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Prospects and Policies for the U.S. Economy: Why Net Exports Must Now Be the Motor for U.S. Growth

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  • Wynne Godley
  • Alex Izurieta
  • Gennaro Zezza

Abstract

The US economy has grown reasonably fast since the second half of 2003 and the general expectation seems to be that satisfactory growth will continue more or less indefinitely. This paper argues that the expansion may, indeed, continue through 2004 and for some time beyond. But with the government and external deficits both so large and the private sector so heavily indebted, satisfactory growth in the medium term cannot be achieved without a large, sustained and discontinuous increase in net export demand. It is doubtful whether this will happen spontaneously and it certainly will not happen without a cut in domestic absorption of goods and services by the US which would impart a deflationary impulse to the rest of the world. We make no short term forecast. Instead, using a model rooted in a consistent system of stock and flow variables, we trace out a range of possible medium term scenarios in order to evaluate strategic predicaments and policy options without being at all precise about timing.

Suggested Citation

  • Wynne Godley & Alex Izurieta & Gennaro Zezza, 2004. "Prospects and Policies for the U.S. Economy: Why Net Exports Must Now Be the Motor for U.S. Growth," Economics Strategic Analysis Archive 04-7, Levy Economics Institute.
  • Handle: RePEc:lev:levysa:04-7
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    References listed on IDEAS

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    1. Peter Hooper & Karen H. Johnson & Jaime R. Marquez, 1998. "Trade elasticities for G-7 countries," International Finance Discussion Papers 609, Board of Governors of the Federal Reserve System (U.S.).
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    Cited by:

    1. James K. Galbraith, 2005. "Breaking out of the Deficit Trap: The Case Against the Fiscal Hawks ," Economics Public Policy Brief Archive ppb_81, Levy Economics Institute.
    2. Gustav A. Horn & Katharina Dröge & Simon Sturn & Till van Treeck & Rudolf Zwiener, 2009. "Von der Finanzkrise zur Weltwirtschaftskrise (III)," IMK Report 41-2009, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    3. Greg Hannsgen, 2007. "The Transmission Mechanism of Monetary Policy: A Critical Review," Chapters,in: A Handbook of Alternative Monetary Economics, chapter 13 Edward Elgar Publishing.
    4. Eleni Iliopulos & Marcus Miller, 2007. "UK External Imbalances and the Sterling: Are they on a Sustainable Path?," Open Economies Review, Springer, vol. 18(5), pages 539-557, November.
    5. Martín Redrado & Jorge Carrera & Diego Bastourre & Javier Ibarlucia (ed.), 2006. "The Economic Policy of Foreign Reserve Accumulation: New International Evidence," BCRA Paper Series, Central Bank of Argentina, Economic Research Department, number 02, December.
    6. Martín Redrado & Jorge Carrera & Diego Bastourre & Javier Ibarlucia, 2006. "The Economic Policy of Foreign Reserve Accumulation: New International Evidence," BCRA Working Paper Series 200614, Central Bank of Argentina, Economic Research Department.
    7. L. Randall Wray, 2004. "The Case for Rate Hikes: Did the Fed Prematurely Raise Rates?," Economics Public Policy Brief Archive ppb_79, Levy Economics Institute.
    8. Eleni Iliopulos & Marcus Miller, 2006. "Can Using Interest Rates to Check Domestic Demand Raise the Strength of the Sterling in the Long Run?," Documents de recherche 06-13, Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne.
    9. Nouriel Roubini, 2006. "The BW 2 regime: an unstable disequilibrium bound to unravel," International Economics and Economic Policy, Springer, vol. 3(3), pages 303-332, December.
    10. Korkut A. Erturk, 2005. "Is the Dollar at Risk?," Economics Policy Note Archive 05-3, Levy Economics Institute.
    11. Dimitri B. Papadimitriou & Greg Hannsgen & Michalis Nikiforos & Gennaro Zezza, 2013. "Rescuing the Recovery: Prospects and Policies for the United States," Economics Strategic Analysis Archive sa_oct_13, Levy Economics Institute.

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