Trade

The Federal Reserve proposed applying “core” Basel III rules to all U.S. banks by 2019 (WSJ). Experts had expected small banks—less than $1 billion in assets—to be exempted from the new international bank-capital standards. While the Fed favors a capital surcharge on the biggest banks and exempting small banks from some Basel III requirements, many analysts believe the proposal would hurt the competitiveness of small banks, whose share of all assets fell from 31 percent in 1992 to below 10 percent. In December of 2010, the CFR’s Maurice R. Greenberg Center for Geoeconomic Studies held its World Economic Update, a panel discussion in which experts analyzed the effect of the Basel III accords and new U.S. federal regulations. Meeting videos and a transcript are available. ETFs Can Expose Investors to Complex Risks Exchange traded funds (ETFs) began almost twenty years ago as a cheap and easy way for investors to own a broad basket of stocks, but today many are vehicles for investment strategies that can carry complex risks (Bloomberg Businessweek). In 2006, the first ETFs based on derivatives emerged to aid sophisticated investors such as hedge funds, but, retail investors can purchase them too, even if risks are murky. In 2009, the Securities and Exchange Commission stopped approving new derivative-based ETFs, and debate continues over how to regulate them. Corporate regulation and taxation. Read more from top economists and business experts on solutions for addressing corporate tax reform. Education and Human Capital California Mulling Reduced Science Requirement Governor Jerry Brown proposed eliminating $250 million in annual subsidies to school districts by cutting California’s high school graduation science requirement from two years to one (LA Times). A principal with a largely low-income student population explained why she is trying to increase investment in science education: “We think science is the gateway to technology, and that's where the jobs are. We want our students to be prepared.” Students with only one year of science education would be unqualified for enrollment in California’s public universities. Education and human capital. Read more from experts discussing ways to improve U.S. education and immigration policies. Infrastructure Opening Up an Energy Financing Vehicle to Renewable Freshman Senator Chris Coons (D-DE) suggested allowing renewable energy to take advantage of an energy financing vehicle that avoids corporate taxes for pipelines (Reuters). Several alternative energy tax breaks will expire at the end of this year, and the large budget deficit and political tensions make their renewal uncertain. Coons’s proposal would open up master limited partnerships (MLPs) to all types of energy. Taxes on the profits of MLPs are only applied to shareholders, avoiding the double taxation of corporate taxes; this difference helps oil and gas companies raise investment funds. Scott Thomasson, the president of NewBuild Strategies and an expert on infrastructure funding, recently authored "Encouraging U.S. Infrastructure Investment," a Policy Innovation Memorandum released by the CFR’s Renewing America initiative. Thomasson proposes new initiatives to address crumbling U.S. infrastructure. Infrastructure. Read more on how upgrading the nation’s aging network of roads, bridges, airports, railways, and water systems is essential to maintaining U.S. competitiveness. Innovation IPv6 Launch Day in the Books Earlier this week, major websites promoted their adoption of IPv6 on World Launch Day. IPv6 is a new internet address standard (WashPo); every device connected to the internet is required to have an address, so the current IPv4 protocol’s maximum of 4.3 billion addresses threatens device growth. This 2008 infographic from Cisco explains how IPv6 will allow a world of smart things that communicate. U.S. wireless devices already outnumber the American population (CNN). IPv6 adoption has been slow, however. Techcrunch reports that less than half of a percent of total internet traffic used the new protocol but experts predict global IPv6 share of 17 percent by 2015 (PC Magazine). 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.

While debate rages over the federal deficit, state and local governments face their own budget crises. Stateline describes the successes of North Carolina’s Local Government Commission in imposing budget controls and offering advice to troubled communities, but not giving them loans. The state agency was created in 1931, and no North Carolinian city, county, or special district has defaulted since 1942; the bond market rewards this record with high bond ratings and low interest rates. Meanwhile, other communities are cutting costs; on Tuesday, San Diego and San Jose voters approved ballot initiatives to cut retirement benefits for city workers (NYT). Michigan’s Fiscal Accountability Act was the subject of a recent Policy Initiative Spotlight by Jonathan Masters. The law increased the state’s power to intervene in local fiscal matters by appointing an emergency financial manager who has decision making authority when certain financial stress criteria are met. Debt and deficits. Read more from experts on the challenges in reducing U.S. debt. Education and Human Capital Limited Evidence of Skills Mismatch The Chicago Federal Reserve Bank released a study that found limited evidence of a skills mismatch weighing down the labor market. Researchers found evidence that may suggest a shortage of engineers and of medium skilled workers. A skills mismatch increases structural unemployment, because employers are unable to find qualified workers to fill vacancies and workers cannot find jobs that make use of their skills. CFR’s Ted Alden discusses the shortage of skilled workers in the U.S. manufacturing pipeline and the need for firms, governments, and unions to work together to encourage young people to pursue manufacturing careers, and schools to increase relevant education. The Case for No-Stakes Testing While debate continues over the role standardized testing plays in evaluating the performance of students, teachers and schools, research suggests that simply taking a test may improve learning (TIME). The author suggests expanding “no-stakes” testing, like giving ungraded quizzes at the end of a class, to promote retention. Current research suggests that memories are strengthened and made longer lasting through more frequent recall; in a sense, memories can be strengthened like muscles. Education and human capital. Read more from experts discussing ways to improve U.S. education and immigration policies. Corporate Regulation and Taxation Farm Bill Under Debate Congress is debating a farm bill that replaces direct payments to farmers with increased crop insurance support (NYT). The federal government currently pays for two-thirds of premiums and all administrative costs for crop insurance that covers poor yields, declines in prices, or both. Critics say the program is exploited by farmers who plant in marginal lands which have poor yields because the subsidized insurance ensures profitable returns. One farmer said: “I can farm on low-quality land that I know is not going to produce and still turn a profit.” Corporate regulation and taxation. Read more from top economists and business experts on solutions for addressing corporate tax reform. Innovation Apple Battles Samsung Smartphone in Court Apple is seeking to prevent Samsung from releasing its Galaxy S III to the United States on patent infringement grounds (Bloomberg). Apple asked a federal judge to add Samsung’s newest smartphone to a patent infringement case Apple brought against Samsung’s tablet. It is the latest salvo in an escalating patent war on four continents between the two consumer electronics giants for dominance of the $219 billion global smartphone market. The Galaxy S III was released in the United Kingdom last month to rave reviews (Daily Mail). 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. Making a Smart Milk Jug Quirky unveiled a smart milk jug that tells its owner when to buy milk (TechCrunch). The stylish device monitors the amount of milk left in the jug, and its pH level—pH changes as milk begins to spoil—and texts the homeowner when it’s time to pickup more milk. The product emerged from a contest sponsored by Quirky and GE for ideas to improve everyday objects with software. Quirky uses the wisdom of crowds to innovate by allowing internet users to “influence” the product design and determine pricing. 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.

