Washington, DC, November 8, 2023 – The Aspen Economic Strategy Group (AESG) today released its sixth annual policy volume, Building a More Resilient US Economy. The book’s publication comes as the US faces historically high levels of debt that threaten the resiliency of the nation’s economy, including the ability to invest in key priorities and adapt to changing global economic conditions. Last month, the Congressional Budget Office (CBO) estimated a $1.7 trillion gap between government spending and revenues in 2023, nearly double the annual budget deficit from last year. The volume’s eight papers offer policy solutions to the federal budget situation (namely, the debt and deficits, tax policy, Social Security and prescription drug prices), investing in children and mitigating pandemic-induced learning loss, and navigating global economic shifts (supply chain resilience and China’s economic outlook).

“Though the US economy has proven to be remarkably resilient in recent years, the nation’s fiscal trajectory is bleak, leaving little space to address our long-term challenges,” said AESG director Melissa S. Kearney. “This year’s AESG policy volume presents evidence-based, bipartisan policy solutions to improve our fiscal situation, develop our workforce,  and build a stronger, more resilient US economy.” 

“How the United States navigates ongoing economic challenges in the coming years will have significant consequences for decades to come,” write AESG co-chairs and former Secretaries of the Treasury Henry M. Paulson Jr. and Timothy F. Geithner in the book’s foreword.  “Policymakers will need to make difficult spending and tax policy decisions to bring the US fiscal situation into better balance and to maintain our ability to invest in key priorities like national security, health care, and addressing climate change.”

The book outlines various evidence-based solutions to some of America’s biggest economic questions: Given demographic and fiscal trends, to what extent will Medicare, Social Security, and other key safety net programs need to be reformed? How should the government raise more revenue to address the federal government’s fiscal imbalance? What are priority investments that we should make to ensure the future workforce to grow the US economy?  How can we navigate shifts in the global economy?

The policy volume can be read in full here: Building a More Resilient US Economy

The papers fall under three major themes:

ADDRESSING US FISCAL CHALLENGES

Karen Dynan’s paper, High and Rising US Debt: Causes and Implications, explains why the outlook for federal debt represents a major economic challenge for the US, particularly because, even under optimistic economic scenarios, debt will soon reach levels well above historical experience.

The Social Security trust fund is set to run out by 2033, which would likely force sudden and dramatic across-the-board cuts to benefits. Mark Duggan offers a proposal to reform Social Security and put the program on a more stable financial footing in his paper, Reforming Social Security for the Long Haul. 

US policymakers have proposed several solutions to curb rising drug prices, and included provision to allow Medicare to negotiate certain drug prices in the Inflation Reduction Act. Craig Garthwaite and Amanda Starc’s paper, Why Drug Pricing is Complicated, describes the opaque and complex process of pharmaceutical price setting in the US and proposes reforms to make these markets more competitive and efficient. 

Owen Zidar and Eric Zwick draw on lessons from the Tax Cuts and Jobs Act (TCJA) to suggest potential reforms to the US business tax regime, with a particular focus on reforming the business tax code, in their paper, The Next Business Tax Regime: What Comes After the TCJA?

INVESTING IN AMERICA’S YOUTH

National test scores revealed major learning loss among elementary school students due to the COVID-19 pandemic. Jens Ludwig and Jonathan Guryan’s paper, Overcoming Pandemic-Induced Learning Loss, discusses the pressing need to address this learning loss using American Rescue Plan funds that expire next year, and proposes high-impact tutoring as a concrete solution to address learning loss and equalize educational opportunities in the long term.

Melissa S. Kearney and Luke Pardue’s paper, The Economic Case for Smart Investments in America’s Youth, observes that the US spends relatively little on children and argues that investing in youth is one of the US’ greatest opportunities to build a more resilient economic future.

NAVIGATING SHIFTS IN THE GLOBAL ECONOMY

Mary Lovely’s paper, Manufacturing Resilience: The US Drive to Reorder Global Supply Chains, evaluates the US’ efforts to strengthen its supply chains through “reshoring,” “friendshoring,” and “derisking” and offers policy solutions to improve efforts to reduce supply risks.

