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Destabilizing an Unstable Economy

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  • Dimitri B. Papadimitriou
  • Michalis Nikiforos
  • Gennaro Zezza

Abstract

Our latest strategic analysis reveals that the US economy remains fragile because of three persistent structural issues: weak demand for US exports, fiscal conservatism, and a four-decade trend in rising income inequality. It also faces risks from stagnation in the economies of the United States' trading partners, appreciation of the dollar, and a contraction in asset prices. The authors provide a baseline and three alternative medium-term scenarios using the Levy Institute's stock-flow consistent macro model: a dollar appreciation and reduced growth in US trading partners scenario; a stock market correction scenario; and a third scenario combining scenarios 1 and 2. The baseline scenario shows that future growth will depend on an increase in private sector indebtedness, while the remaining scenarios underscore the linkages between a fragile US recovery and instability in the global economy.

Suggested Citation

  • Dimitri B. Papadimitriou & Michalis Nikiforos & Gennaro Zezza, 2016. "Destabilizing an Unstable Economy," Economics Strategic Analysis Archive sa_mar_16, Levy Economics Institute.
    • Handle: RePEc:lev:levysa:sa_mar_16
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    References listed on IDEAS

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    1. Dimitri B. Papadimitriou & Greg Hannsgen & Michalis Nikiforos & Gennaro Zezza, 2015. "Fiscal Austerity, Dollar Appreciation, and Maldistribution Will Derail the US Economy," Economics Strategic Analysis Archive sa_may_15, Levy Economics Institute.
    2. Congressional Budget Office, 2014. "The Budget and Economic Outlook: 2014 to 2024," Reports 45010, Congressional Budget Office.
    3. Robert N. McCauley & Patrick McGuire & Vladyslav Sushko, 2015. "Global dollar credit: links to US monetary policy and leverage," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 30(82), pages 187-229.
    4. Congressional Budget Office, 2014. "An Update to the Budget and Economic Outlook: 2014 to 2024," Reports 45653, Congressional Budget Office.
    5. Edward N. Wolff & Ajit Zacharias & Thomas Masterson, 2012. "Trends In American Living Standards And Inequality, 1959–2007," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 58(2), pages 197-232, June.
    6. Congressional Budget Office, 2014. "The Budget and Economic Outlook: 2014 to 2024," Reports 45010, Congressional Budget Office.
    7. Dimitri B. Papadimitriou & Michalis Nikiforos & Gennaro Zezza & Greg Hannsgen, 2014. "Is Rising Inequality a Hindrance to the US Economic Recovery?," Economics Strategic Analysis Archive sa_apr_14, Levy Economics Institute.
    8. Valentina Bruno & Hyun Song Shin, 2017. "Global Dollar Credit and Carry Trades: A Firm-Level Analysis," Review of Financial Studies, Society for Financial Studies, vol. 30(3), pages 703-749.
    9. Congressional Budget Office, 2014. "An Update to the Budget and Economic Outlook: 2014 to 2024," Reports 45653, Congressional Budget Office.
    10. Congressional Budget Office, 2014. "The Budget and Economic Outlook: 2014 to 2024," Reports 45010, Congressional Budget Office.
    11. Michalis Nikiforos, 2015. "A Nonbehavioral Theory of Saving," Economics Working Paper Archive wp_844, Levy Economics Institute.
    12. Wynne Godley, 1999. "Seven Unsustainable Processes: Medium-Term Prospects and Policies for the United States and the World," Economics Strategic Analysis Archive 99-10, Levy Economics Institute.
    13. Congressional Budget Office, 2014. "The Budget and Economic Outlook: 2014 to 2024," Reports 45010, Congressional Budget Office.
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    Citations

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    Cited by:

    1. Dimitri B. Papadimitriou & Michalis Nikiforos & Gennaro Zezza, 2019. "Can Redistribution Help Build a More Stable Economy?," Economics Strategic Analysis Archive sa_4_19, Levy Economics Institute.
    2. Michalis Nikiforos & Gennaro Zezza, 2017. "The Trump Effect: Is This Time Different?," Economics Strategic Analysis Archive sa_apr_17, Levy Economics Institute.
    3. Michalis Nikiforos, 2016. "Distribution-led Growth through Methodological Lenses," Economics Working Paper Archive wp_879, Levy Economics Institute.
    4. Flavia Dantas & L. Randall Wray, 2017. "Full Employment: Are We There Yet?," Economics Public Policy Brief Archive ppb_142, Levy Economics Institute.
    5. Michalis Nikiforos & Gennaro Zezza, 2018. "'America First,' Fiscal Policy, and Financial Stability," Economics Strategic Analysis Archive sa_apr_18, Levy Economics Institute.
    6. Dimitri B. Papadimitriou & Michalis Nikiforos & Gennaro Zezza, 2020. "Prospects and Challenges for the US Economy: 2020 and Beyond," Economics Strategic Analysis Archive sa_jan_20, Levy Economics Institute.
    7. Michaelis Nikiforos, 2018. "Distribution-led growth through methodological lenses," FMM Working Paper 24-2018, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    8. Jan Kregel, 2017. "The Concert of Interests in the Age of Trump," Economics Policy Note Archive 17-2, Levy Economics Institute.

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