Europe’s economic woes, a rough May jobs report (Bloomberg), and a recently growing specter of deflation could increase pressure on the Federal Reserve (WSJ). While one Wall Street economist sees close to even odds for further quantitative easing (WSJ), analysts will closely examine Fed Chairman Ben Bernanke’s congressional testimony this Thursday. Bloomberg Businessweek argues five charts point to growing deflation risk: falling oil and commodity prices, a big output gap, tumbling U.S. Treasury yields, and declining government employment. Debt and deficits. Read more from experts on the challenges in reducing U.S. debt. Education and Human Capital Bleak Job Prospects for High School Graduates The John J. Heldrich Center for Workforce Development of Rutgers University surveyed 544 high school graduates from the past five years who are not attending full-time college. Twenty-seven percent of these high school graduates were employed full time, while 44 percent were unemployed. Among those who graduated before the recession, 37 percent were employed full time, while only 16 percent of recession era graduates had full-time jobs. New Standards Often Lead to Plunging Scores New, rigorous assessments based upon the Common Core State Standards (CCSS) due for implementation in most states in 2014-2015, may lead to plunging scores, if recent changes to state tests are a preview (EducationWeek). Florida’s test revisions may have caused a 27 percent drop in writing proficiency scores among fourth graders. In response, state officials retroactively lowered cutoffs and acknowledged that they did not adequately communicate the heightened expectations to teachers, something they pledge to do before CCSS implementation. The report of the CFR Independent Task Force on U.S. Education Reform and National Security highlights the importance of the CCSS and asserts that fixing the nation’s underperforming K-12 schools is critical to economic competitiveness and national security. Education and human capital. Read more from experts discussing ways to improve U.S. education and immigration policies. Infrastructure Contentious Highway Bill Negotiations Recent comments by Senate Majority Leader Harry Reid (D-NV) point to escalating tensions in highway bill negotiations (TheHill). Reid said House Majority Leader Eric Cantor (R-VA) is blocking passage of a multiyear bill as part of an internecine battle with Speaker John Boehner (R-OH) and to damage President Obama’s election chances. Cantor and Boehner have strongly rejected Reid’s accusations, and outside observers say that Cantor is not particularly active in negotiations. The previous highway bill expired at the end of September 2009; highway construction has continued under a series of temporary extensions, the ninth of which expires at the end of June. CFR Senior Fellow and Renewing America Director Edward Alden recently discussed political dysfunction in Washington, including the inability of Congress to expand infrastructure investment despite the support of labor unions and business groups. Infrastructure. Read more on how upgrading the nation’s aging network of roads, bridges, airports, railways, and water systems is essential to maintaining U.S. competitiveness. Corporate Regulation and Taxation Geithner Seeks Banker Feedback on Dodd-Frank Treasury Secretary Timothy Geithner has asked bankers for examples of unnecessary regulatory burdens (Bloomberg). Geithner has offered to use his authority to reduce red tape through better agency coordination and simplified rules on issues he finds credible. At a May 10 meeting of the Federal Advisory Council, Geithner received complaints from bank executives on issues such as stress tests, capital requirements, and restrictions on mortgage servicing. Corporate regulation and taxation. Read more from top economists and business experts on solutions for addressing corporate tax reform. The Morning Brief is compiled by Renewing America contributor Steven J. Markovich.

U.S. companies are increasingly warning investors that unexpected European weakness is dampening sales (NYT).  Declining sales in Europe are expected to pull down corporate profits in the United States, despite previous analyst opinions that the U.S. economy was well insulated. U.S. technology companies have been particularly challenged. A strengthening dollar and reported slowdowns of manufacturing in India and China are likely to compound difficulties for U.S. exporters. International trade and investment. Read more from leading analysts on the debate over next steps in U.S. trade policy. Education and Human Capital Investing in Teachers’ Professional Capital Two educational scholars argue that policymakers need to embrace long-term investment in teachers (Education Week). They explain that professional capital has human, social, and decisional components.  Nations such as Finland, Singapore, and Canada have successfully embraced these principles to build a strong profession that provides most students with good teachers throughout their academic careers.  Their recommendations include increased attention on social capital, collegiality and midcareer teachers, reduced focus on identifying the best and worst teachers, and having teachers’ unions act as positive change agents. The report of the CFR Independent Task Force on U.S. Education Reform and National Security 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. Education and human capital. Read more from experts discussing ways to improve U.S. education and immigration policies. Infrastructure America’s Gas Edge The Economist discusses booming U.S. unconventional natural gas production through hydraulic fracturing, or "fracking."  Fracking created an unforeseen energy boom; only five years ago experts believed the United States would become a large gas importer. Though the technology can potentially unlock resources in nations such as China, Australia, Argentina, and Central Europe, U.S. production benefited from several factors many nations lack: strong property rights, "open access" pipeline regulation, and supporting infrastructure including ample drill-rigs. The transformation of the U.S. energy market created by the new extraction techniques for oil and gas has some predicting a renaissance for U.S. manufacturing based on lower, stable energy costs. Renewing America contributor Steven J. Markovich examined those claims and argued that the impact will likely be modest in last week’s Policy Initiative Spotlight. Net Metering Under Debate As plunging solar panel prices decrease installations costs, net metering is attracting debate (NYT).  Net metering is the practice of utilities reimbursing homeowners at full retail prices for energy their solar cells provide to the energy grid.  This reimbursement makes the installations more economical, spurring development and providing energy during high use periods. Critics argue those benefits are outweighed by the cost of reimbursement at full retail cost, especially in light of plunging solar panel costs due to surging Chinese production and exports that have resulted in retaliatory U.S. import tariffs. Infrastructure. Read more on how upgrading the nation’s aging network of roads, bridges, airports, railways, and water systems is essential to maintaining U.S. competitiveness. Innovation SpaceX Founder Elon Musk on '60 Minutes' Entrepreneur Elon Musk, founder of SpaceX and Tesla Motors and co-founder of PayPal, was interviewed on CBS’s "60 Minutes."  In May, SpaceX became the first private company to send a spacecraft to the International Space Station (ISS), and return it safely to the Earth.  The success is expected to secure SpaceX a $1.6 billion contract for 12 supply flights to the ISS.  The interview covers SpaceX’s early failures, Musk’s larger goal of human spaceflight, and his response to criticism of NASA’s plans to privatize spaceflight from famed astronauts Armstrong, Lovell, and Cernan. Innovation. Read more on how the U.S. capacity to innovate could play a chief role in economic growth. Corporate Regulation and Taxation Federal Reserve Guards Political Independence The Hill describes the election year pressures on the Federal Reserve and its aversion to appearing politically motivated.  Fed officials are likely to engage in aggressive, market moving actions only if they can identify a clear, data-driven justification.  Karen Dynan of the Brookings Institution explained: “This is not the time for them to be acting based on hunches. They need to make sure that the data are all lined up behind their decisions… but I don’t think they will hold back from taking appropriate steps simply because of the election.” Corporate regulation and taxation. Read more from top economists and business experts on solutions for addressing corporate tax reform. The Morning Brief is compiled by Renewing America contributor Steven J. Markovich.

