America is at a COVID-19 crossroads.For the first time since the highly effective vaccines became widely available in the spring,the new case rate is back on the rise due to the spread of the more contagious delta variantand the stalled effort to vaccinate people in many parts of the country.
According to medical experts, reaching herd immunity will require that 70% to 90% of the U.S. population be fully vaccinated. But despite having enough vaccines available to inoculate every eligible American age 12 and up, just under 50% of the U.S. population is fully vaccinated.
Worse, at the current vaccination rate of roughly 500,000 per day, it will take nine more months to cover just 75% of the population. This would give dangerous and more contagious COVID variants a chance to gain a foothold and perpetuate the pandemic.
Contain COVID at transportation hubs
President Joe Biden and COVID czar Jeff Zients deserve tremendous creditfor making the COVID-19 vaccines widely availableand bringing focus and discipline to the White House pandemic dysfunction they inherited from former President Donald Trump. But a reliance on incentives and awareness can only get us so far, especially when some irresponsible politicians have been stoking vaccine skepticism and outright hostility.
To get to herd immunity within a reasonable time frame, the Biden administration is going to need to add to its arsenal some targeted vaccine mandates— and the obvious first step is to require proof of vaccination when embarking on an airplane.
According to a number of legal experts, the president has the authority – from laws establishing the Centers for Disease Control and Prevention and the Federal Aviation Administration, as well as the Commerce Clause of the Constitution – to require all airlines to ask ticket holders to provide proof of full vaccination.
By disrupting the spread of COVID-19 at transportation hubs where individuals gather and connect to other geographic regions, and by creating another incentive for adult vaccination, an airline vaccine requirement would help bring the pandemic to an end.
No doubt even a targeted mandate for airline passengers will stoke the outrage machine at Fox News and other right-wing propaganda outlets. Republicans eager for Trump’s favor and anti-vaxxers can be expected to decry any vaccine requirement as an attack on Americans’ basic “freedoms.”
Nowhere in the Constitution’s Bill of Rights will conservatives find a right to infect others with a deadly disease. In addition to defending our civil liberties, government is responsible for promoting the general welfare and protecting citizens from harm. No rational person considers requiring a license to drive a car or fly a plane a form of tyranny.
Citizens have responsibilities, too – to each other, their communities and their country. In times of war and other national emergencies, Americans have always proved willing to sacrifice their private interests and pursuits for the common good. Amid a resurgence of COVID-19 and pervasive vaccine hesitancy, we face just such an emergency today.
Treading cautiously isn’t working
That’s why it is deeply unpatriotic for anti-vaxxers to feed the public misinformation about the efficacy and safety of vaccines. It’s also reckless. More than 99% of people dying from COVID-19 are unvaccinated, according to Surgeon General Vivek Murthy.
President Biden would be on solid ground in invoking the principle of mutual responsibility as a counter to the right’s strangely anti-social conception of freedom. A vaccine requirement for air passengers wouldn’t force anyone to get vaccinated; it would leave them to choose whether refusing the vaccine is more important to them than being able to fly.
In purely legal terms, the Biden administration is well within its authority to protect the health and safety of passengers and citizens. Politically, the president and the COVID-19 vaccines are already under attack by extremists, and this will only get worse should cases rise again and we see the return of mask mandates, such as the one just reinstated in Los Angeles County.
The debate over vaccinations is polarized, and the Biden administration has been right to tread cautiously. But if the best we can do under our current strategy is less than what we need for herd immunity, then reasonable, targeted mandates will be needed in order to end the pandemic and ensure the health and safety of all Americans.
Paul Weinstein Jr. is a senior fellow at the Progressive Policy Institute and directs the M.A. program in public management at Johns Hopkins University. Will Marshall (@Will_PPI) is the president of the Progressive Policy Institute.
On this week’s Radically Pragmatic Podcast, Veronica Goodman, Director of Social Policy at the Progressive Policy Institute (PPI), sits down with Representative Veronica Escobar (TX-16), to discuss the Child Tax Credit.
“We learned very early on when we passed the Child Tax Credit, just what a resounding, powerful impact it would make in our effort to combat child poverty,” said Rep. Escobar on the podcast. “Something that should be the utmost priority for every lawmaker is to ensure that children don’t go hungry, that children are not homeless, that children have every opportunity possible to live prosperous, wonderful lives.”
Congresswoman Escobar is a member of the New Democrat Coalition. She is a Vice Chair for the Democratic Women’s Caucus and serves on the prestigious House Judiciary Committee, House Armed Services Committee, House Ethics Committee, and the House Select Committee on the Climate Crisis. In addition, she serves as Vice Chair of the House Armed Services Subcommittee on Military Personnel.
The American Rescue Plan Act, crafted by the Biden Administration and passed by Congressional Democrats, included a historic expansion of the Child Tax Credit (CTC). Qualifying families will see an increased tax credit of $3,000 for each child between the ages of six and 17 years old and $3,600 for each child under the age of six. The increased credit funds — $250 for children between six and 17, and $300 for each child under six — will be provided monthly, giving over 36 million eligible families relief as we recover from the pandemic. The expansion of the Child Tax Credit could lift one-half of all children in America out of poverty.
The Progressive Policy Institute (PPI) is a catalyst for policy innovation and political reform based in Washington, D.C. Its mission is to create radically pragmatic ideas for moving America beyond ideological and partisan deadlock. Learn more about PPI by visiting progressivepolicy.org.
As talks on a bipartisan infrastructure deal continue, it’s critical to our country’s ongoing economic recovery that workforce development funding – specifically the $100 billion set aside in the American Jobs Plan – not be sidelined. To ensure a labor market recovery for all American workers, including those who have been left behind in the past, we need to invest in employment opportunities for those who have struggled during the pandemic and those who face challenges, no matter the economic conditions.
