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Morning Brief: CBO Warns Fiscal Cliff Will Cause Recession

by Renewing America Staff
August 23, 2012

Congressional Budget Office director Douglas Elmendorf testifies before the first Joint Deficit Reduction Committee hearing on Capitol Hill in Washington in September 2011 (Jonathan Ernst/Courtesy Reuters). Congressional Budget Office director Douglas Elmendorf testifies before the first Joint Deficit Reduction Committee hearing on Capitol Hill in Washington in September 2011 (Jonathan Ernst/Courtesy Reuters).

The nonpartisan Congressional Budget Office (CBO) predicts a recession in 2013 with an economic contraction of 0.5 percent if the “fiscal cliff” is not addressed (TheHill). The CBO director implored Congress to pass legislation by September and said “the stakes of fiscal policy are very high right now.”  The Washington Post discussed the CBO report in the context of increasing signs that the Federal Reserve may initiate further monetary stimulus.

The United States is set to undergo a dramatic series of budget cuts and tax increases, known collectively as the fiscal cliff, which will slash the federal deficit by $607 billion in early January. Analysts say the sudden fiscal consolidation could derail economic recovery. This CFR Backgrounder by Jonathan Masters examines the domestic and global implications of the coming fiscal showdown.

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

Education and Human Capital

Majority of Students Unready for College

Testing firm ACT revealed that 60 percent of students who take the ACT failed to demonstrate readiness in two of four subjects (EducationWeek). American students often fared better in reading and English than science and mathematics, though there has been improvement in these subjects since 2008. The ACT report has state level data.

The report of the CFR Independent Task Force on U.S. Education Reform and National Security, co-chaired by Joel I. Klein and Condoleezza Rice, highlights the importance of the Common Core State Standards and asserts that fixing the nation’s underperforming K-12 schools is critical to economic competitiveness and national security.

Managing Millennials

As baby boomers retire, millennials are joining the workforce and forcing companies to change their approach to attract the best young talent (WSJ). Firms are giving younger workers more responsibility and faster career paths, often to the consternation of other employees who feel millenials haven’t “paid their dues.”  One CEO observed: “If they don’t feel like they’re making a contribution to a company overall quickly, they don’t stay. If you provide them with the right environment, they’ll work forever, around the clock.”

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

International Trade and Investment

China and Singapore Invest in LNG Terminal

The sovereign wealth funds of China and Singapore have invested a combined $1 billion in the $5.6 billion liquefied natural gas (LNG) export terminal for Sabine Pass, Louisiana (Reuters). If the project is successfully completed by 2015, much of the exported natural gas is expected to go to Asian markets, where natural gas prices on the spot market are many times higher than the United States.

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

Innovation

Nobody to Win in Apple-Samsung Patent Fight

Susan Crawford argues that nobody is going to benefit from the Apple-Samsung patent fight (Bloomberg). She thinks through different scenarios—from an Apple win to a private settlement—and discusses the implications for the smartphone market.  More broadly, she decries the “expensive, loony unreality of software patents.”

Should the United States adopt a “patent box” tax incentive as several European countries have done in recent years in order to spur innovation? This Policy Initiative Spotlight by Jonathan Masters examines the issue alongside a more conventional policy, the research, and development tax credit.

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

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

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