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The Developing U.S. Recession and Guidelines for Policy

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  • Wynne Godley
  • Alex Izurieta

Abstract

The United States should now be prepared for one of the deepest and most intractable recessions of the post-World War II period, with no natural process of recovery in prospect unless a large and complex reorientation of policy occurs both here and in the rest of the world. The grounds for reaching this somber conclusion are that very large structural imbalances, with unique characteristics, have been allowed to develop. These imbalances were always bound to unravel at some stage, and it now looks as though the unraveling is well under way. There may be no spontaneous recovery because the unraveling that has started is a reversion toward what, in the relevant sense, is a normal situation. This consideration leads us to take issue with some distinguished commentators, such as Alan Blinder (2001) and Laura Tyson (2001), who apparently assume that because a spontaneous recovery will occur relatively soon, any fiscal relaxation should be temporary. The general predicament is made worse by a deteriorating world economy; U.S. exports fell sharply in the first seven months of 2001, when the balance of payments was already heavily in deficit.

Suggested Citation

  • Wynne Godley & Alex Izurieta, 2001. "The Developing U.S. Recession and Guidelines for Policy," Economics Strategic Analysis Archive 01-10, Levy Economics Institute.
    • Handle: RePEc:lev:levysa:01-10
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    References listed on IDEAS

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    1. Wynne Godley & George McCarthy, 1998. "Fiscal Policy Will Matter," Challenge, Taylor & Francis Journals, vol. 41(1), pages 38-54, January.
    2. 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.
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    Cited by:

    1. Alex Izurieta & Terry McKinley, 2006. "Addressing Global Imbalances: A Development-Oriented Policy Agenda," Working Papers 23, International Policy Centre for Inclusive Growth.
    2. Wymme Godley & Alex Izurieta, 2009. "The US economy: weaknesses of the "strong" recovery," PSL Quarterly Review, Economia civile, vol. 62(248-251), pages 93-101.

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