Many signs point to a labor market in recovery. The current unemployment rate is 5.9 percent, down considerably from historic highs in 2020 but still above pre-pandemic levels. Last week, initial unemployment claims were at the lowest level since March 2020 — welcome progress thanks to the success of the administration’s American Rescue Plan and aggressive vaccination campaign.
But the recovery has remained uneven across education levels and for certain groups. The unemployment rate for Black, Hispanic and non-college educated workers follows past trends and is elevated compared to those with a Bachelor’s degree or higher. In June 2021, the unemployment rate for those with a high school degree and no college was double (7 percent) that of workers with a bachelor’s degree or higher (3.5 percent).
Long spells of unemployment and becoming disconnected from the labor market have profoundly negative effects on families’ overall economic security, including the children of those workers, and can stunt local economies. It is in everyone’s economic interest not just to provide opportunities for workers across the economic distribution but to ensure that our workforce development infrastructure prioritizes good outcomes. The pandemic recovery is an opportunity to make workforce development more inclusive.
Senate Democrats have promised that both the $579 billion Bipartisan Infrastructure Framework and the $3.5 trillion budget blueprint they are advancing this week will be “fully paid for.” While there’s a case for borrowing to finance the most pro-growth infrastructure investments when interest rates are low, lawmakers’ commitment to fiscal discipline is reassuring at a time when the national debt is at record levels and inflation concerns are heating up. But signs are emerging that lawmakers will struggle to keep that promise as they flesh out the details. The upcoming budget resolution is an important opportunity to begin developing clearer financing plans and safeguards to uphold the agreements.
President Joe Biden initially proposed tax increases on corporations and wealthy households that would raise roughly $3.3 trillion in new revenue over the next 10 years to finance his American Jobs and Families Plans. That revenue would almost be enough to pay for the $3.5 trillion in new spending agreed to by Senate Democratic leadership last week, but several key lawmakers have already called for reducing the scope of those tax hikes.
Meanwhile, on the spending side, the budget agreement incorporates provisions — such as a costly Medicare expansion — that weren’t included in either the Jobs or Families Plan. Negotiators have said they will keep the bill’s sticker price under $3.5 trillion by setting the duration of some programs, including an expansion of the Child Tax Credit, to arbitrarily expire after a few years. But this move would be nothing more than a gimmick: The Committee for a Responsible Federal Budget estimates the package could cost up to $5.5 trillion over the coming decade if lawmakers allowed all the policies slated for inclusion in the budget blueprint to become permanent (as is clearly their ultimate intention).
Similar problems with fuzzy accounting plague the Bipartisan Infrastructure Framework. For example, negotiators have said they will pay for $70 billion of spending by cutting fraud from unemployment benefits even though the Congressional Budget Office estimates that overpayments over the next decade will be less than half that amount. The framework also counts offsets such as selling the strategic petroleum reserve, which may need to be bought back at a higher price, and sales of spectrum that have already occurred or would occur under current law. The situation worsened over the weekend when Republicans demanded that increased funding to help the IRS collect unpaid taxes — one of the few legitimate sources of real revenue included in the bipartisan deal — be dropped from the package. .
Some economists and politicians would argue that the policies in these packages don’t need to be paid for because they are public investments in the future. On the one hand, it makes sense to borrow from future generations to pay for investments they will benefit from, particularly when interest rates are low. But on the other, the federal government is currently on track to spend roughly $8 trillion more on programs that aren’t public investment than it will collect in taxes over the next decade, and some of the policies under discussion would further add to that category of spending. Interest rates are also likely to rise between now and when the money in these bills is actually spent. Even if lawmakers are content to borrow $4 trillion for public investment, they should pair it with $4 trillion of revenue to reduce the “consumption deficit” that no responsible leader can defend.
Deficit spending, even for worthwhile long-term investments, could also have negative short- and medium-term consequences if it occurs at a time when the economy is overheating. Much of the $2 trillion spent on the American Rescue Plan earlier this year was necessary to help our economy recover from the pandemic recession, but it has also likely contributed to higher-than-expected inflation. Although most economists believe these recent spikes are likely transitory, nobody can know for sure until later this year or early next. Lawmakers should therefore be wary of committing to a massive new spending bill in the near future before having a plausible plan for how to pay for it.
The Senate will soon vote on a budget resolution that includes instructions telling Congressional committees how much their policies can add to the deficit in a reconciliation bill (the legislative vehicle that will allow Democrats to pass their $3.5 trillion agreement without any Republican votes). Even though lawmakers could pass a reconciliation bill that increases the deficit by less than the amount allowed by the budget resolution, neither the American Rescue Plan nor the 2017 Trump tax cuts left anything on the table.
Therefore, if Congress is serious about paying for the upcoming spending bills, it should safeguard the agreement by passing a budget resolution that instructs the reconciliation process not to increase total budget deficits at all (there could still be some modest deficit-spending in a bipartisan infrastructure bill). Lawmakers must also eschew timing gimmicks that hide the true cost of the policies they are enacting and create uncertainty for working families who may plan their lives around new programs. A broader menu of revenue options, such as a carbon tax, inheritance tax, or progressive consumption tax, should be on the table to cover the costs of these policies. And if lawmakers cannot get consensus on a revenue package big enough to cover their spending ambitions, they should prioritize the most pro-growth public investments and cut what they are unwilling to pay for.
The $3.5 trillion budget blueprint unveiled earlier this week by Senate Democrats would fund many policies from President Joe Biden’s American Jobs and Families Plans not covered by the $579 billion Bipartisan Infrastructure Framework. But among many worthwhile public investments is a new proposal that should give lawmakers pause: a costly expansion of Medicare paid for entirely by young Americans. Although lawmakers should be open to thoughtful improvements to Medicare, any changes must be financed in a way that is fair to Americans of all ages.
