The document discusses recent economic trends in the US and global economy. It notes that while last year's estimates for unemployment, growth, and inflation in the US were higher than actual outcomes in 2010, unemployment is still expected to remain above 8% until 2012. The global economic outlook forecasts modest growth in 2011 for most countries. The document also addresses questions about issues like the US economy, China, unemployment, California's economy, long-term debt, and tax reform.

1. The global economic e Andy Policano Dean The Paul Merage School of Business University of California Irvine

2. Merage A Minute

3. Top 25 programs Executive MBA

4. Top 25 programs Fully Employed MBA Health Care Executive MBA

5. #1 in placement in US in 2010! Merage Full Time MBA

6. Merage The hot ticket > 4500 applicants for 80 freshman majors > 5000 attendees at 12 major events You have a special invitation to join us

7. The global economic e Andy Policano Dean The Paul Merage School of Business University of California Irvine

8. RecentUS trends Unemployment Last year’s estimate for unemployment: Would fall slowly but not reach 8% until 2012 Growth Last year’s estimate for 2010 growth: 2.5 - 3% Actual ~ 2.6% 2006 2007 2008 2009 2010

9. Last year’s estimate of inflation 1.2 - 1.7% Actual: 1.5% CPI Non-seasonally adjusted Source: BLS

10. The U.S. economy in 2010 Early 2010 US economy fueled by gov’t stimulus Spring Growth slowed as stimulus waned Fall/Winter Consumption & firm investment begin to recover

11. Current signals Positives Factory sales, existing home sales, retails sales up Unemployment claims trending down Investment sentiment up Negatives Heavy household debt remains Strained state and local governments European debt; L-T US debt Food and commodity price inflation

12. Questions from today’s attendees Why is the US economy losing its global edge? Why doesn’t China let the Yuan go up? Why doesn’t the unemployment rate fall? Why is California such a mess? Why are we so concerned with long term debt? Why do we need tax reform? Why do we exist?

13. Questions from today’s attendees Why is the US economy losing its global edge? Why doesn’t China let the Yuan go up? Why doesn’t the unemployment rate fall? Why is California such a mess? Why are we so concerned with long term debt? Why do we need tax reform?

14. Economic and Social Forces Multicultural challenges Technological change International Economic Integration Shifting global power Global Financial Crisis Fall of communist and socialist regimes Slower growth in developed economies

15. The dynamics of the global economy Gross Domestic Product

16. The dynamics of the global economy Gross Domestic Product Subliminal message Your current portfolio allocation to international assets may not be enough

17. Real GDP Growth

18. Global Economic Forecast: 2011 United States 2.8 - 3.3 1.3 - 1.8 steady/up

19. Global economic trends

20. A good characterization of the US? All are characteristics of Rome in middle of its decline.

21. Questions from today’s attendees Why is the US economy losing its global edge? Why doesn’t China let the Yuan go up? Why doesn’t the unemployment rate fall? Why is California such a mess? Why are we so concerned with long term debt? Why do we need tax reform?

22. China: The effects of a low Yuan The Good (for China) Has attracted outside buyers of Chinese goods Has added millions of factory jobs Has attracted massive amounts of foreign currency

23. China: The effects of a low Yuan The Bad Excess demand Pushes inflation up Reportedly 5.1%; probably higher Threatens to cause bubbles (real estate) Pushes interest rates up

24. China: The effects of a low Yuan The Ugly Growing income dispersion Growing discontent among ordinary citizens

25. What China is doing Increasing interest rates Placing price controls Clamping down on profiteering Allowing increased imports from US President Hu’s visit last week

26. Economic forces Yuan will rise Can be controlled to do so slowly Yuan has risen 3% against the dollar A rise in the Yuan would ease foreign demand for China’s products allow China to import buy raw materials less expensively ease domestic inflation

27. Questions from today’s attendees Why is the US economy losing its global edge? Why doesn’t China let the Yuan go up? Why doesn’t the unemployment rate fall? Why is California such a mess? Why are we so concerned with long term debt? Why do we need tax reform?

28. The unemployment struggle U = 9.4% U = 16.7% with discouraged & underemployed Need 125K new jobs/mo to keep constant Even if 200K new jobs/mo Unemployment > 5% until 2018 Must transform construction workers into other areas

29. Unemployment Why not hire? Firms have plenty of cash Less expensive to hire temporary workers Still searching for signs of sustainable growth Subliminal message Seek out companies that have strong hiring plans

30. Who are the unemployed? U = 15.7% for those w/o high school degree U = 10% among high school graduates U = 5.1% among college graduates Merage MBA placement best in US Not so subliminal message Get your MBA at Merage!

31. Where are the unemployed?

32. Questions from today’s attendees Why is the US economy losing its global edge? Why doesn’t China let the Yuan go up? Why doesn’t the unemployment rate fall? Why is California such a mess? Why are we so concerned with long term debt? Why do we need tax reform?