Large multinational firms continue to lobby for additional tax breaks on overseas income (Bloomberg). Business groups are trying to convince House Ways and Means Committee chairman Dave Camp, who supports cutting the corporate tax rate, to loosen offsetting rules he has proposed that could reduce their flexibility to shift income to lower-taxed locales. Options proposed by Camp include tighter rules for taxing excess profits on intangible assets such as patents and trademarks, and adding U.S. taxes on those assets to foreign taxes to reach a minimum of 15 percent. The United States currently has highest statutory corporate tax rate in the world—35 percent for federal taxes only—though the actual rates paid vary significantly. This CFR Backgrounder by Jonathan Masters discusses the effect of current policy, and proposals for U.S. Corporate Tax Reform. Accounting Rules Will Not Curb Cyclicality The chairman of the International Accounting Standards Board (IASB) stated that banking regulators cannot place their faith in new accounting rules to curb boom and bust cycles and argued that criticisms of current rules are only partially justified (FT). The IASB and the United States’ Financial Accounting Standards Board (FASB) are two years behind schedule on accounting reforms, including new loan impairment rules that proponents hope will force banks to more quickly face the consequences of bad loans. Corporate regulation and taxation. Read more from top economists and business experts on solutions for addressing corporate tax reform. Debt and Deficits Some Lawmakers Seek to Undo Automatic Cuts Senator Lindsey Graham (R-SC) and Secretary of Defense Leon Panetta are giving dire warnings about pending defense cuts (NYT). While the Obama administration and Congress already agreed to $450 billion in military cuts over ten years, the failure of last fall’s supercommittee means an automatic additional $600 billion reduction under the Budget Control Act of 2011. The law exempts war costs, personnel levels, and military pay, and therefore concentrates cuts in areas such as research, weapons procurement, and operations. However, the House approved an annual defense policy bill in May that exceeded these spending constraints. As the United States continues to run budgets with high deficits, politicians debate different plans to reduce government costs and to raise revenue. This CFR Backgrounder by Jonathan Masters outlines the competing policy paths on federal fiscal reform, and the global consequences for failing to bring down U.S. debt. Debt and deficits. Read more from experts on the challenges in reducing U.S. debt. Infrastructure Alternatives to Clean Energy Subsidies The editorial board of the Washington Post advocates for either a carbon tax or more responsive subsidies rather than simply renewing the wind production tax credit. They argue that current subsidies could be replaced by a system that rewards the renewable energy sources that are lowest cost and cite subsidy proposals from “Beyond Boom & Bust,” a report written by members of the Breakthrough Institute, Brookings Institution, and World Resources Institute. Infrastructure. Read more on how upgrading the nation’s aging network of roads, bridges, airports, railways, and water systems is essential to maintaining U.S. competitiveness. The Morning Brief is compiled by Renewing America contributor Steven J. Markovich.

The Urban Land Institute and Ernst & Young released their latest annual assessment of global infrastructure, Infrastructure 2012: Spotlight on Leadership. The report looks at how six different U.S. regions are successfully addressing their infrastructure needs, and also discusses funding methods and global trends. The authors see a shift in developed economies from large transformational national projects to more tightly focused regional efforts. Scott Thomasson, the president of NewBuild Strategies and an expert on infrastructure funding, recently authored Encouraging U.S. Infrastructure Investment, a Policy Innovation Memo released by CFR’s Renewing America initiative. Infrastructure. Read more on how upgrading the nation’s aging network of roads, bridges, airports, railways, and water systems is essential to maintaining U.S. competitiveness. International Trade and Finance India Eyes $7 Billion in Retroactive Taxes The Wall Street Journal reports that India is likely to pursue almost $7 billion in retroactive taxes from deals between foreign firms; half may come from a 2007 Vodafone acquisition. Earlier this year, the Indian Supreme Court ruled that the transaction was ineligible for taxation; in the next few days, the government is expected to pass legislation to acquire retroactive tax power on all deals involving Indian assets. Vodafone is seeking international arbitration. This CFR Independent Task Force report encourages the Obama administration and Congress to adopt a “pro-America” trade policy that brings to more Americans the benefits of global engagement. International trade and investment. Read more from leading analysts on the debate over next steps in U.S. trade policy. Corporate Regulation and Taxation FTC Chairman Sees Opportunities in Privacy While some internet firms worry about privacy backlash, Jon Leibowitz, the chairman of the Federal Trade Commission (FTC), suggested that more privacy on the internet could increase revenues to web companies (TechCrunch). He argued that “The more control consumers have over the internet, the more they trust it and the more commerce they do…. this is good for business.” Forbes has a breakdown of major points, including antitrust issues and the FTC’s power in disciplining the market. Video highlights are available here. Corporate regulation and taxation. Read more from top economists and business experts on solutions for addressing corporate tax reform. Education and Human Capital Companies Try to Hire More from Within Firms are ramping up efforts to hire more from within (WSJ). Internal hires tend to have better performance reviews in the first two years, even though external ones average 18 percent higher pay; experts believe that firms historically have underestimated the difficulty in integrating outside hires. While firms build internal talent systems to improve matching, experts say they need to be wary of managers who hoard top talent and remember that external hires are often the most effective change agents. Education and human capital. Read more from experts discussing ways to improve U.S. education and immigration policies. Innovation SpaceX’s Successful Splashdown Space Exploration Technologies (SpaceX) completed the first private mission to resupply the International Space Station (ISS) and return material to the Earth (NYT). SpaceX is expected to receive a $1.6 billion contract with NASA for 12 future ISS supply flights, and it is targeting manned launches by 2015. The Atlantic breaks down the numbers, while the editors of Bloomberg point out that every $1 spent on space yields at least $2 in economic benefits at home; they urge NASA to concentrate on moving humanity beyond low Earth orbit while delegating routine tasks to private firms. 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 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.

