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

Levy Economics Institute Working Paper No. 378

Posted: 15 Jul 2003

See all articles by Philip Arestis

Philip Arestis

University of Cambridge - Department of Land Economy; Universidad del País Vasco (UPV/EHU)

E. Karakitsos

Trafalgar Asset Managers Ltd.

Date Written: May 2003

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 foundation 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.

Keywords: sustainable recovery, investment, imbalance, corporate sector

JEL Classification: E22, E32, E37

Suggested Citation

Arestis, Philip and Karakitsos, E., The Conditions for a Sustainable U.S. Recovery: The Role of Investment (May 2003). Levy Economics Institute Working Paper No. 378. Available at SSRN: https://ssrn.com/abstract=414380

Philip Arestis (Contact Author)

University of Cambridge - Department of Land Economy ( email )

19 Silver Street
Cambridge, CB3 9EP
United Kingdom

Universidad del País Vasco (UPV/EHU)

Barrio Sarriena s/n
Leioa, Bizkaia 48940
Spain

E. Karakitsos

Trafalgar Asset Managers Ltd.

London
United Kingdom

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