Hanming Fang examines China’s future economic prospects and evaluates the main factors driving uncertainty around China’s economic future in his paper, Where is China’s Economy Headed?

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The Aspen Economic Strategy Group (AESG), a program of the Aspen Institute, is composed of a diverse, bipartisan group of distinguished leaders and thinkers with the goal of promoting evidence-based solutions to significant U.S. economic challenges. Co-chaired by Henry M. Paulson, Jr. and Timothy Geithner, the AESG fosters the exchange of economic policy ideas and seeks to clarify the lines of debate on emerging economic issues while promoting bipartisan relationship-building among current and future generations of policy leaders in Washington. More information can be found at https://economicstrategygroup.org/.

The Aspen Institute is a global nonprofit organization whose purpose is to ignite human potential to build understanding and create new possibilities for a better world. Founded in 1949, the Institute drives change through dialogue, leadership, and action to help solve society’s greatest challenges. It is headquartered in Washington, DC and has a campus in Aspen, Colorado, as well as an international network of partners. For more information, visit www.aspeninstitute.org.

The arc of the Chinese economy over the next 10 to 15 years will depend on three sets of forces, each of which interacts with the others: (1) Domestically, the internal political economy will determine the relationship between the state and the market. (2) Externally, the relationship between China as a nation and the US-led West will determine China’s access to foreign technology, finances, and markets. (3) Traditional economic forces such as total factor productivity (TFP), population and human capital, and capital and investment will determine China’s growth potential. Even though most studies focus on this third set of traditional economic forces—the ones determining growth potential—the first two sets of forces will ultimately determine how close the Chinese economy can come to realizing that potential. This paper examines the range of outcomes for China’s economy through this lens: growth rates could reach 6 percent if China focuses on market-oriented reforms, or they could stagnate if, in response to external or internal pressures, leaders instead continue to turn to more centralized decision-making and to top-down planned resource allocation.

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Executive Summary

Global supply chains—the network through which products and services move from initial producers to final consumers—have become increasingly complex over the past several decades. Recent disruptions caused by the COVID-19 pandemic, along with the threat of further interruptions from rising geopolitical risks, have exposed the fragility of today’s supply chains. To build more resilient networks, US policymakers have taken three main approaches: increasing domestic manufacturing capacity (“reshoring”), building new supply chains among foreign partners aligned with US interests (“friendshoring”), and reducing dependence on trade partners considered untrustworthy (“derisking”). This paper evaluates these strategies, weighing the likelihood that each will reduce the potential of future disruptions against the costs to taxpayers and consumers. Reshoring builds domestic capacity but is costly and only tenable in a few critical sectors. Friendshoring balances the efficiencies of trade while preventing reliance on rival states but can ultimately result in longer and less transparent networks. Finally, derisking our relationship with China will allow the US to diversify critical supply chains but is complicated by the country’s dominant role in world trade and by ongoing political tensions.

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Executive Summary

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Executive Summary

The outlook for federal debt represents a significant economic challenge for the United States. Economic developments and policy changes over the past two decades have materially raised the level of current and projected debt, but the primary factors behind the projected upward trajectory of debt remain population aging and rising health care spending. Even under optimistic economic scenarios, debt will soon reach levels well above historical experience, which will impose significant economic costs and risks. Although changes in policy that substantially narrow the deficit have economic and political disadvantages, they are necessary to put the federal budget on a sustainable path.

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Executive Summary

The post-pandemic US economy features a strong labor market but also persistent inflation, rising levels of debt, and acute educational challenges. These issues are compounded by ongoing, systemic difficulties: domestic and global, economic and political. This policy volume considers these topics and others, with a thematic focus on building a more resilient US economy.

The federal government’s aggressive fiscal and monetary policy in 2020 and 2021 mitigated the potential economic losses from the pandemic-induced recession and sped up economic recovery. However, trillions of dollars of federal assistance boosted aggregate demand in the face of constrained supply, spurring inflation to highs not seen since the 1980s. Restrictive monetary policy in the form of higher interest rates has helped tame inflation.

The overall response, however, has left the United States with a higher accumulated debt and larger deficits going forward. These results are compounded by more persistent factors, including the aging of the US population and rising health care costs, which drive up spending on major US entitlement programs including Social Security and Medicare.