President Obama signed into law an extension of the Export-Import Bank (NYT), passed by Congress with bipartisan support on May 15.  The measure extends Ex-Im’s charter to September 2014 and raises the bank’s lending limit from $100 billion to $140 billion over three years.  Critics have argued that Ex-Im distorts markets and effectively subsidizes exports while exposing taxpayers to default risk (WSJ).  Proponents point to Ex-Im’s profitability, and see it as a counterbalance to foreign subsidies; as Obama put it: “As long as our global competitors are providing financing for their exports, we’ve got to do the same.” CFR Senior Fellow and Renewing America Director Edward Alden discusses the issues lawmakers faced as they considered Ex-Im reauthorization, including the increasingly aggressive actions of developing countries to finance their exports and Ex-Im’s efforts to match them. International trade and investment. Read more from leading analysts on the debate over next steps in U.S. trade policy. Education and Human Capital Innovative Jobs Programs Slow to Launch According to Stateline, states are facing delays in using federal unemployment insurance funds for pilot programs to subsidize wages and employer-provided training. Earlier this year, ten states were allowed to experiment with these new approaches, but state officials and some lawmakers are arguing that the Labor Department has made the approval process overly bureaucratic. The federal agency argues it is being appropriately cautious and thorough. Several programs are modeled after the Georgia Works program which will subsidize training of up to twenty-four hours a week for up to eight weeks for qualified individuals. ManpowerGroup Analyzes Talent Shortages ManpowerGroup, one of the world’s largest temporary worker agencies, released its report on global talent shortages.  In Asia and the Americas, employers are facing increased difficulty in finding qualified applicants to fill positions.  In the United States, the most difficult roles to fill were skilled trade workers and engineers, highlighting the workforce effects of deemphasized vocational training and mediocre STEM K-12 education. CFR’s Ted Alden discusses the shortage of skilled workers in the U.S. manufacturing pipeline and the need for firms, governments, and unions to work together to encourage young people to pursue manufacturing careers, and schools to increase relevant education. Education and human capital. Read more from experts discussing ways to improve U.S. education and immigration policies. Innovation Innovation Misconceptions A blog post from the Harvard Business Review argues that misconceptions often surround innovation. Many mistakenly equate innovation with creativity; successful innovation requires not only good ideas, but a strategic plan and successful implementation. Just as innovation is not limited to idea generation, it should also not be limited to a select few in an organization, but should involve everyone. Finally, innovation is not only doing the big things, but often starts small. 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.

The Washington Post reports that Secretary of Education Arne Duncan announced eight more states received waivers from No Child Left Behind (NCLB) requirements. This brings the total number of states to receive waivers to nineteen; seventeen other states plus Washington, DC have applications under review. Duncan argued that Congress’ stalled efforts to rewrite NCLB over the past five years necessitated the waiver process: “We prefer a bipartisan rewrite of No Child Left Behind. Obviously, that’s not where Congress is right now. . . . Children can’t wait. Teachers can’t wait. We’re moving forward right now.” Calculating the Common Core Cost The Thomas B. Fordham Institute issued a report that estimated the cost of implementing the Common Core State Standards (CCSS) for math and reading. The authors used three scenarios varying the adoption rate of electronic textbooks; gross costs ranged from 1.5 to 3 percent of annual K-12 education spending. After considering current outlays for instructional materials, the authors calculated that CCSS implementation in forty-five states and DC could cost as much as $8.2 billion, or save over $0.9 billion if electronic instruction materials are widely adopted. The recent report of the CFR Independent Task Force on U.S. Education Reform and National Security highlights the importance of the CCSS and asserts that fixing the nation’s underperforming K-12 schools is critical to economic competitiveness and national security. Education and human capital. Read more from experts discussing ways to improve U.S. education and immigration policies. International Trade and Investment Flat Manufacturing Wages Aid Revival Since bottoming out in 2010, U.S. manufacturing employment is up 4.3 percent, but expanding domestic production is aided by flat wages (WSJ). While average wages in manufacturing are at year 2000 levels after adjusting for inflation, there is a steady trend of manufactures adding new workers at lower rates than existing workers. Skilled workers are often in short supply and tend to fare much better. An economist with the Chicago Federal Reserve Bank anticipates upward wage pressure: “Already, you hear about the dearth of certain kinds of workers. There's a recognition that as we train workers to be more productive and more skilled, you'd better compensate them so that they stay with you.” CFR’s Edward Alden discusses the shortage of skilled workers in the U.S. manufacturing pipeline and the need for firms, governments, and unions to work together to encourage young people to pursue manufacturing careers, and schools to increase relevant education. International trade and investment. Read more from leading analysts on the debate over next steps in U.S. trade policy. Innovation CornellNYC Tech New York City plans a high tech center to compete with Silicon Valley (AP). The $2 billion campus will house CornellNYC Tech, a partnership between Cornell University and the Technion-Israel Institute of Technology. The research center will focus on industries that are already strong in NYC: medical technology, digital media, and cleantech. While the Roosevelt Island site will not open until 2017, CornellNYC Tech is already taking shape. Greg Pass, Twitter’s former chief technology officer, has joined as the founding entrepreneurial officer, and Google will donate Manhattan office space from July until the campus opens (VentureBeat). Innovation. Read more on how the U.S. capacity to innovate could play a chief role in economic growth. Infrastructure Coal Under Siege Tightening environmental regulations and the lure of low-priced natural gas are leading electrical utilities to dump coal (NYT). Natural gas is currently cheaper, pollutes less, and releases less carbon dioxide than coal, so it is gaining favor for both economic and environmental reasons. Some coal producers are ramping up lobbying efforts to forestall further regulations, while others are planning to increase exports to coal-hungry developing nations. Infrastructure. Read more on how upgrading the nation’s aging network of roads, bridges, airports, railways, and water systems is essential to maintaining U.S. competitiveness. The Morning Brief is compiled by Renewing America contributor Steven J. Markovich.

