Income for the typical American family has increased slightly in the last three decades, but mainly because there are more families with both husband and wife working. Using figures adjusted for inflation, the median household income in 1979 was a little over $42,000. In 2006, it was about $48,000. But the average hourly wages for workers has actually fallen. In 1970, it was $8.45; in 2006, it was $8.32. Also, the gap between the income of the wealthiest Americans and the poorest Americans has increased since the early 1980s. Since 1975, most increases in household income have gone to Americans in the top 20 percent of households.

On top of this, the world economy is changing very quickly. The economies of China and India are growing very rapidly. The European Union is a friend, but an economic competitor as well. Many jobs can now basically be done anywhere on the globe. On the other hand, growing prosperity in developing countries means more consumers for the kinds of products and services the U.S. provides. The question of the hour is how to respond to the global economic challenge and at the same time build an economy that works well for the vast majority of Americans.

About 12 percent of Americans live below the poverty line, roughly 36 million Americans. That’s five million more than in 2000, but a smaller percentage than 15 years ago – and in the long run, far fewer than in the 1950s.

Sources: Income, Poverty and Health Insurance Coverage in the United States, U.S. Census Bureau; Overview of the U.S. Economy, Bureau of Economic Analysis; Monetary Policy and the Economic Outlook, July 2008, Federal Reserve Board; Bureau of Labor Statistics ; Business Cycle Expansions and Contractions, National Bureau of Economic Research