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NIST: Beyond the Business Cycle: The Need for a Technology-Based Growth Strategy

Author: Gregory Tassey
February 2012

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During the worst economic slowdown since the Great Depression, it is important to look at new strategies for stabilization and recovery.

Facing the worst economic slowdown since the Great Depression, efforts to reestablish acceptable growth rates in both Europe and the United North America are relying to a great degree on short-term "stabilization" policies.

In a structurally sound economy, the neoclassical growth model states that appropriate monetary and fiscal policies will enable price signals to stimulate investment. The subsequent multiplier effect will then drive sustainable positive rates of growth. However, these macrostabilization policies can do relatively little to overcome accumulated underinvestment in economic assets that create the needed larger multipliers. This underinvestment has led to declining U.S. competitiveness in global markets and subsequent slower rates of growth—a pattern that was underway well before the "Great Recession."

However, the massive monetary and fiscal "stimulus" applied since 2008 in the United States has had only a modest impact on economic growth. The reason is that the prolonged current slowdown is a manifestation of structural problems. Thirty-five years of U.S. trade deficits for manufactured products cannot be explained by business cycles, currency shifts, and trade barriers, or by alleged suboptimal use of monetary and short-term fiscal policies.

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