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Morning Brief: CBO Predicts Recession Under Status Quo

by Renewing America Staff
May 23, 2012

Congressional Budget Office Director Douglas Elmendorf testifies before the "Supercommittee" on Capitol Hill in Washington on September 13, 2011 (Jonathan Ernst/Courtesy Reuters). Congressional Budget Office Director Douglas Elmendorf testifies before the "Supercommittee" on Capitol Hill in Washington on September 13, 2011 (Jonathan Ernst/Courtesy Reuters).

The nonpartisan Congressional Budget Office (CBO) predicts that the “fiscal cliff” of over $500 billion in spending cuts and tax increases scheduled under current law will cause a recession in the first half of 2013. The CBO argues that Congress should reduce these fiscal changes to prevent recession while enacting specific, long-term measures to put federal finances on a stable course—a view shared by Peter Orszag, former CBO director and current CFR Adjunct Senior Fellow. The Committee for a Responsible Federal Budget has a quick summary of the scheduled spending cuts and the tax increases.

Earlier this year, CFR’s Edward Alden discussed the budget impact of current legislation if Congress does not act. While he states that no action would be bad policy, he suggests that Congress take the current law as a budget baseline.

Debt and deficits. Read more from experts on the challenges in reducing U.S. debt.

International Trade and Investment

Foreign Retailers Fill Vacated Mall Storefronts

As many U.S. retailers pull back from shopping malls, foreign retailers are opening stores (NYT). The Japanese affordable clothing chain Uniqlo plans to open twenty to thirty new stores annually over the next eight years, despite aborting previous mall expansion plans in 2006. Foreign retailers across the price spectrum are attracted to the United States because of easier access to credit, lower regulatory hurdles, relatively cheap rents, and the chance to attract Wall Street investment.

International trade and investment. Read more from leading analysts on the debate over next steps in U.S. trade policy.

Corporate Regulation and Taxation

Why Banks Shouldn’t Be Broken Up
In the wake of J.P. Morgan’s $3 billion trading loss, the editors of Bloomberg argue large banks should not be broken up through regulatory fiat, even though complex financial institutions are hard to regulate. They acknowledge that “too big to fail” creates an implicit government subsidy; systemically important banks are likely to be bailed out, lowering their risk of default and borrowing costs, and thus increasing profits. The editors suggest imposing fees and higher capital requirements as banks grow larger, to reduce this perverse incentive to expand even further.

Corporate regulation and taxation. Read more from top economists and business experts on solutions for addressing corporate tax reform.

Innovation

‘Innovation’ Saturation
The Wall Street Journal reports that the term “innovation” has exploded in popularity, but its increasing use in corporate materials may be a marketing ploy. “Most companies say they’re innovative in the hope they can somehow con investors into thinking there is growth when there isn’t,” says Clayton Christensen, author of 1997’s The Innovator’s Dilemma. Many firms use the term to refer to very good products, rather than reserving it for new, disruptive products, which helps explain why Campbell’s Soup uses the term more than Google.

Innovation. Read more on how the U.S. capacity to innovate could play a chief role in economic growth.

Education and Human Capital

Romney May Seek to Expand School Choice

Education Week obtained a document from the campaign of likely Republican presidential nominee Mitt Romney, suggesting he could increase school choice nationwide. One proposal would allow students from disadvantaged families or in special education to apply federal funds to any public district, charter school, or private school (if consistent with that state’s rules). Other proposals include encouraging states to drop caps on charter schools, expanding the DC Opportunity Scholarship, and using federal block grants to encourage states to institute effective programs of identifying and retaining good teachers.

Choice-based school reforms have attracted considerable debate among experts. The state of Louisiana has become a kind of national laboratory for proponents of choice-based reform. Renewing America contributor Steven J. Markovich discussed recent Louisianan educational reforms in a recent Policy Initiative Spotlight.

Education and human capital. Read more from experts discussing ways to improve U.S. education and immigration policies.

The Morning Brief is compiled by Renewing America contributor Steven J. Markovich.

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