There are two possible changes to Medicare that Sen. Bernie Sanders, I-Vt., the chairman of the Senate Budget Committee, wants to include in the next major spending bill. The first proposal is to offer vision, dental, and hearing services not currently covered by Medicare at no additional cost to beneficiaries. The second proposal is to give Americans ages 60-64 the option to enroll in Medicare with the same premiums and benefits currently available to those over age 65 (which are heavily subsidized by income and payroll taxes paid by younger workers).
The problem with these proposals is that Medicare is already struggling to pay for the current suite of benefits it offers. Medicare Part A, which offers hospital insurance that is supposed to be fully funded by payroll taxes, will face a 10% budget shortfall five years from now. The amount of general revenue needed to subsidize Medicare Parts B and D, which cover physician services and prescription drug benefits, is projected to nearly double as a percent of gross domestic product over the next 20 years. These costs will impose a significant burden on young Americans, either by crowding out investments in their future or requiring them to pay higher taxes than current retirees did when they were in the workforce.
Giving today’s seniors, who have collectively enjoyed greater gains in income and wealth than younger Americans, a suite of new benefits they didn’t finance over their working lives or in retirement would only compound the intergenerational inequity built into current policy. That’s especially true if the Senate blueprint foregoes some investments in clean energy or child welfare, such as a permanent expansion of the Child Tax Credit, to make room for this costly expansion of Medicare.
There are better alternatives. Americans ages 60-64 could be allowed to buy into Medicare at a premium that covers the full cost of their coverage rather than the heavily subsidized one currently paid by people aged 65 and over. This option would still be cheaper for most beneficiaries than private insurance because Medicare is able to negotiate lower prices for services than private insurers. Any new vision, dental, or hearing benefits should have a significant share of the cost covered by income-based premiums and co-pays, as is currently the case for Parts B and D. A broad-based consumption tax that is paid by all consumers regardless of age could also help finance benefits in a way that doesn’t place the burden on anyone generation. Lawmakers should also consider pairing or preceding any benefit expansion with measures to close the existing financial shortfall in Medicare, such as the bipartisan TRUST Act.
For too long, Washington has allowed the growth of retirement programs to crowd out critical public investments in infrastructure, education, and scientific research. The new budget agreement is a once-in-a-generation opportunity to right this intergenerational wrong. It would be shameful for lawmakers to choose affluent retirees over working families yet again. Any expansion of Medicare should require some contribution by those who would benefit, or it should be dropped from the budget agreement altogether.
Today, the Progressive Policy Institutehosted a virtual event with U.S. Representatives Ami Bera (D-CA) and Gerry Connolly (D-VA), and MEP Reinhard Bütikofer (Germany, Greens/European Free Alliance group). The event focused on how to craft a stronger transatlantic response to China as Beijing advances Chinese influence around the world.
“Following on President Biden’s visit to Europe, PPI is facilitating conversations between leading U.S. and European policymakers on how to present a unified transatlantic response to China’s multifaceted challenge to liberal democracy. Today’s conversation focused on China’s suppression of freedom in Hong Kong, ethnic cleansing of the Uighur minority, predatory trade practices, and attempts to steal or force transfer of advanced technology to Chinese companies. It’s another sign that leading democracies are determined to resist China’s divide-and-conquer tactics and aggressive efforts to silence international criticism,” said Will Marshall, President of PPI and moderator for the event.
Watch the event livestream here.
Representatives Bera and Connolly are both members of the House Foreign Affairs Committee. Additionally, Rep. Bera serves on the House Committee on Science, Space and Technology. Representative Connolly also serves on the House Committee on Oversight and Reform.
MEP Bütikofer is a member of the German Green Party. He chairs a European Parliament committee focused on EU relations with China, and has been the leading voice in Brussels for a tougher European response to China. He serves on the Committee of Industry, Research and Energy, and is a substitute member of the Committee on Foreign Affairs and the Subcommittee on Security and Defense.
The Progressive Policy Institute (PPI) is a catalyst for policy innovation and political reform based in Washington, D.C. Its mission is to create radically pragmatic ideas for moving America beyond ideological and partisan deadlock. Learn more about PPI by visiting progressivepolicy.org.
As Congressional lawmakers continue to debate the eventual contents of an infrastructure bill, much focus has rightfully been placed on the rail transportation portions of the package. According to the White House, the bipartisan infrastructure framework, if passed into law, will be “the largest federal investment in public transit in history and is the largest federal investment in passenger rail since the creation of Amtrak.” All told, the framework proposes $49 billion in public transit spending, which includes mass rapid transit, and $66 billion in passenger and freight rail spending.
The importance of these provisions cannot be understated. The low cost of rail travel along certain routes means that it is one of the most equitable forms of transportation America has at its disposal. Along routes such as the Northeast Corridor, it is the most time-efficient. It is also one of the cleanest: According to the U.S. Department of Transportation, rail transit has on average less than one-third the carbon footprint of private automobile travel and less than half the carbon footprint of bus transit.
However, despite the promise of rail, for decades America has struggled to expand and invest in it efficiently and affordably. California’s high-profile attempt to build a high-speed rail line ended tens of billions of dollars over budget and hundreds of miles short of its original vision to connect San Francisco and Los Angeles. The cost-per-mile to expand commuter rail in New York City is the most expensive of any mass transportation system in the world. Amtrak’s marquee high-speed rail service, Acela, in fact takes longer to go from New York to D.C. than its predecessor Metroliner did decades ago.
On this week’s episode, the Neoliberal Project joined Radically Pragmatic, a PPI Podcast to talk about their week of action and the exciting events that are happening across the country and around the globe. Jeremiah Johnson, Policy Director for the Center for New Liberalism and Director of the Neoliberal Project, and Markose Butler, Organizing Director for the Neoliberal Project and the State and Local Outreach Director for PPI, joined Aaron White, Director of Communications for PPI, to explain who the Neoliberal Project is, what they do, and why the week of action is so important. The Neoliberal Project has over 70 local chapters in 12 different countries, many of which are participating in the week of action and promoting the exciting work the Neoliberal Project does year-round.
