Conference Presentation, Panel, Other
MI Summit 2013 - London: U.S. Overview: Gathering Steam? (updated)
Milken InstituteGregory Cappelli, Ross DeVol, Harold Ford Jr., J. Todd Morley, Eric Spiegel, Philippa Thomas
- A partial U.S. government shutdown is expected to last between one to two weeks, peaking around October 17 when the Treasury projects it can no longer cover all bills, risking potential damage to the U.S. credit rating if the debt ceiling is breached.
- Political gridlock is being driven by intra-party pressures, specifically "Tea Party" factions in the House and Senate, preventing compromise on the debt ceiling and the Affordable Care Act (Obamacare).
- Key dealmakers identified include House Speaker Paul Ryan, who is expected to lead a coalition of 40 to 50 Republicans to avoid a debt ceiling breach, and Senate Minority Leader Mitch McConnell, whose ability to negotiate is constrained by looming primary challenges from figures like Rand Paul.
- U.S. Congress is currently operating on short-term electoral cycles dominated by primary contests rather than long-term governance, with many Republicans unable to side with the White House without triggering primary opponents.
- U.S. economic growth is hovering near 2% despite headwinds from a January tax increase, sequestration, and weakened export markets, with exports projected to fall significantly below last year's $6 billion due to slowdowns in China and Europe.
- Consumer balance sheets have improved through deleveraging, with the debt service burden dropping from 14% at the crisis peak to approximately 10.5%, supporting light vehicle sales that are nearing pre-recession levels.
- A "mini-bubble" in the housing market is attributed to Federal Reserve stimulus and zero-interest financing; risks arise as mortgage rates have risen from 3–3.5% to 4.5%, potentially dampening refinancing and new home purchases.
- Capital investment in non-defense goods has recovered, rising approximately 8% year-over-year, though this growth is concentrated in information and communications technology rather than infrastructure.
- There is a documented structural skills gap in the U.S. labor market, with 3 to 3.5 million advertised job openings remaining unfilled despite over 80 million people lacking bachelor's degrees, while the U.S. ranks 21st in high school graduation rates.
- U.S. manufacturing is showing signs of a renaissance driven by cheap energy and rising Asian labor costs, with new chemical and steel plants being built domestically, often utilizing automation and requiring new skilled labor pipelines.
- The U.S. education system lags globally in competitiveness, spending only 2% of household income on education compared to 15–20% in China, leading to a disparity in R&D and high-tech innovation.
- Panelists express skepticism regarding the sustainability of current economic growth without Federal Reserve stimulus, warning that removing quantitative easing could reveal the underlying weakness of the economy, which they argue is currently inflated by "easy money."
- The Federal Reserve is expected to continue its tapering process until at least December, with some panelists predicting the final removal of stimulus may not occur until next spring due to political and economic pressures.
- Corporate tax reform is stalled despite bipartisan agreement, with the U.S. holding the highest marginal corporate tax rate globally, while regulatory uncertainty and the medical device tax (projected to cost the healthcare industry $80 million) dampen investment in health IT and medical devices.
- Proposed solutions to economic stagnation include reducing the corporate tax rate to 25%, opening borders to skilled immigrants with automatic citizenship for cash homebuyers, and granting a tax holiday for repatriated offshore capital with a requirement that half be invested in education and training.
- The Federal Reserve has been criticized for replacing economic policy with monetary policy, manipulating asset prices in housing and stocks rather than serving strictly as a lender of last resort to fight inflation.
- Executive confidence among the top 250 U.S. companies (representing roughly half of GDP) has fallen below the long-run average, with businesses citing uncertainty and regulatory burdens as the primary inhibitors to job creation.
- Innovation in the U.S. has shifted from creating new industries to efficiency improvements that do not generate significant employment, raising concerns about long-term job growth without structural policy changes.
- Panelists anticipate that if the debt ceiling crisis is resolved without default by October 17, a brief period of positive momentum may follow, though this is unlikely to sustain through the upcoming election season.
- Specific policy actions proposed to break the logjam include approving the Keystone Pipeline, extending tax cuts, raising Social Security and Medicare eligibility ages to 70, and implementing means testing for these programs.
- Regulatory burdens are cited as a major deterrent to investment, with one company noting 500 new regulations in its sector during the Obama administration's first term and describing compliance costs as prohibitive.
- Export controls rooted in Cold War-era policies are forcing U.S. companies to transfer intellectual property to foreign jurisdictions to sell advanced technology, such as laser-guided machine tools, to markets like China.