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

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  • Philip Arestis
  • Elias Karakitsos

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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Bibliographic Info

Paper provided by Levy Economics Institute in its series Economics Working Paper Archive with number wp_378.

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Date of creation: May 2003
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Handle: RePEc:lev:wrkpap:wp_378

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  1. Bernanke, Ben & Gertler, Mark, 1989. "Agency Costs, Net Worth, and Business Fluctuations," American Economic Review, American Economic Association, American Economic Association, vol. 79(1), pages 14-31, March.
  2. Mayer, Colin, 1994. "The Assessment: Money and Banking: Theory and Evidence," Oxford Review of Economic Policy, Oxford University Press, Oxford University Press, vol. 10(4), pages 1-13, Winter.
  3. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, American Economic Association, vol. 71(3), pages 393-410, June.
  4. Bernanke, Ben S & Blinder, Alan S, 1988. "Credit, Money, and Aggregate Demand," American Economic Review, American Economic Association, American Economic Association, vol. 78(2), pages 435-39, May.
  5. Tobin, James, 1969. "A General Equilibrium Approach to Monetary Theory," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 1(1), pages 15-29, February.
  6. William C. Brainard & James Tobin, 1968. "Pitfalls in Financial Model-Building," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 244, Cowles Foundation for Research in Economics, Yale University.
  7. P. Arestis & E. Karakitsos, 2003. "How Far Can U.S. Equity Prices Fall Under Asset and Debt Deflation," Economics Working Paper Archive, Levy Economics Institute wp_368, Levy Economics Institute.
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Cited by:
  1. Yilmaz Akyuz, 2006. "From Liberalization To Investment and Jobs: Lost in Translation," Working Papers, Turkish Economic Association 2006/3, Turkish Economic Association.
  2. Yilmaz Akyuz, 2008. "Managing Financial Instability in Emerging Markets: A Keynesian Perspective," Working Papers, Turkish Economic Association 2008/4, Turkish Economic Association.

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