Between 2015 and 2020, total wages and salaries in Washington state rose by 41%, the biggest gain of any state, and almost double the 21% gain for the country as a whole. (See Table 1). This was not simply a pandemic effect, since Washington wage and salary growth was also first in the country in the 2014-2019 period as well.
To a large extent, Washington’s country-leading position in labor income is being driven by job and wage gains in the tech-ecommerce sector. Building on previous research and recent blog posts, we define the tech-ecommerce sector as including five tech industries and three ecommerce industries. The tech industries are computer and electronic production manufacturing (NAICS 334); software publishing (NAICS 5112); data processing and hosting (NAICS 518); Internet publishing and search, and other information services (NAICS 519); and computer systems design and programming (NAICS 5415). The three ecommerce industries are electronic shopping and mail order houses (NAICS 4541); local delivery (NAICS 492); and ecommerce fulfillment and warehousing (NAICS 493). We draw on Bureau of Labor Statistics data from the Quarterly Census of Employment and Wages (QCEW). This dataset reports on all jobs in each industry, as well as wages, salaries, and bonuses, including ordinary income from exercised stock options.
Let’s look at jobs first. From 2015 to 2020, the tech-ecommerce sector added over 100,000 new jobs to the Washington economy. Tech-ecommerce accounted for more than three-quarters of total job creation over that span, far outpacing the contribution of the healthcare and social assistance sector, which has long been the most dependable source of job growth (table 2).
Within the new jobs created by tech-ecommerce, roughly about half of those were in tech industries, and about half were in ecommerce industries (note that the BLS generally assigns establishments to industries according to the type of work being done at that establishment, not the industry of the parent company. So that an ecommerce fulfillment center is typically categorized in warehousing, no matter who owns it).
It’s important to note that the roughly 52,000 jobs being created in ecommerce over the past five years far exceeds the 10,000 jobs lost in brick-and-mortar retail in Washington. Average annual pay in the local delivery and warehousing industries in Washington came to about 30% higher than average annual pay in brick-and-mortar retail in the state. That’s the typical spread we found nationally in past research.
Now consider labor income in the state. Total wage and salary payments in Washington’s tech-ecommerce sector rose by $34 billion from 2015 to 2020, according to BLS data. That’s compared to the $73 billion increase in total wage and salary payments across the state. To put it another way, the tech-ecommerce sector accounted for 46% of the increase in wages and salaries in Washington from 2015 to 2020. (Table 3)
Finally, we turn to the question of the impact of the tech-ecommerce sector on state tax revenues in Washington. Tax collections have come in much stronger than expected, with forecasts repeatedly being raised. In particular, taxes for the 2020-21 fiscal year are currently forecast to come in 13.4% higher than the 2019-2020 fiscal year, and roughly 60% above 2014-2015 levels (See June 2021 Revenue Review from the Washington State Economic and Revenue Forecast Council, page 27).
How much of that gain is accounted for by the tech-ecommerce sector? There are several issues with making this calculation. The state government reports and forecasts tax revenue data on a fiscal year basis, while our data on the tech-ecommerce sector is on a calendar year basis and stops with 2020. In addition, states with a personal income tax have a direct connection between wage and salary payments and state tax revenues Washington, however, has no personal income tax, and relies instead on a variety of other taxes, including a retail sales taxes, a business and occupation tax, a property tax, and a real estate excise tax.
Usually we think of taxes like these as being less immediately responsive to changes in wages and salaries than an income tax would be. Indeed, there was a stretch, around the time of the financial crisis and the years after, when the state’s “General Fund” tax revenues languished, even as the state’s wages and salaries started to rebound.
In recent years, however, the combined and diverse flows of tax revenues into the state’s coffers appear to be rising more or less in parallel with the QCEW wage and salary measure, when adjusted for fiscal years. That makes it plausible that we can use the tech-ecommerce share of wage and salary growth as a proxy for tech-ecommerce share of tax revenue gains.
There are two possible tax revenue measures we can use for our back-of-envelope calculations — either “General Fund” taxes, or a somewhat broader category of state tax revenues, which starts with “General Fund” taxes and then adds in several taxes earmarked for education and training. That broader tax concept has been growing somewhat faster in recent years. Noting that Washington is on two-year budget cycles (also known as “Bienniums”), General Fund tax revenues rose by $17.1 billion from the 2013-15 budget cycle to the 2019-21 budget cycle, while the broader measure of tax revenues rose by $18.9 billion.
We then apply the 46% tech-ecommerce share of wage and salary growth to the increases in the two measures of tax revenues. We estimate that the growth of tech-ecommerce jobs and incomes accounts for $8.0-8.8 billion in higher tax revenues funding the 2019-21 budget cycle compared to the 2013-15 budget cycle. This should be viewed as a roughly estimate and not a final figure.
Conclusion and Implications
The tech-ecommerce sector is a massive positive for jobs, incomes and taxes in the state of Washington. That suggests Washington-headquartered Amazon and Microsoft, rather than “blocking the sunlight” for other companies in the state, play a central role in a thriving ecosystem that benefits workers, raises wages and generates tax revenues. As the saying goes “if it ain’t broke, don’t fix it.”
Today, the Labor Department released a new batch of inflation data for the year ending in June. The headline number for the consumer price index has sparked panic in some quarters, as year-over-year inflation is now at 5.4%, the highest annual rate since 2008.
While this backward-looking measure is currently above its recent historical average, there is little cause for concern based on market forecasts of future inflation. Medium-term inflation expectations remain well-anchored, as bond prices show an expected average rate of inflation of 2.2% between 5 and 10 years from today.
This is a very clear market signal that inflation pressures are transitory and will abate as supply chain issues caused by the pandemic work themselves out. Notably, motor vehicles represented 60% of the month-over-month inflation increase in June. As the global semiconductor shortage ebbs, we can expect motor vehicle inflation to return to its historical average.