New research indicates that the bulk of the pay premium enjoyed by workers in developed nations is from a difference in location, not skills (BusinessWeek). Workers in the United States enjoy a “place premium”—even after adjusting for purchasing power—due to public goods such as infrastructure, a developed financial system, and reliable regulations and laws. This location effect accounted for three-quarters of the difference in average pay between U.S. software workers and Indian counterparts. It also explains why an Indian McDonald’s employee can only afford one-third of a Big Mac after an hour of work, while an American worker can buy two. Mobility Tied to Education U.S. workers are substantially more mobile than Europeans, but mobility correlates with education (WSJ). As the economic vitality of U.S. cities becomes more uneven, the greater ability of highly-educated workers to pay the upfront costs of relocation leads to increasing inequality. The author recommends a federal relocation assistance voucher program to help workers pursue new opportunities in growing cities. Education and human capital. Read more from experts discussing ways to improve U.S. education and immigration policies. Debt and Deficits Extended Unemployment Benefits Ebb Unemployment checks are stopping for many long-term unemployed as the federal benefit extensions begin to phase out (NYT). In February, Congress extended the use of federal monies to supplement state unemployment funds to cover out-of-work workers for up to ninety-nine weeks. But that legislation also phased in a reduction of benefit weeks, and set higher standards for states to receive the maximum amount of aid. The end of federal assistance is part of the “fiscal cliff” that the CBO warned could lead to recession next year. Earlier this year, CFR’s Edward Alden discussed the CBO report on the budget impact of current legislation if Congress does not act. While he states that no action would be bad policy, he suggests that Congress take the current law as a budget baseline. Public Pension Funds Take on More Risk The Financial Times reports that U.S. public pension funds have increased investment in risky assets as more of their participants retire, despite economic theory that suggests they should invest more conservatively. U.S. public plans calculate liabilities with an assumed rate of return; investing in risky assets allows plans to lower stated liabilities by assuming a higher rate of return. If those higher returns do not materialize, shortfalls may result. One expert remarked: “All the current fund boards, politicians, and even taxpayers have an incentive to kick the can down the road.” Debt and deficits. Read more from experts on the challenges in reducing U.S. debt. Infrastructure CBS News Sunday Morning examined the importance of highways to U.S. economic strength, and the consequences of underinvestment. Federal Highway Administrator Victor Mendez offered: "When we're competing with China, India, emerging economic powers like Brazil, we better have our infrastructure ready to go, to be able to compete on a global basis." A principal challenge is funding; last year the federal gas tax ($32 billion) was insufficient to pay for federal transportation outlays ($37 billion). The Department of Transportation needs $100 billion a year for the next twenty years just to maintain the current system. Scott Thomasson, the president of NewBuild Strategies and an expert on infrastructure funding, recently authored "Encouraging U.S. Infrastructure Investment," a Policy Innovation Memorandum released by the CFR’s Renewing America initiative. Thomasson proposes new initiatives to address crumbling U.S. infrastructure. Infrastructure. Read more on how upgrading the nation’s aging network of roads, bridges, airports, railways, and water systems is essential to maintaining U.S. competitiveness. Innovation Facebook’s Stumbles May Chill IPO Market In less than two weeks since its initial public offering (IPO), Facebook’s share price tumbled more than 15 percent; that fall may be dampening investor enthusiasm for IPOs (LA Times). Other Silicon Valley firms such as Twitter and Spotify are considering delaying their IPOs until market sentiment rebounds. Facebook may weigh especially hard on small, individual investors; one who lost $1,000 on Facebook remarked: "It was a chance to be part of history. This was my first foray into an IPO, and it'll probably be my last." One analyst speculated that the effects will not last: “I don't think long term there will be any less demand for anything Silicon Valley produces.” 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.

China responded to the recently imposed 31 percent U.S anti-dumping tariffs on imports of Chinese solar panels with investigations into U.S. clean energy projects (WSJ). China’s Commerce Ministry alleges six projects in five states violated international trade law, and Beijing has stated that the tariffs reflect “the U.S.'s tendency toward trade protectionism.” The heads of four major Chinese solar power manufacturers have banded together to refute the determination of the U.S. Commerce Department. CFR Senior Fellow and Renewing America Director Edward Alden discusses the general lack of trade protectionism in the wake of the Great Recession, and the likelihood that the WTO has restrained this political impulse. International trade and investment. Read more from leading analysts on the debate over next steps in U.S. trade policy. Education and Human Capital A Common Core Can Spur Innovation As part of Washington Monthly’s special report on education, Robert Rotham sees the adoption of the Common Core State Standards as a transformational moment that will unlock education innovation. He argues that nearly nationwide standards will help children who move from state to state and facilitate innovation by allowing the best educational products and practices to easily spread. Assessment should also improve as testing and requirements standardize, and it becomes easier to compare performance between states. The report of the CFR Independent Task Force on U.S. Education Reform and National Security 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. Student Loan Bill Stalls Politico reports that the Senate was unable to pass either party’s bill to renew a temporary rate cut on subsidized Stafford loans. Democrats favor eliminating a loophole that allows some self-employed professionals to avoid payroll taxes, while Republicans are targeting spending cuts in an element of the healthcare reform law. On July 1, subsidized Stafford loans are scheduled to return to an interest rate of 6.8 percent from the current 3.4 percent. Education and human capital. Read more from experts discussing ways to improve U.S. education and immigration policies. Corporate Regulation and Taxation Wind Power Tax Credit Expiration Looms The wind production tax credit will expire at year’s end; its renewal is attracting supporters from both parties (TheHill). President Obama spoke at an Iowa manufacturer of wind turbine parts in favor of renewal. Republican Senator Chuck Grassley of Iowa has introduced legislation to extend the credit and called renewing the tax credit a “no-brainer for many of us.” But Grassley also indicated that renewal may have to wait for other, less popular, expiring tax provisions to be debated on Capitol Hill. Corporate regulation and taxation. Read more from top economists and business experts on solutions for addressing corporate tax reform. Innovation Google Wins Patent Fight Google and the Android platform won an important court victory yesterday, trouncing Oracle’s claims of patent infringement (Bloomberg). The patents in question relate to the Java programming language developed by Sun Microsystems, which Oracle acquired in 2010. Oracle had sought a billion dollars in damages, and wanted a licensing fee for every Android smartphone sold. Separately, a German court ruled that Google’s new Motorola Mobility subsidiary infringed a Microsoft patent related to text messaging (Reuters). 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.

