Download Investment in the future - National Council For Advanced

April, 2013
NAFCAM
The United States After the Great
Recession: The Challenge of
Sustainable Growth
Joshua Meltzer
Fellow, Global Economy and Development
Brookings
David Steven
Center on International Cooperation, New York University Managing Global Order,
Brookings
Claire Langley
Research Analyst, Global Economy and Development
Brookings
1
Contents
•
Introduction & assumptions
•
Defining the United States growth model – positive
outcomes and key future challenges
•
Drivers of U.S. options
•
Future scenarios & reforming the policy space
•
Policy recommendations
»
Increasing employment
»
Investing in the future
»
Maximizing an increased energy endowment
»
Fiscal rebalancing
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Key Assumptions
•
The United States economic model has many strengths,
but its resilience has been weakened. Acute economic,
social and environmental challenges need to be addressed.
•
The response of the United States to this era of crisis will
play an important role in influencing how other countries
react.
•
The United States is unlikely to adopt policies that run
counter to its’ interests and values, so it is necessary to
gain an understanding of the drivers of and obstacles to
change in American society before addressing the
challenges.
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The United States growth model:
economic outcomes
•
Since the end of WWII the economy has achieved steady
growth, low unemployment and inflation, with rapid
advances in technology.
•
The United States is a leader in international governance,
trade, investment, technological development and diffusion,
and the spread of scientific, economic, and legal models.
•
Economic growth is market driven, and the private sector is
the main driver of innovation and productivity while the
government has a limited role.
•
The economy ranks 5th in terms of global competitiveness
and is highly entrepreneurial.
4
Emerging Economic Challenges
•
The 2007/08 recession highlighted vulnerabilities in the
U.S. economy and recovery has been slower than
expected.
•
The economy faces several long term challenges:
»
Declining international competitiveness
»
Difficulty in creating jobs and increases in long term unemployment
»
Declining incomes & reduced economic mobility
»
Lack of investment in infrastructure
»
High levels of indebtedness
»
Growing fiscal pressures
»
Vulnerability to global imbalances
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Social outcomes
•
Historic growth has resulted in substantial benefits in terms of
health, wealth, and education.
•
Life expectancy, literacy and education enrollment have all
increased.
•
Incomes have increased to nearly 8.5 times higher than post-war
levels.
•
Americans rate their quality of life more highly than the average
for the OECD.
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Downward trends in social
indicators
•
Inequality has risen, and is larger in the U.S. than any other
OECD country excluding Mexico.
•
Economic mobility is declining.
•
But 68 percent of Americans believe they have achieved,
or will achieve, the American Dream.
7
Changes in Wealth Over Time
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Environmental outcomes
•
Environmental regulation in the United States aims to
protect the environment for future generations, while
interfering as little as possible with economic growth.
•
Resulted in better domestic environmental outcomes:
•
»
Air quality has improved significantly
»
Household water quality has improved and polluted
urban waterways have recovered
»
Resource efficiency has become a priority
The U.S. has cooperated in international environmental
treaties (i.e. Montreal Protocol on Substances that Deplete
the Ozone Layer etc.)
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Challenges to Further
Environmental Progress
•
Environment has become an increasingly contentious
political issue and a source of partisan divide.
•
Key environmental challenges:
»
Securing access to resources
»
Tackling climate change
»
Responding to extreme weather events
»
Coping with water stress
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Where next for the U.S.?
• Key drivers of U.S. options:
» Demographics.
» Polarized political system.
» Declining trust in elites and institutions.
» But, enduring geopolitical strength.
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U.S. population is projected to grow
over the next 40 years
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Possible U.S. policy going forward
• A limited role for government
• Wealth and job generation for all
• Increased resilience to crises and future shocks
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Scenarios for the future
•
Scenario 1: Muddle through: continuation of business as usual
through rebalancing growth slightly to the middle class,
maximizing energy advantages, and delaying action on climate
change.
•
Scenario 2: Going for growth: aggressive focus on economic
growth in order to meet the aspirations of a growing population,
with limited regard for environmental consequences.
•
Scenario 3: Intelligent design: many of the same developments
as scenario 1, but with a greater role for policy to create jobs,
while using the country’s growing energy endowment to tackle its
deficit, and restrain carbon emissions.
•
Scenario 4: Emergency response: further shocks drive change,
with extreme weather events providing some potential for
increasing sustainability.
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Intelligent Design: pathway toward
sustainable development
•
Policy makers focus on employment through renewed public
investment in education and training, additional support for
sectors with high export potential, and innovative approaches
to regulation in the financial sector.
•
Federal Reserve emphasizes maximizing employment,
alongside its’ current focus on interest rates and price stability.
•
Energy resource opportunities are maximized with policies
focused on the potential of gas to:
»
reduce emissions
»
Build competitive manufacturing
»
Contribute to fiscal consolidation
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Policy reform in key sectors
•
Employment: the most urgent priority to accelerate
American recovery, while addressing underlying structural
issues.
•
Investment in the future: make farsighted decisions to
improve education, build new infrastructure, and increase
innovation.
•
Energy: make strategic use of an increased energy
endowment, while reducing resource demand and
enhancing sustainability.
•
Fiscal rebalancing: insulate economic recovery from the
process of fiscal reform while also reducing and stabilizing
the debt.
16
Tackling the jobs crisis
•
Target long-term unemployment: implement an
emergency package to bring the rate of unemployment
back down to about 5%. Options include re-training
schemes and wage subsidies for employers.
•
Support manufacturing in high-end industries: support
for innovation in high-end manufacturing can create middleclass jobs and support robust local economies.
•
Focus on metropolitan areas: capitalize on opportunities
for growth in highly populated urban areas.
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Investing for tomorrow
•
Education: invest in future generations by making higher
education more affordable and accessible; improving
educational outcomes by strengthening assessment
systems; addressing the skills gap.
•
Infrastructure: national infrastructure strategy that focuses
on low-carbon mass transport, innovative new financial
mechanisms for sustainable infrastructure, and resilience to
extreme weather events.
•
Innovation: increase federal funding for R&D in industries
with high growth potential and benefits for environmental
sustainability by supporting an enabling environment for
investment, supporting entrepreneurship through reformed
immigration policies.
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Fueling the future
•
Regulation of the shale gas industry to reduce leakage
issues.
•
Investment in gas infrastructure and standards for
transportation.
•
Clean energy standard in the power sector to reduce
emissions.
•
Building sustainability in cities through promotion of higherdensity urbanization, energy efficient buildings, and public
transportation links.
•
Regulations promoting energy efficiency.
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Fiscal rebalancing
• Reform the tax code so that income inequality is
addressed.
• Cut inefficient subsidies, such as those for fossil
fuels.
• Make permanent the R&D tax credit and other
tax incentives to encourage innovation
• Shift taxation from labor/capital to carbon,
through the implementation of a carbon tax and
the lowering of income and corporate tax rates.
20
Toward renewed U.S. global
leadership
•
Combination of policy reform measures could result in
increased sustainability and international leadership, and a
more cooperative geopolitical environment with innovations
in global governance.
Opportunities for international cooperation:
»
Building the knowledge base needed to underpin international action.
»
Pivoting to the global jobs crisis.
»
Strengthening the global trade system.
»
Demonstrating leadership on energy, food and other resources.
»
Reframing action on climate change.
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International Trade
• Complete the WTO Doha Round
» International Services Agreement
» Trade facilitation etc
• Pursue high standard comprehensive
FTAs with key economies
» Trans-Pacific Partnership
» EU-US Trade and Investment
Partnership