Another way to strip out the most volatile sectors of the economy and get a clearer picture of where inflation is heading is to look at median CPI, which includes only the middle changing item in the CPI’s basket of goods and services. In contrast to headline CPI, median CPI remains stable at 2.2% year-over-year. In the chart below you can see that CPI is more volatile than median CPI, and historically it has reverted toward median CPI after short deviations.
Lastly, year-over-year inflation numbers remain plagued by base effects, as the economy was depressed in June 2020 due to the poor handling of the pandemic by the Trump administration. Looking at two-year core inflation numbers shows that inflation is still within its historical range at 2.8%. This number is entirely consistent with the Federal Reserve’s average inflation targeting framework, which targets 2% average inflation over the business cycle with short periods of above average inflation making up for periods of below average inflation.
While there is not yet much reason to panic about long-run inflation, there are still things policymakers can do today to decrease the risk of inflation expectations becoming unmoored. For the first time in decades, we have sufficient demand in the economy to support rapid growth. Now we just need supply side investments and reforms to make sure that demand turns into real growth rather than increased inflation. Three items immediately spring to mind for policymakers to work on.
First, Congress should double down on its efforts to pass a bipartisan infrastructure package. While it may seem odd to spend more money to tamp down inflation, infrastructure spending is a special kind of spending. It’s an investment in the future productivity of our economy.
Second, the administration needs to follow through on many of the commitments it made last week in its executive order on promoting competition. Sectors like health care have been driving a disproportionate share of inflation in recent years. Encouraging more competition in that sector and others will have a disinflationary effect. Similarly, policymakers should avoid an unforced error by inadvertently harming sectors like tech and e-commerce, which have been holding down inflation in recent years.
Third, the Biden administration should begin to roll back tariffs implemented during the Trump presidency. These are taxes ultimately borne by American consumers and they raise the input costs for American manufacturers, making them less competitive in global markets.
By our analysis, Korea’s “App Economy” is one of the strongest in the world. In our 2018 study, the Progressive Policy Institute (PPI) estimated that Korea had 420,000 App Economy jobs, amounting to 1.6% of the workforce (see reproduced table below). This figure for “app intensity” was considerably higher than Japan, the United Kingdom, Germany, and even the U.S. at the time (though our latest estimate pegs American app intensity at 1.7% as of August 2020).
Moreover, as of 2020, 8 out of the top ten app companies in Korea were Korean-headquartered, according to download estimates from App Annie. By comparison, only 1 out of the top ten app companies in Germany were German-headquartered. Korea has a vibrant domestic App Economy that other countries would be envious of.
But despite this record of success, the Korean government is considering legislation that would dramatically change the app business environment. The legislation—which would amend Korea’s Telecommunications Business Act–would prohibit online app stores from requiring app developers to use the app store’s payment systems for in-app purchases. In effect, this would be equivalent to forcing a brick-and-mortar retailer to allow competitors to set up alternative checkout lanes in their stores.
The first question is: Why try to fix something that isn’t broken? Korean app developers are prospering under the current system and creating well-paying jobs. Why take the risk that a new system will turn out worse?
The second question is: Why undertake measures that would potentially accelerate “decoupling” Korea’s economy from the United States? The legislation under consideration would primarily affect U.S. tech companies, feeding the current American desire to shorten supply chains and build up internal tech production capacities. Korea and the U.S. will always be allies and friends, but in today’s political environment, lawmakers should pay attention to building bridges, not destroying them.
This table is reproduced from “Korea’s App Economy,” May 2018, Progressive Policy Institute. Data for other countries was current in 2018 when table was published. The latest numbers are available on request.
As lawmakers return to Washington this week, one of their top priorities will be crafting legislation based on the bipartisan infrastructure framework agreed to by President Biden and Senate negotiators last month. Although that agreement set top-line numbers for broad categories of spending, the details for how the money would be spent still need to be fleshed out. Congress should maximize the impact of this transformative investment by including provisions to reduce construction costs and direct funds towards the most beneficial projects.
The costs of building infrastructure in the United States are significantly higher than they are in other countries. New York is home to some of the world’s most expensive mass transit projects, sometimes costing several billion dollars per mile, while costs in other American cities also dwarf those of comparable projects internationally. Roads are no better: A recent tunnel in Seattle cost more than three times as much as a similar project in Paris and seven times as much as one in Madrid. If policymakers can bring the cost of each project down closer to international norms, they can build more infrastructure with the same pool of funds.
PPI Statement on White House Executive Order on Promoting Competition
The Progressive Policy Institute (PPI) released the following statement on the Biden administration’s Executive Order aimed at promoting competition. The bulk of this Executive Order is appropriately focused on problems caused by a lack of competition in labor markets, agricultural markets, and health care markets. The 72 initiatives included in this order will solve many of those problems and deliver concrete, tangible benefits for Americans.
“The Progressive Policy Institute commends the Biden administration for working to level the playing field for American consumers. This whole-of-government approach will put workers and families first, a promise the president made during his campaign that he is delivering on today.
“The administration’s actions to ban non-compete agreements and reduce unnecessary occupational licensing will make it easier for workers to pursue economic opportunity and increase their power in the labor market. The order also lowers the costs of medical devices by allowing patients to purchase hearing aids over the counter. Consumers will save money on their internet bills with new rules banning excessive early termination fees and new transparency requirements that will make comparison shopping easier. Changes to the airline industry will make it easier for consumers to get refunds and force airlines to display all add-on fees upfront. Lastly, the order highlights the real harms caused by hospital consolidation in recent decades and directs antitrust enforcement agencies to review and revise their merger guidelines to protect patients.
“While we celebrate many reforms and initiatives in this Executive Order, we are also concerned by policies that could potentially harm job-creating sectors and growth as we recover from the pandemic, including constraints on tech/e-commerce innovation and a return to the long-ago solved issue of net neutrality.