One of the cardinal rules of Chinese diplomacy is that China doesn’t mix business with politics. The precept fits in nicely with the primacy that China places on sovereignty, respecting the right of a country—or at least the leaders of the moment—to determine how things ought to work. And, of course, it also provides Beijing with the opportunity to rationalize its lack of enthusiasm for tough foreign policy action in places such as Iran, Syria, Sudan, or Zimbabwe as a matter of principle. Of course, as I have written elsewhere, doing business in any country—particularly when you supply a country with arms as Beijing has done in both Sudan and Zimbabwe—is in fact mixing business with politics. And the ongoing competition between Beijing and Taipei to purchase diplomatic relations with small, often poor, states is nothing if not the blatant mixing of business with politics. So on the face of it, the claim is rather silly. Moreover, there have been more subtle cases in the past—such as when Beijing postponed a purchase of Airbus planes after then-President Sarkozy agreed to meet with the Dalai Lama in 2008 and its rare earth export slowdown to Japan in the wake of the East China Sea dispute in 2010, to name a few—that suggest Beijing has not been unwilling to exert a bit of economic leverage to punish a perceived political transgression. In fact, it appears that Beijing’s willingness to mix business with politics is increasingly an open secret.  In the midst of China’s dispute with the Philippines over control of a shoal in the South China Sea, Beijing has called on Chinese travel agencies to suspend tours to the Philippines. There have also been some fruit shipments blocked from the Philippines to China, although this problem apparently began before the standoff in the South China Sea. A similar theme is playing out this month across a couple of oceans. The state-supported Global Times has called for Beijing to suspend some economic cooperation with the United Kingdom in retaliation for Prime Minister David Cameron meeting with the Dalai Lama. The Ministry of Foreign Affairs has chimed in by saying that the meeting “Seriously interfered with China’s internal affairs, undermined China’s core interests, and hurt the feelings of the Chinese people.” And of course, Tokyo felt Beijing’s political sting when it hosted the World Uyghur Congress, an exile group opposed to China’s policies in Xinjiang that is considered by Beijing to be a terrorist organization. Beijing cancelled a meeting between Foreign Minister Yang Jiechi and Hiromasa Yonekura, the Chairman of the Japanese business group Keidanren, to demonstrate its displeasure with Tokyo. Despite Beijing’s massive economic weight, however, its efforts to throw that weight around are unlikely to succeed. The problem for Beijing, as I see it, is three-fold. First, on the rare occasion that anyone listens to China’s protestations and does what Beijing wants, it seems that Beijing doesn’t then return the favor. (See, for example, President Obama postponing a meeting with the Dalai Lama before his trip to Beijing in 2009, and China’s ungenerous treatment of the U.S. president in return.) Once countries see that China takes without giving back, no one will want to give any more. Second, it is very difficult to use economic leverage to get other states to adopt your interests as their own when they really don’t want to. Here Beijing can look to the United States for instruction. At a recent meeting I attended, when a senior Myanmar/Burmese official was asked whether the U.S. sanctions had any impact on the country’s decision to transition to democracy and open the economy, the official said—rather unsurprisingly, I think—that they really hadn’t, because the sanctions had been around for years. Third, Beijing may simply be in danger of overestimating its economic leverage. In the case of the Philippines, for example, even though China is the Philippines’ third largest trading partner, the Chinese are not among the top three tourist groups visiting the Philippines and Filipino Tourism Secretary Ramon Jimenez Jr. seems unfazed by China’s pullout. He has simply suggested that the Philippines will look to Japan and other “traditionally stronger markets” to make up the difference. China has long mixed business with politics in a most unattractive fashion; it just hasn’t been willing to admit it. Will it make a difference if Beijing finally fesses up? My guess is that greater honesty won’t make much of a difference outside China, where everyone is pretty well aware of the gap between Chinese rhetoric and Chinese actions on the ground. The opportunity rests within China itself. If China’s leaders can take the first step to acknowledge honestly what it is they are doing, they may be able to take the second step and realize that what they are doing is not, in fact, yielding what they want. That, at least, might put them a step ahead of the United States, where we are still waiting for Cuba to see the error of its ways.

Mitt Romney, the presumptive GOP presidential nominee, gave a major policy speech yesterday outlining his educational priorities (NYT). The candidate argued that disparate educational opportunities—with minorities disproportionately relegated to failing schools—is the “civil-rights issue of our era.” He embraced school choice and proposed a federal voucher-like system for low-income students, and also called for increasing school performance transparency so parents can avoid failing schools. Education has not been a major issue for presidential campaigns since 2000, but analysts noted this speech was given at the Latino Coalition’s Annual Economic Summit, and see an opportunity for Romney to attract Hispanic voters. Choice-based school reforms have attracted considerable debate among experts. The state of Louisiana has become a kind of national laboratory for proponents of choice-based reform. Renewing America contributor Steven J. Markovich discussed recent Louisianan educational reforms in a Policy Initiative Spotlight. Education and human capital. Read more from experts discussing ways to improve U.S. education and immigration policies. Corporate Regulation and Taxation Data-Driven Regulations? In Bloomberg, noted finance researcher Tobias J. Moskowitz argues for regulations based upon data rather than political ideology and public outrage. As one example, Moskowitz and his colleagues conducted a randomized experiment that found restricting short selling may not prop up share prices after all. He points out that similar data were available to Securities and Exchange Commission (SEC) regulators three years before the financial crisis, but says policymakers let politics—rather than data—guide their regulatory response to the crisis. Corporate regulation and taxation. Read more from top economists and business experts on solutions for addressing corporate tax reform. Debt and Deficits China Buys U.S. Treasuries Directly Since June 2011, China has had the option of buying U.S. Treasuries directly and bypassing Wall Street banks (Reuters). China is the only nation to have a direct relationship with the U.S. Treasury; all other sovereigns buy U.S. debt through “primary dealers.” This accommodation benefits the Chinese by reducing transaction costs and hiding their bids from other buyers. It also highlights China’s purchasing power. China holds $1.17 trillion in U.S. debt—the most of any nation. Debt and deficits. Read more from experts on the challenges in reducing U.S. debt. International Trade and Investment Airplane Sales Takeoff Boeing and Airbus have enjoyed soaring demand, but analysts caution airplanes sales may be in a bubble (Reuters). Rising orders are being driven by travel growth in emerging economies, fuel cost conscious airlines seeking a more efficient fleet, and the growth of aircraft leasing companies. Airbus and Boeing predict a $4 trillion airplane market over the next twenty years. That market may be increasingly shared with new entrants from China, Brazil, Canada, and Russia, though most growth plans have hit turbulence (Economist). China’s first passenger jetliner will face further delay (Reuters). International trade and investment. Read more from leading analysts on the debate over next steps in U.S. trade policy. Infrastructure Federal Funds for Portland Light Rail The Federal Transit Administration (FTA) agreed to pay for half of a $1.49 billion project to extend light rail from Portland to its suburbs, with operation slated for 2015. The funds came from the FTA’s discretionary New Starts program, which uses federal funds to support locally planned, implemented and operated transit projects. New Starts funds are supporting projects to build light rail, bus rapid transit, commuter rail, and even New York’s second avenue subway line. Scott Thomasson, the president of NewBuild Strategies and an expert on infrastructure funding, recently authored "Encouraging U.S. Infrastructure Investment," a Policy Innovation Memorandum released by CFR’s Renewing America initiative. Thomasson proposes new initiatives to address crumbling U.S. infrastructure. Infrastructure. Read more on how upgrading the nation’s aging network of roads, bridges, airports, railways, and water systems is essential to maintaining U.S. competitiveness. The Morning Brief is compiled by Renewing America contributor Steven J. Markovich.