33. The California economy Hit harder due to collapse of housing market Public pension plan $25.4 billion shortfall; 30% of budget Good signs Housing permit requests up Price declines slowing Worry: “shadow supply” of existing homes Expect slow growth ( 1 – 2%)

34. Current US policy reaction Continue to fuel economy Decrease payroll tax Renew Bush tax cuts and R&D tax credits Quantitative easing (QE2) Expected impact Short run stimulus but…

35. Critical Challenge Long term fiscal sustainability Aging boomers drain resources by 2030 We must: Provide fiscal stimulus today Pass legislation today for fiscal restraint in future

36. Questions from today’s attendees Why is the US economy losing its global edge? Why doesn’t China let the Yuan go up? Why doesn’t the unemployment rate fall? Why is California such a mess? Why are we so concerned with long term debt? Why do we need tax reform?

37. The National Debt: The Moment of Truth National Commission on Fiscal Responsibility & Reform Large debt puts America at risk Foreign creditors own more than half our public debt Largest foreign holder is China Potential: investors lose confidence in US could trigger a debt crisis

38. Federal debt as a % of GDP Source: Congressional Budget Office

39. Federal debt as a % of GDP pessimistic Source: Congressional Budget Office

40. Federal debt as a % of GDP pessimistic optimistic Source: Congressional Budget Office

41. Reforms needed Health Care Social Security Tax Reform And some direction is needed

42. Potential Solutions Lower discretionary spending(~$1.4 tr) Decrease entitlements (~$1.6 tr) Increase tax revenue From economic growth Corporate tax rate increases Income tax rate increases Taxes on “bads”

43. Tax Reform Simplify tax code Cannot be revenue neutral Cuts alone will not solve the problem

44. Example: a simplified 1040 Instructions: Step 1 : Fill in your income $ Step 2 : Send it all in

45. Tax reform: perhaps But, here is the certainty You will pay more taxes over next decade Subliminal message Your marginal tax rate today might be lower than when you retire

46. Tax reform: perhaps You will pay more taxes over next decade So, would you prefer… 1. Current deductions with higher marginal tax rate OR 2. Simpler format with lower marginal tax rate BUT fewer deductions like charity, mortgage interest

50. What the US is doing Stimulating innovation Renewed R&D tax credit Investment in infrastructure Making Detroit our “China” Growing manufacturing in low cost areas in US

51. New solar roof POWERHOUSE shingle Near Detroit in Michigan 1200 new jobs

52. High Tech battery plant Near Detroit in Michigan 100 new jobs New engine plant; increased shifts Hiring 650 folks

53. Other low cost areas Upgrading plants in several locations 600-800 new jobs

54. GE in Schenectady Overall manufacturing employment has risen for 17 straight months > 1000 new jobs

55. The way forward Skillful government policy Long term plan to control deficit Smart private sector strategies National investment in research, technology and educational system If done well, a solid economic future still lies ahead

56. Summary 2011 Growth: 2.8% - 3.3% Inflation: 1.3% - 1.5% Unemployment: slowly declining Will not hit 8% until 2012 Normal rate: 6.5% - 7% Over next five years Higher taxes Higher interest rates Increased inflation

57. Thank you!

58. In Michigan GM jhigh tech auto battry plant creates about 100 new jobs New engine plant saves about 1400 jobs Announced this week will be hiring 650 workers

59. Likely actions over next decade

61. The dream: in 5 – 10 years

65. • Achieve nearly $4 trillion in deficit reduction through 2020, more than any effort in the nation’s history.

66. • Reduce the deficit to 2.3% of GDP by 2015 (2.4% excluding Social Security reform), exceeding President’s goal of primary balance (about 3% of GDP).2

67. • Sharply reduce tax rates, abolish the AMT, and cut backdoor spending in the tax code.

68. • Cap revenue at 21% of GDP and get spending below 22% and eventually to 21%.

69. • Ensure lasting Social Security solvency, prevent the projected 22% cuts to come in 2037, reduce elderly poverty, and distribute the burden fairly.

74. 20 yrs ago US had lowest corporate tax rate Today 2nd highest

75. China Low percapita income Less than $5000 per person Huge disparities bet rich and poor Badly polluted cities

77. Who will spend? 30 2030 $4.9b in sales 2009 $1.8b in sales US: 4% US: 12% China: 22% China: 9% Other developed countries: 45% Other emerging countries: 62% Other developed: 12%

78. Will the recovery be sustained?

80. Actions begin in 2014

81. Most imp’t health care legislation since Medicare

82. Touches every corner of the medical system

83. Enormously controversial

84. Passed without any Republican votes

85. Vowed to repeal it

86. Two key features:

87. Insure all Americans and regulate insurance companies

89. Increase Percent Insured Regional Health Exchanges Provide low income subsidy Purchases all non-group insurance All individuals and businesses (above 200 employees) Must purchase insurance or pay fine Insurers Must underwrite all who apply

90. Increase Efficiency: the issues Currently Too much care is provided in acute settings Preventive and chronic care underutilized Many administrative efficiencies Estimate 30% to 50% of medical spending is unnecessary Waste = $1 trillion/year

91. Increase efficiency: Suggestions Electronic records Correct current perverse incentives Move away from “fee-for-service” to bundled approach Medicare reform

92. Health Care Reform Will it succeed? Enormous political and judicial hurdles Implementation challenges But The provisions for cost control are real and significant While debate roars on about coverage cost control can proceed