Rescuing the Recovery: Prospects and Policies for the United States

Dimitri Papadimitriou, Greg Hannsgen, Michalis Nikiforos and Gennaro Zezza

Economics Strategic Analysis Archive from Levy Economics Institute

Abstract: If the Congressional Budget Office's recent projections of government revenues and outlays come to pass, the United States will not grow fast enough to bring down the unemployment rate between now and 2016. The public sector deficit will decline from present levels, endangering the sustainability of the recovery. But as this new Strategic Analysis shows, a public sector stimulus of a little over 1 percent of GDP per year focused on export-oriented R and D investment would increase US competitiveness through export-price effects, resulting in a rise of net exports, and slowly lower unemployment to less than 5 percent by 2016. The improvement in net export demand would allow the US economy to enter a period of aggregate-demand rehabilitation—with very encouraging consequences at home.

Date: 2013-10
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