Over the years, advanced and developing countries have experimented, sometimes deliberately and frequently inadvertently, with a variety of approaches to growth. Unfortunately, many of these strategies have turned out to have built-in limitations or decelerators – what one might call elements of unsustainability. And avoiding serious damage and difficult recoveries requires us to get a lot better at recognizing these self-limiting growth patterns early on. Here are some of the items in a growing library of decelerating growth models. In developing countries, import substitution as a way to jump-start economic diversification can work for a while; but, over time, as productivity growth lags and comparative advantage is over-ridden, growth grinds to a halt. Small, open economies are naturally somewhat specialized, which leaves them vulnerable to shocks and volatility. But, in terms of growth and living standards, the cost of economic diversification, when implemented by protecting domestic industries from foreign competition, eventually outweighs the benefits. It is better to allow specialization, and build effective social safety nets and support systems to protect people and families during economic transitions. Such “structural flexibility” is better adapted to enabling the broad changes that rapidly evolving technological and global economic forces require. Mismanagement of natural-resource wealth underpins an especially potent self-limiting pattern of growth and development. If invested in infrastructure, education, and external financial assets, natural-resource revenues can accelerate growth. But, too often, such revenues distort economic incentives, which come to favor rent-seeking and interfere with the diversification that is essential for growth. More recently, many advanced countries have discovered a “new” set of growth models with built-in structural limitations: excessive private or public consumption, or both, usually accompanied and enabled by rising debt and inflated asset prices, and a corresponding decline in investment. This approach appears to work until domestic aggregate demand can no longer sustain growth and employment, at which point it ends in either gradual stagnation or a violent financial and economic crisis. (In fact, many developing countries have learned this the hard way, but the lessons seem not to have crossed over to advanced countries.) But the opposite of the excessive-consumption model – excessive reliance on investment to generate aggregate demand – is also a self-limiting growth pattern. When the private and social returns of investment diminish too much, growth cannot be sustained indefinitely, even though rising investment rates can sustain aggregate demand for a while. Altering this growth pattern is a significant part of the challenge that China now faces. Rising inequality in either opportunity or outcomes (and often both) also poses threats to the sustainability of growth patterns. While people in a wide range of countries accept some degree of market-determined income variation, based on differential talents and personal preferences, there are limits. When they are breached, the typical result is a sense of unfairness, followed by resistance and, ultimately, political choices that address the inequality, though sometimes in counter-productive, growth-impeding ways. Perhaps the largest long-run sustainability issue concerns the adequacy of the global economy’s natural-resource base: output will more than triple over the coming two or three decades, as high-growth developing economies’ four billion people converge toward advanced-country income levels and consumption patterns. Existing economic-development strategies will require significant adaption to accommodate this kind of growth. Some adaptation will occur naturally, as rising energy and other commodity prices generate incentives to economize or seek alternatives. But the un-priced environmental externalities – global warming and water depletion, for example – will require serious attention, not myopic, reactive mindsets and approaches. All of these self-limiting growth patterns tend to have three things in common. First, in one or several dimensions, some part of the economy’s base of tangible, intangible, and natural-resource assets is being run down. I would include social cohesion as part of the asset base: it is the one that is depreciated by excessive inequality. Measurement issues play an important role here. It is easier to run down something that is partly invisible because it is not regularly or effectively measured. Expanded measurement of the dimensions of economic, social, and environmental performance is necessary to broaden awareness of sustainability issues. Second, unidentified self-limiting growth patterns produce very bad results. Expectations come to exceed reality, and resetting the system to a sustainable growth pattern is difficult. After all, past investment shortfalls have to be made up and future-oriented investments undertaken simultaneously – a double burden that must be borne by the current generation. An inability to resolve the distributional and fairness problem can produce gridlock, paralysis, and prolonged stagnation. Finally, many of these flawed growth patterns involve fiscal distress. Contrary to the prevailing wisdom nowadays, some degree of Keynesian demand management in the transition to a more sustainable growth pattern is not in conflict with restoring fiscal balance over a sensible time period. On the contrary, applied both individually and together, fiscal stimulus and consolidation are necessary parts of the adjustment process. But they are not sufficient. The crucial missing pieces are a shift in the structure of accessible aggregate demand and restoration of those parts of the economy’s asset base that have been run down, implying the need for structural change and investment. This article originally appeared at www.project-syndicate.org.