“We hope that the administration also engages with Congress to create meaningful, codified reforms that support consumers for generations to come. Legislative action is necessary to ensure the enduring legacy of these historic initiatives.”
Council features veteran K-12 leaders, a former U.S. Education Secretary, parents’ groups, public school choice reformers, education foundations and philanthropists, and rigorous policy analysts and evaluators.
Today, the Progressive Policy Institute’s Reinventing America’s Schools Project announced their Advisory Council, which is composed of leaders in education innovation from across the country.
“PPI believes that ensuring high-quality public schools for all our children is the civil rights imperative of our times,” said Will Marshall, PPI President. “We’re delighted to welcome this impressive roster of leading education reform practitioners and innovators to the Reinventing Public Schools (RAS) Project.”
The Advisory Council will be a resource for strategic thinking, a sounding board for modernizing ideas, and a force for public advocacy.
“Our goal is to speed the pace of K-12 evolution away from standardized, factory-style schools toward 21st century schools designed around principles of parental choice, school autonomy, diverse learning programs and strict public accountability for results,” Marshall said.
The council will be led by David Osborne, Director Emeritus of PPI’s Reinventing America’s Schools Project and the author of Reinventing America’s Schools: Creating a 21st Century Education System. The Reinventing America’s Schools Project Advisory Council includes:
David Osborne, Director Emeritus of the Reinventing America’s Schools project
Myrna Castrejon, California Charter Schools Association
A.J. Crabill, Texas Education Agency
Arne Duncan, Emerson Collective and former Secretary of Education
Howard Fuller, Founder and Director of the Institute for the Transformation of Learning at Marquette University and former Superintendent of Milwaukee Public Schools
Chris Gabrieli, Empower Schools
Robin Lake, Center on Reinventing Public Education
Maya Martin, Parents Amplifying Voices in Education
Jacinto Ramos, Ft. Worth Independent School District and Council of Urban Boards of Education (CUBE)
Keri Rodrigues, National Parents Union
Andy Rotherham, Bellwether Education Partners
Mary Seawell, Gates Family Foundation
Kameelah Shaheed-Diallo, The City Fund
Joe Siedlecki, Michael and Susan Dell Foundation
Paul Vallas, Co-Founder of the Vallas Group, Inc. and former Superintendent of Bridgeport Public Schools
The Progressive Policy Institute (PPI) is a catalyst for policy innovation and political reform based in Washington, D.C. Its mission is to create radically pragmatic ideas for moving America beyond ideological and partisan deadlock. Learn more about PPI by visiting progressivepolicy.org.
The Reinventing America’s Schools Project inspires a 21st century model of public education geared to the knowledge economy. One model, charter schools, are showing the way by providing autonomy for schools, accountability for results, and parental choice among schools tailored to the diverse learning styles of children. The project is co-led by Curtis Valentine and Tressa Pankovits.
The Mosaic Economic Project application process is now open for the September 2021 Women Changing Policy workshop, scheduled for September 13-15, 2021.
“The Women Changing Policy workshop is an opportunity for diverse women with expertise in economics and technology to hone the skills needed to communicate their work and ideas to policy makers and the media,” said Crystal Swann, Mosaic Economic Project Lead and PPI Senior Fellow. “Through our interactive format, participants get hands-on experience learning the ins and outs of Washington politics and on how to become a go-to policy expert. And it’s a chance to expand their networks.”
This is the third Women Changing Policy workshop. Previous workshops have included candid conversations with influencers in public policy, including leaders and representatives from the United States Congress, the media, and other experts from the policymaking ecosystem.
We encourage women with expertise in economics, finance, technology, telecom and corporate governance to apply. Applicants should be well established in their careers – be it at a corporation, academic institution or NGO–and looking for opportunities to grow their influence on critical issues, from the wealth gap to infrastructure to health care. The Mosaic Economic Project aims to bring new voices to the policy arena. To that end, we value diversity in applicants. This workshop will be held virtually, and the deadline to apply is August 31, 2021.
The Mosaic Economic Project is a network of diverse women in fields of economics and technology. Mosaic programming provides coaching on presenting skills and focuses on connecting and advocating for cohort participants’ to engage in public policy debates, with a particular focus on engaging Congress and the media.
The Progressive Policy Institute (PPI) is a catalyst for policy innovation and political reform based in Washington, D.C. Its mission is to create radically pragmatic ideas for moving America beyond ideological and partisan deadlock. Learn more about PPI by visiting progressivepolicy.org.
For the firms that adopt them, artificial intelligence (AI) systems can offer revolutionary new products, increase productivity, raise wages, and expand consumer convenience.[1] But there are open questions about how well the ecosystem of small and medium-sized enterprises (SMEs) across the United States is prepared to adopt these new technologies. While AI systems offer some hope of narrowing the recent productivity gap between small and large firms, that can only happen if the technologies actually diffuse throughout the economy.
While some large firms in the U.S. are on the cutting edge of global AI adoption, the challenge for policymakers now is to help these technologies diffuse across the rest of the economy. To realize the full productivity potential of the U.S., AI tools need to be available to 89% of U.S. firms that have fewer than 20 employees and the 98% that have fewer than 100.[2] An AI-enabled productivity boost would be particularly timely as SMEs are recovering from the effects of the ongoing COVID-19 crisis.
The report discusses the promise for AI systems to increase productivity among U.S. SMEs, the current barriers to AI uptake, and policy tools that may be useful in managing the risks of AI while maximizing the benefits. In short: there is a wide range of policy levers that the U.S. can use to proactively provide the underlying digital and data infrastructure that will make it easier for SMEs to take the leap in adopting AI tools. Much of this infrastructure operates as a type of public good that will likely be underprovided by the market without public support.
