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'America First,' Fiscal Policy, and Financial Stability

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  • Michalis Nikiforos
  • Gennaro Zezza

Abstract

The US economy has been expanding continuously for almost nine years, making the current recovery the second longest in postwar history. However, the current recovery is also the slowest recovery of the postwar period. This Strategic Analysis presents the medium-run prospects, challenges, and contradictions for the US economy using the Levy Institute's stock-flow consistent macroeconometric model. By comparing a baseline projection for 2018–21 in which no budget or tax changes take place to three additional scenarios, the authors isolate the likely macroeconomic impacts of: (1) the recently passed tax bill; (2) a large-scale public infrastructure plan of the same "fiscal size" as the tax cuts; and (3) the spending increases entailed by the Bipartisan Budget Act and omnibus bill. Finally, Nikiforos and Zezza update their estimates of the likely outcome of a scenario in which there is a sharp drop in the stock market that induces another round of private-sector deleveraging. Although in the near term the US economy could see an acceleration of its GDP growth rate due to the recently approved increase in federal spending and the new tax law, it is increasingly likely that the recovery will be derailed by a crisis that will originate in the financial sector.

Suggested Citation

  • Michalis Nikiforos & Gennaro Zezza, 2018. "'America First,' Fiscal Policy, and Financial Stability," Economics Strategic Analysis Archive sa_apr_18, Levy Economics Institute.
  • Handle: RePEc:lev:levysa:sa_apr_18
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    References listed on IDEAS

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    1. Dimitri B. Papadimitriou & Michalis Nikiforos & Gennaro Zezza, 2016. "Destabilizing an Unstable Economy," Economics Strategic Analysis Archive sa_mar_16, Levy Economics Institute.
    2. Dhammika Dharmapala & C. Fritz Foley & Kristin J. Forbes, 2011. "Watch What I Do, Not What I Say: The Unintended Consequences of the Homeland Investment Act," Journal of Finance, American Finance Association, vol. 66(3), pages 753-787, June.
    3. L. Randall Wray, 2018. "Does the United States Face Another Minsky Moment?," Economics Policy Note Archive 18-1, Levy Economics Institute.
    4. Flavia Dantas & L. Randall Wray, 2017. "Full Employment: Are We There Yet?," Economics Public Policy Brief Archive ppb_142, Levy Economics Institute.
    5. Graham, John R. & Hanlon, Michelle & Shevlin, Terry, 2010. "Barriers to Mobility: The Lockout Effect of U.S. Taxation of Worldwide Corporate Profits," National Tax Journal, National Tax Association;National Tax Journal, vol. 63(4), pages 1111-1144, December.
    6. Michalis Nikiforos & Gennaro Zezza, 2017. "The Trump Effect: Is This Time Different?," Economics Strategic Analysis Archive sa_apr_17, Levy Economics Institute.
    7. Dimitri B. Papadimitriou & Greg Hannsgen & Michalis Nikiforos & Gennaro Zezza, 2013. "Rescuing the Recovery: Prospects and Policies for the United States," Economics Strategic Analysis Archive sa_oct_13, Levy Economics Institute.
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    Cited by:

    1. Michaelis Nikiforos, 2018. "Distribution-led growth through methodological lenses," FMM Working Paper 24-2018, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    2. Nikolaos Apostolopoulos & Panagiotis Liargovas & Nikolaos Rodousakis & George Soklis, 2022. "COVID-19 in US Economy: Structural Analysis and Policy Proposals," Sustainability, MDPI, vol. 14(13), pages 1-15, June.
    3. Michalis Nikiforos, 2020. "When Two Minskyan Processes Meet a Large Shock: The Economic Implications of the Pandemic," Economics Policy Note Archive 20-1, Levy Economics Institute.
    4. Michalis Nikiforos, 2019. "Induced Shifting Involvements and Cycles of Growth and Distribution," Economics Working Paper Archive wp_924, Levy Economics Institute.

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