Fiscal Austerity, Dollar Appreciation, and Maldistribution Will Derail the US Economy
In this latest Strategic Analysis, the Institute's Macro Modeling Team examines the current, anemic recovery of the US economy. The authors identify three structural obstacles--the weak performance of net exports, a prevailing fiscal conservatism, and high income inequality--that, in combination with continued household sector deleveraging, explain the recovery's slow pace. Their baseline macro scenario shows that the Congressional Budget Office's latest GDP growth projections require a rise in private sector spending in excess of income--the same unsustainable path that preceded both the 2001 recession and the Great Recession of 2007-9. To better understand the risks to the US economy, the authors also examine three alternative scenarios for the period 2015-18: a 1 percent reduction in the real GDP growth rate of US trading partners, a 25 percent appreciation of the dollar over the next four years, and the combined impact of both changes. All three scenarios show that further dollar appreciation and/or a growth slowdown in the trading partner economies will lead to an increase in the foreign deficit and a decrease in the projected growth rate, while heightening the need for private (and government) borrowing and adding to the economyâ€™s fragility.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Dimitri B. Papadimitriou & Greg Hannsgen & Michalis Nikiforos, 2013. "Is the Link between Output and Jobs Broken?," Economics Strategic Analysis Archive sa_mar_13, Levy Economics Institute.
- Dimitri B. Papadimitriou & Greg Hannsgen & Gennaro Zezza, 2012. "Back to Business as Usual? Or a Fiscal Boost?," Economics Strategic Analysis Archive sa_apr_12, Levy Economics Institute.
- 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.
- Michalis Nikiforos, 2013. "Employment Recovery? after the Great Recession," Economics Policy Note Archive 13-03, Levy Economics Institute.
- Fernando Rios-Avila & Julie L. Hotchkiss, 2014. "A Decade of Flat Wages?," Economics Policy Note Archive 14-4, Levy Economics Institute.
- 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.
When requesting a correction, please mention this item's handle: RePEc:lev:levysa:sa_may_15. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Marie-Celeste Edwards)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.