Benefits of AI adoption:
The central case for AI adoption is that human cognition is limited in a variety of ways, most notably in time and processing power. Software tools can improve decision-making by increasing the speed and consistency with which decisions can be made, while also allowing more decisions to be planned out ahead of time in the event of various contingencies. Under this broad framework, we can think about “AI” as being a broad suite of technologies that are designed to automate or augment aspects of human decision-making.
While many of AI’s most eye-catching use cases will likely remain the preserve of large platforms, the technology also holds tremendous promise for SMEs. The adoption of third-party AI systems will notably enable SMEs to streamline mundane (but often costly) tasks such as marketing, customer relationship management, pre- and post-sales discussions with consumers, and Search Engine Optimization (SEO). These systems can provide a lifeline for SMEs who are overwhelmed by the many challenges of running a business, and they can expand the number of businesses that are eligible for certain financial supports. For example, AI tools can be used to improve the accuracy of credit risk underwriting models and using alternative data sources and a streamlined process, they can make it easier for SMEs to take out loans they otherwise might not qualify for under traditional methods. Along similar lines, research shows that AI-driven robotics have (and will continue) to boost the productivity of SMEs in the manufacturing industry.
Importantly, this upcoming wave of AI technology can help SMEs catch up with larger, international firms because it can democratize the benefits of large information technology (IT) investments that superstar firms have been seeing over the last decade.
The economist James Bessen has argued that the top 5% of firms in many industries have been increasingly pulling away from the rest of the field because they’ve made large investments in proprietary IT systems. Their smaller rivals struggle to develop their own systems because they lack the necessary scale to hire a large stable of in-house technical talent. Amazon, for example, has a team of 10,000 employees working to improve their Alexa and Echo systems.
While AI tools can’t fully reverse this trend, they can help shrink the gap when embedded into Software as a Service (SaaS) platforms that smaller firms can make use of without the same level of investment. Essentially, through general-purpose AI tools, SMEs can have access to a host of productivity enhancements that these proprietary IT systems offer, but at a price point that is economical for SMEs. By shrinking this productivity gap, smaller firms can begin to compete in earnest while differentiating from large firms through improved customer service and greater product diversity. This will give a large leg up to SMEs who adopt these AI systems and help them better compete with large global incumbent firms.
Consider a firm like Keelvar Systems, which uses advanced sourcing automation to help businesses rapidly shift supply chains around the globe in the event of disruptions or delays. Essentially, it replaces or augments the work that a large supply chain and sourcing office would do within a firm. By using their service, or others like it, SMEs have the ability to benefit from similar levels of sophistication in their supply chain management without having employees spend hundreds of hours on tedious tasks or maintaining expensive proprietary IT systems.
There are firms like Legal Robot that have created a series of tools to help small businesses access legal services that would otherwise require a small army of in-house lawyers. With their service, SMEs can use smart contract templates based on their industry, receive instant contract analysis to make sure they are receiving fair terms and can automate certain aspects of compliance with laws like the GDPR.
Likewise, companies like Bold360 have helped SMEs improve their customer service experiences by offering a variety of AI-powered-chatbots and tools. Many basic customer concerns about products or delivery can be handled by these basic chatbots, freeing up human customer representatives to focus their time on the hard or advanced cases. Again, the pattern here is there is a service that large, multinational companies have been investing billions of dollars to create proprietary versions of, and now the customizability of AI is helping this service become more accessible to SMEs.
What are the barriers to AI adoption for SMEs in the U.S. and what can policymakers do to help create a welcoming environment?
Data investment as a public good
Depending on the context, data can often have the same traits as other public goods. First, it is non-rival—the marginal cost of producing a new copy of a piece of data is zero. Stated differently, multiple individuals can use the same dataset at almost no additional cost. The second important trait is that data is hard to exclude. Consider this report. Once it has been posted online, it is difficult to prevent people from accessing and sharing it as they see fit. This is one of the reasons why copyright infringement is so hard to stamp out.
Oversimplifying, these two features can lead to two opposite problems. On the one hand, economic agents might underinvest in public goods, absent government-created appropriability mechanisms (such as patent and copyright protection). Conversely, public goods tend to be underutilized (at least from a static point of view). Any price that enables economic agents to recoup their investments in a public good will be above the good’s “socially optimal” marginal cost of zero. Public good policies thus involve a tradeoff between incentives to create and incentives to disseminate. For example, patents give inventors the exclusive right to make, use and sell their invention; but inventors must disclose their inventions, and these fall into the public domain after twenty years.
What does this mean for data and artificial intelligence? If policymakers think that data is an essential input for cutting-edge AI, then they should question whether obstacles currently prevent firms from investing in data generation or disseminating their data.
While policies in this space involve significant tradeoffs, some offer much higher returns to social welfare. For instance, to the extent policymakers believe existing datasets are being underutilized, purchasing private entities’ data (through voluntary exchanges) and placing it in public data trusts would be a better policy than imposing data sharing obligations (which could undermine firms incentive to produce data in the first place). This is akin to the idea of government patent buyouts.
Of particular interest for policymakers, however, is the fact that some SMEs are sitting on top of data flows that are not being fully utilized because it is expensive to make data usable and these datasets may not be very valuable in isolation. As an example, industry-level manufacturing data might be quite valuable to all firms in a sector, but the dataflows from one SME are much less valuable. The U.S. could align incentives by providing investment funds to quantify various aspects of business flows and then submit them to public data trusts, which could be accessible for use by all firms in the industry. This would essentially be treating valuable dataflows as a type of public infrastructure that needs government investment to be fully realized.
This kind of public investment can happen not only through incentives for private firms but through the public sector as well. Governments at all levels (state, local, and national) have valuable dataflows regarding infrastructure development, the organization of public transportation, and general macro-level economic data that can be turned into open datasets for public and commercial use. Particularly on the national level, the U.S. should consider investment in IT infrastructure that can coordinate the submission of open datasets on the state and local level.
