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Aspen Economic Strategy Group Releases 2023 Annual Policy Volume: Building a More Resilient US Economy

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.

Where Is China’s Economy Headed?

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.

Suggested Citation: Fang, Hanming. November 8, 2023. “Where Is China’s Economy Headed?” In Building a More Resilient US Economy, edited by Melissa S. Kearney, Justin Schardin, and Luke Pardue. Washington, DC: Aspen Institute. https://doi.org/10.5281/zenodo.13886913.

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Manufacturing Resilience: The US Drive to Reorder Global Supply Chains

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.

Suggested Citation: Lovely, Mary E. November 8, 2023. “Manufacturing Resilience: The US Drive to Reorder Global Supply Chains” In Building a More Resilient US Economy, edited by Melissa S. Kearney, Justin Schardin, and Luke Pardue. Washington, DC: Aspen Institute. https://doi.org/10.5281/zenodo.13974144.

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Overcoming Pandemic-Induced Learning Loss

The global COVID-19 pandemic created not only a once-a-century public health crisis but also a once-a-century public education crisis. Unfortunately, the United States federal government’s financial assistance to schools to overcome pandemic-induced learning loss is about to expire – despite the fact that the country has made almost no progress remediating this learning loss. In thinking about where to go next, we first look backward to examine why so little progress was made over the past few years. Changing student learning outcomes requires changing what schools do; that has been hard partly because of the chaos in the wake of the pandemic, but also because change is difficult for all organizations. We illustrate some of the challenges within the context of one specific type of instructional content for which US Secretary of Education Miguel Cardona encouraged schools to prioritize relief funding: high-dosage tutoring, a promising technology that’s been known for centuries to help students of all ages. To avoid lifelong negative consequences for a generation of 50 million school-age children, policymakers need to (1) extend the timeline over which federal assistance is available, (2) provide additional resources beyond that, and (3) nudge schools to take difficult steps that will ultimately help students through increased accountability or other means.

Suggested Citation: Guryan, Jonathan and Jens Ludwig. November 8, 2023. “Overcoming Pandemic-Induced Learning Loss.” In Building a More Resilient US Economy, edited by Melissa S. Kearney, Justin Schardin, and Luke Pardue. Washington, DC: Aspen Institute. https://doi.org/10.5281/zenodo.14019299.

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The Next Business Tax Regime: What Comes After the TCJA

This essay presents the case for a better US business tax regime. First, we provide an overview of the business tax base in the United States and describe how business activity is taxed, with special focus on the 2017 Tax Cuts and Jobs Act (TCJA). We then review early evidence of the TCJA’s effects on economic activity and compare these effects to policymakers’ predictions. We conclude by considering policy implications and make several recommendations for improving the US business tax regime. We propose a future regime that can raise substantial revenue from business without inventing new policy instruments. Our proposal would preserve productive business activity, promote efficiency by harmonizing tax rates across income tax bases, and improve tax progressivity.

Suggested Citation: Zidar, Owen and Eric Zwick. November 8, 2023. “The Next Business Tax Regime: What Comes After the TCJA?” In Building a More Resilient US Economy, edited by Melissa S. Kearney, Justin Schardin, and Luke Pardue. Washington, DC: Aspen Institute. https://doi.org/10.5281/zenodo.14019601.

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Reforming Social Security for the Long Haul

Social Security is arguably America’s most important government program, as it is the main source of income for most elderly Americans and represents the primary tax paid by most workers as well. Forty years after Congress made its last significant changes to the program, Social Security again faces severe funding challenges, primarily due to a declining number of workers per Social Security recipient and slower-than-predicted growth in taxable earnings. Absent any change in policy, the program’s trust fund will be depleted in about ten years and payments to Social Security recipients will immediately decline by an estimated 23 percent. In this document, I propose a package of six reforms, aimed at raising revenue and slowing benefits growth, that would tackle this challenge head-on and put the program on a sustainable fiscal path. These proposals insulate America’s most economically vulnerable and instead call for sacrifice primarily from those with high incomes, who have seen large increases in lifetime benefits recently due to their rising life expectancy. If implemented, this reform package will ensure that Social Security benefits for elderly and disabled Americans and for their dependents will not be at risk in the future and that the program will not consume an ever-increasing share of federal spending.

Suggested Citation: Duggan, Mark. November 8, 2023. “Reforming Social Security for the Long Haul.” In Building a More Resilient US Economy, edited by Melissa S. Kearney, Justin Schardin, and Luke Pardue. Washington, DC: Aspen Institute. https://doi.org/10.5281/zenodo.14019688.

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High and Rising US Federal Debt: Causes and Implications

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.

Suggested Citation: Dynan, Karen. November 8, 2023. “High and Rising US Federal Debt: Causes and Implications” In Building a More Resilient US Economy, edited by Melissa S. Kearney, Justin Schardin, and Luke Pardue. Washington, DC: Aspen Institute. https://doi.org/10.5281/zenodo.14019694.

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Executive Summary