After a long period of low interest rates led to some complacency about the US federal budget situation, current forecasts point again to at least somewhat higher interest rates that will make the continued imbalance between federal spending and revenues unsustainable. Building a more resilient US federal budget will require reforms that narrow the gap between spending and revenues, while maintaining sufficient levels of both to support national priorities. Accomplishing this task will require bipartisan cooperation and forward-looking congressional leadership.

The US labor market has remained strong in the post-pandemic period, but it shows signs of cooling and still faces long-term challenges that predate the pandemic. Despite widespread worries about women disproportionately falling out of the workforce during the pandemic, female rates of labor force participation and employment now exceed pre-pandemic levels (US Bureau of Labor Statistics (BLS) 2023a).

However, male labor-force participation and employment rates have recovered more slowly and remain depressed compared to prior decades: 86.4 percent of prime-age men in the US were employed in August 2023, equal to the 2019 average but below the 87.9 percent averaged in the 1990s (US Bureau of Labor Statistics 2023a, 2023b). As prime-age men work at lower rates, and as an aging population pushes a larger share of workers into retirement, the size of the workforce will start to grow much more slowly than it has in the past. Over the next ten years, the US labor force is forecast to add half the number of workers it added from 1990 to 1999 (Congressional Budget Office 2023a).

Building a more resilient US workforce will require promoting widespread employment and making investments in youth and young adults to build human capital and skills. It is troubling that the pandemic accelerated already-declining college enrollment: in 2022, there were over one million fewer students enrolled in college than there were in 2019 (National Student Clearinghouse 2023).

The pandemic disruption also led to large losses in student learning. Assessment data from 1.6 million elementary school students across more than 40 states indicate that in the spring of 2021, students were on average five months behind in mathematics and four months behind in reading progress compared to pre-pandemic cohorts. Learning losses were even larger for students in majority-Black schools and schools with lower average family income (Dorn et al. 2021). That study estimated that, if left in place, this learning loss could reduce lifetime earnings by $49,000 to $61,000 per student. Making up for these learning losses before they become permanent is an urgent priority, but doing so will not be easy.

Both the pandemic shock and recent geopolitical developments, including rising tensions with China and the war in Ukraine, have demonstrated the fragility of US supply chains and production. Businesses that lowered costs through just-in-time inventory practices, single-source suppliers, and manufacturing in countries with unstable political situations were left more vulnerable to supply shocks that fueled inflation. And heightened global tensions threaten the prospect of economic cooperation while creating political pressures at home for protectionist and nationalist policies.

The chapters in this book consider these and related issues.

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The Aspen Economic Strategy Group’s sixth annual policy volume focuses on building a more resilient US economy.

Several major economic and geopolitical disruptions and developments in recent years—including the global COVID-19 pandemic, Russia’s invasion of Ukraine, and growing tensions with China—have heightened the need to get our domestic finances in order, strengthen supply chains, and build a strong domestic workforce.

How the United States navigates ongoing economic challenges in the coming years will have significant consequences for decades to come. Policymakers will need to make difficult spending and tax policy decisions to bring the US fiscal situation into better balance and to maintain our ability to invest in key priorities like national security, health care, and addressing climate change.

Given demographic and fiscal trends, to what extent will Medicare, Social Security, and other key safety net programs need to be reformed? How should the government raise more revenue to address the federal government’s fiscal imbalance? What are some priority investments that we need to make to ensure the future of the US economy?

This book examines these and related questions and offers evidence-based answers. Part I describes the long-term fiscal problems facing the US and considers challenges and solutions related to Social Security financing, prescription drug pricing, and reforming the US business tax code. Part II discusses the need for more widespread investments in youth, both immediately to rectify pandemic-induced learning loss and more generally as an investment in our nation’s future. Part III considers pressing global economic issues, including US efforts to strengthen its supply chains, as well as the current state of China’s economy and the factors that will determine its future trajectory.

Our annual policy volumes are intended to apply the best current economic research to help develop policy solutions to make the US economy work better for everyone. They do not represent the consensus view of the Aspen Economic Strategy Group’s members.

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