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

  • Wynne Godley
  • Alex Izurieta
  • Gennaro Zezza

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.

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File URL: http://www.levyinstitute.org/pubs/stratan-jul-04.pdf
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Paper provided by Levy Economics Institute in its series Economics Strategic Analysis Archive with number 04-7.

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Date of creation: Jul 2004
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Handle: RePEc:lev:levysa:04-7
Contact details of provider: Web page: http://www.levyinstitute.org

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  1. Peter Hooper & Karen Johnson & Jaime 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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