The Post 'great Recession' Us Economy: Implications For Financial Markets And The Economy, 2nd Edition

The Post ‘Great Recession’ US Economy This page intentionally left blank The Post ‘Great Recession’ US Economy Implications for Financial Markets and the Economy Philip Arestis and Elias Karakitsos © Philip Arestis and Elias Karakitsos 2010 All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission. No portion of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright, Designs and Patents Act 1988, or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, Saffron House, 6–10 Kirby Street, London EC1N 8TS. Any person who does any unauthorized act in relation to this publication may be liable to criminal prosecution and civil claims for damages. The authors have asserted their rights to be identified as the authors of this work in accordance with the Copyright, Designs and Patents Act 1988. First published 2010 by PALGRAVE MACMILLAN Palgrave Macmillan in the UK is an imprint of Macmillan Publishers Limited, registered in England, company number 785998, of Houndmills, Basingstoke, Hampshire RG21 6XS. Palgrave Macmillan in the US is a division of St Martin’s Press LLC, 175 Fifth Avenue, New York, NY 10010. Palgrave Macmillan is the global academic imprint of the above companies and has companies and representatives throughout the world. Palgrave® and Macmillan® are registered trademarks in the United States, the United Kingdom, Europe and other countries. ISBN 978–0–230–22904–4 hardback This book is printed on paper suitable for recycling and made from fully managed and sustained forest sources. Logging, pulping and manufacturing processes are expected to conform to the environmental regulations of the country of origin. A catalogue record for this book is available from the British Library. A catalog record for this book is available from the Library of Congress. 10 9 8 7 6 5 4 3 2 1 19 18 17 16 15 14 13 12 11 10 Printed and bound in Great Britain by CPI Antony Rowe, Chippenham and Eastbourne This book is dedicated to our children: Stefan, Natalia and her husband Tom; and especially to my grandson, Alec (Philip Arestis) Nepheli and Eliza (Elias Karakitsos) This page intentionally left blank Contents List of Figures viii List of Tables xiii Prolegomena xiv Preface to the Second Edition xxi 1 Introduction 1 2 The Causes and Consequences of the Internet Bubble 23 3 The Current Financial Crisis and the Origins of Excessive Liquidity 41 4 Wages and Prices and the Proper Conduct of Monetary Policy 58 5 Corporate Profits and Relationship to Investment 97 6 Long-Term Risks to Investment Recovery 120 7 The Housing Market and Residential Investment 150 8 Long-Term Risks of Robust Consumer Behaviour 179 9 Foreign Demand 212 10 The US External Imbalance and the Dollar: A Long-Term View 239 11 The Long-term Risks to US Financial Markets 273 Notes 303 Bibliography 310 Index 318 vii List of Figures 1.1 The stance of monetary policy 6 1.2 The output gap 6 1.3 Hea