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The Conditions for Sustainable U.S. Recovery: The Role of Investment

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Author Info
Philip Arestis
Elias Karakitsos

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Abstract

The anemic U.S. economic recovery and the threat of a double-dip recession stem from the weakness of investment, due to excess capacity created in the euphoric years of the "new economy" bubble. The current imbalances in the corporate sector (i.e., the all-time-high indebtedness in the face of falling asset prices) are preventing investment from picking up and are laying the foundations for a new, long-lasting expansion. Tax reductions may create a cyclical upturn in the short run, and may promote the anemic recovery, but such stimulus to demand is unsustainable in the long run. The root of the problem is the imbalance in the corporate sector, which will take time for correction.

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Paper provided by Levy Economics Institute, The in its series Economics Working Paper Archive with number 378.

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Date of creation: May 2003
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Handle: RePEc:lev:wrkpap:378

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  4. R. Glenn Hubbard, 1998. "Capital-Market Imperfections and Investment," Journal of Economic Literature, American Economic Association, vol. 36(1), pages 193-225, March. [Downloadable!] (restricted)
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  5. William C. Brainard & James Tobin, 1968. "Pitfalls in Financial Model-Building," Cowles Foundation Discussion Papers 244, Cowles Foundation, Yale University. [Downloadable!]
  6. Mayer, Colin, 1994. "The Assessment: Money and Banking: Theory and Evidence," Oxford Review of Economic Policy, Oxford University Press, vol. 10(4), pages 1-13, Winter.
  7. P. Arestis & E. Karakitsos, 2003. "How Far Can U.S. Equity Prices Fall Under Asset and Debt Deflation," Economics Working Paper Archive 368, Levy Economics Institute, The. [Downloadable!]
  8. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June. [Downloadable!] (restricted)
  9. Tobin, James, 1969. "A General Equilibrium Approach to Monetary Theory," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 1(1), pages 15-29, February. [Downloadable!] (restricted)
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  1. Philip Arestis, Elias Karakitsos, . "Asset and Debt Deflation in the United States How Far Can Equity Prices Fall?," Economics Public Policy Brief Archive 73, Levy Economics Institute, The. [Downloadable!]
  2. Yilmaz Akyuz, 2006. "From Liberalization To Investment and Jobs: Lost in Translation," Working Papers 2006/3, Turkish Economic Association. [Downloadable!]
  3. Yilmaz Akyuz, 2008. "Managing Financial Instability in Emerging Markets: A Keynesian Perspective," Working Papers 2008/4, Turkish Economic Association. [Downloadable!]
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