The nonpartisan Congressional Budget Office (CBO) predicts that the “fiscal cliff” of over $500 billion in spending cuts and tax increases scheduled under current law will cause a recession in the first half of 2013. The CBO argues that Congress should reduce these fiscal changes to prevent recession while enacting specific, long-term measures to put federal finances on a stable course—a view shared by Peter Orszag, former CBO director and current CFR Adjunct Senior Fellow. The Committee for a Responsible Federal Budget has a quick summary of the scheduled spending cuts and the tax increases. Earlier this year, CFR’s Edward Alden discussed the budget impact of current legislation if Congress does not act. While he states that no action would be bad policy, he suggests that Congress take the current law as a budget baseline. Debt and deficits. Read more from experts on the challenges in reducing U.S. debt. International Trade and Investment Foreign Retailers Fill Vacated Mall Storefronts As many U.S. retailers pull back from shopping malls, foreign retailers are opening stores (NYT). The Japanese affordable clothing chain Uniqlo plans to open twenty to thirty new stores annually over the next eight years, despite aborting previous mall expansion plans in 2006. Foreign retailers across the price spectrum are attracted to the United States because of easier access to credit, lower regulatory hurdles, relatively cheap rents, and the chance to attract Wall Street investment. International trade and investment. Read more from leading analysts on the debate over next steps in U.S. trade policy. Corporate Regulation and Taxation Why Banks Shouldn't Be Broken Up In the wake of J.P. Morgan’s $3 billion trading loss, the editors of Bloomberg argue large banks should not be broken up through regulatory fiat, even though complex financial institutions are hard to regulate. They acknowledge that “too big to fail” creates an implicit government subsidy; systemically important banks are likely to be bailed out, lowering their risk of default and borrowing costs, and thus increasing profits. The editors suggest imposing fees and higher capital requirements as banks grow larger, to reduce this perverse incentive to expand even further. Corporate regulation and taxation. Read more from top economists and business experts on solutions for addressing corporate tax reform. Innovation 'Innovation' Saturation The Wall Street Journal reports that the term “innovation” has exploded in popularity, but its increasing use in corporate materials may be a marketing ploy. "Most companies say they're innovative in the hope they can somehow con investors into thinking there is growth when there isn't," says Clayton Christensen, author of 1997’s The Innovator’s Dilemma. Many firms use the term to refer to very good products, rather than reserving it for new, disruptive products, which helps explain why Campbell’s Soup uses the term more than Google. Innovation. Read more on how the U.S. capacity to innovate could play a chief role in economic growth. Education and Human Capital Romney May Seek to Expand School Choice Education Week obtained a document from the campaign of likely Republican presidential nominee Mitt Romney, suggesting he could increase school choice nationwide. One proposal would allow students from disadvantaged families or in special education to apply federal funds to any public district, charter school, or private school (if consistent with that state’s rules). Other proposals include encouraging states to drop caps on charter schools, expanding the DC Opportunity Scholarship, and using federal block grants to encourage states to institute effective programs of identifying and retaining good teachers. Choice-based school reforms have attracted considerable debate among experts. The state of Louisiana has become a kind of national laboratory for proponents of choice-based reform. Renewing America contributor Steven J. Markovich discussed recent Louisianan educational reforms in a recent Policy Initiative Spotlight. Education and human capital. Read more from experts discussing ways to improve U.S. education and immigration policies. The Morning Brief is compiled by Renewing America contributor Steven J. Markovich.

The Department of Education is expected to release new draft regulations for grant proposals for the latest round of Race to the Top funds (Education Week). The new guidelines for receiving one of the fifteen to twenty four-year grants from the $400 million program include: instruction tailored to individual students, incorporating student data into district superintendent evaluation, and the proposal’s “vision” for improving performance and narrowing achievement gaps. The recent report of the CFR Independent Task Force on U.S. Education Reform and National Security 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. Chipotle’s Hiring Practices Under Investigation Chipotle Mexican Grill, the quick service food chain that owns and operates over a thousand U.S. stores, is under investigation by the SEC for its hiring practices (WSJ). Chipotle has been the subject of prior investigations; a 2010 case led to the termination of 450 undocumented workers in Minnesota. Since that investigation, Chipotle installed the Department of Homeland Security’s E-Verify system to screen job applicants. That system failed to protect the Pei Wei Asian Diner food chain, which closed eight Arizona locations after employees used stolen identities to bypass the E-Verify protections. CFR’s 2009 Independent Task Force on U.S. Immigration Policy, recommended policies with three goals: reform of legal immigration to improve efficiency and U.S. competitiveness; effective enforcement of immigration laws; and a fair, humane, and orderly way to deal with migrants illegally living in the United States. Education and human capital. Read more from experts discussing ways to improve U.S. education and immigration policies. Innovation SpaceX’s Dragon Capsule Rockets to Orbit At 3:44am EDT, SpaceX’s Falcon 9 rocket launched its Dragon capsule into orbit (Wired). Last Saturday’s launch was scrubbed after a computer diagnostic program detected a faulty valve half a second before liftoff. Dragon will conduct maneuvering exercises and on Friday will attempt to dock with the International Space Station, the first non-government entity to make that attempt. If successful, Dragon may carry astronauts within three years (AP) and validate NASA’s plans to rely on private space companies to achieve low earth orbit. Finger-pointing over Facebook’s Falling Price Facebook’s share price is down almost 11 percent after two days of trading, leading many to blame lead underwriter Morgan Stanley (Bloomberg). A few days before Friday’s Initial Public Offering (IPO), Morgan Stanley and Facebook decided to raise the share price and the number of shares being offered, which experts believe set the stage for decline. While investors have complained about the underwriters, TechCrunch argues that the IPO was successful for Facebook by maximizing the capital raised for the firm while minimizing costs and dilution for its pre-IPO shareholders. Innovation. Read more on how the U.S. capacity to innovate could play a chief role in economic growth. International Trade and Investment Chinese Firm to Acquire U.S. Movie Theater Chain China’s Dalian Wanda Group, announced its $2.6 billion proposal to purchase AMC Entertainment Holdings (WSJ). The deal would be a role reversal; typically U.S. media interests are trying to break into the burgeoning Chinese market. Wanda’s CEO said he would let AMC’s management make decisions on what movies to show based upon market demand, though he also added that Chinese-made movies would gradually enter the U.S. market. Talks have been under way for almost two years (NYT); the deal will require regulatory approval. This CFR Independent Task Force report encourages the Obama administration and Congress to launch a National Investment Initiative to encourage greater foreign investment in the United States. International trade and investment. Read more from leading analysts on the debate over next steps in U.S. trade policy. The Morning Brief is compiled by Renewing America contributor Steven J. Markovich.