Indeed, if key scientific or commercial datasets do not yet exist, the public sector may be best positioned to create them in the first place as a type of digital infrastructure provision. One notable structure that may help in this regard is the idea of a Focused Research Organization, which would provide a team of researchers with an ambitious budget and a nimble organizational structure with the specific goal of creating new public datasets or toolkits over a set time period.
Provide regulatory certainty
For SMEs deciding whether to invest in adopting AI tools, regulatory and compliance costs can be a significant deterrent. Policymakers should recognize that regulation is often more burdensome for small firms that generally have less ability to shoulder compliance costs. Especially in industries with low marginal costs, such as the tech sector, larger firms can spread fixed compliance costs across more consumers, giving them a competitive edge over smaller rivals. Regulation can thus act as a powerful barrier to entry. For instance, a study found that the European experiment with GDPR led to a 17% increase in industry concentration among technology vendors that provide support services to websites.
This is not to say that additional regulation is, or is not, necessary in the first place. Indeed, there are a host of malicious or unintentional harms that can occur from improperly calibrated AI systems. Regulation can be a powerful tool to prevent these harms and, when well-balanced, can promote greater trust in the overall ecosystem. But potential regulation should follow sound policymaking principles that reduce the regulatory burden imposed on firms, notably by making regulation easy to understand, risk based, and low-cost to comply with.
In the U.S. there is to date no overriding national AI regulation. Instead, each sectoral regulator (i.e. Federal Aviation Administration, Security and Exchange Commission, Federal Trade Commission, etc.) has been steadily increasing their oversight over the use of algorithms and software in their specific area. This is likely an appropriate approach, as the kinds of risks and tradeoffs at play are going to be very different in healthcare or financial decision-making when compared to consumer applications. As this approach develops, it would be prudent to develop a risk-based framework that allows for more scrutiny of algorithmic decision-making in sensitive areas while giving SMEs confidence to invest in low-risk areas with the knowledge they will not later take on large compliance costs.
However, regulation over data protection has been far more segmented and piecemeal. And the state-by-state patchwork of rules that has developed can be a significant deterrent for SMEs when considering whether to invest in the use of certain AI tools. Policymakers should consider an overriding national privacy law that would be able to set standard rules of the road over the protection of data in all 50 states so that U.S. SMEs can invest with confidence.
Finally, U.S. policymakers should consider aggregating all this information through the creation of a dedicated AI regulatory website that provides a toolkit of resources for SMEs about the benefits of AI adoption for their business, the potential obligations and roadblocks that they need to be aware of, and best practices for cybersecurity hygiene and data sharing.
Expand the AI talent pool
A lack of skilled talent is one of the biggest barriers to AI adoption as the technical skills required to build or adapt AI models are in short supply. In the U.S., especially, smaller companies struggle to compete with the high salaries paid out by large tech firms for top-end machine learning engineers and data scientists.
In broad strokes, this skills shortage can be alleviated in two ways: through upskilling the domestic population and by improving immigration pathways for global talent.
To upskill the domestic population, one relatively simple lever would be to pay some portion of the costs of individuals and businesses who wish to upskill. In the U.S., a portion of a worker’s retraining costs may be written off as a business expense so long as the worker is having their productivity improved in a role they currently occupy. But this expense is not tax deductible if the proposed training would enable them to take on a new role or trade.
For example, if a small manufacturing firm has technically competent IT staff who wish to attend a specialized training course on using machine vision systems in a warehouse environment, this expense would not currently be deductible as it would enable them to take on a new role within the company. This inadvertently creates an incentive to spend more on capital productivity investments than labor productivity investments. Addressing this imbalance would incentivize more firms to invest in worker retraining and help speed the creation of an AI workforce in the U.S.
Secondly, the U.S. needs to urgently address the shortcomings in the U.S. immigration system which make it more difficult for startups to compete with large incumbents on the basis of talent. Approximately 79% of the graduate students in computer science (and related subfields) studying in the U.S. are international students, which means a large majority of potential AI workers U.S. firms may look to recruit must operate through the immigration system. The cost, complexity, and length of this process inevitably favors large, incumbent firms who can afford to navigate the regulatory maze of procuring an H-1B or related work visa.
A recent NBER paper showed in detail the myriad ways in which access to international talent is important for startup success. Utilizing the random nature of the H-1B lottery system, the paper compared startups that randomly received a higher percentage of their visa applications approved to those who did not. The random nature of the H-1B lottery makes an ideal policy experiment because it allows for a clean test in which other potentially confounding variables are controlled for. The study found that a one standard deviation increase in the likelihood of successfully sponsoring an H-1B visa correlated with a 10% increase in the likelihood of receiving external funding, a 20% increase in the likelihood of a successful exit, a 23% increase in successful Initial Public Offering, and a 4.8% increase in the number of patents filed by the startup.
Policymakers could begin to counter this effect by waiving immigration fees for firms of a certain size and by streamlining the application process.
Further, policymakers should look to create a statutory startup visa so that international entrepreneurs have a viable pathway into the U.S. to launch firms of their own. According to research by Michael Roacha and John Skrentny, international STEM PhD students are just as likely to report wanting to work for or launch their own firm as native-born students, but the difficulty of our immigration system pushes them towards working at large incumbent firms.
Using these two levers of upskilling and immigration reform, the U.S. should increase the supply of AI talent available to SMEs or to launch SMEs themselves and thereby spur the adoption of AI adoption.
Conclusion
Artificial intelligence systems hold great potential to streamline the costs of doing business in a modern economy, particularly for SMEs. The last 20 years of the information technology revolution have helped large, established firms reach the cutting edge of productivity while smaller firms have been left behind. But general-purpose AI tools now provide an opportunity for SMEs to take advantage of many of these IT advancements at a cost and a scale that is feasible for them. Policymakers should attempt to proactively build out the digital infrastructure that will make it easier for SMEs to take the leap in adapting AI tools.
Summary of policy recommendations:
Data investment as a public good:
Where appropriate, align incentives for the private sector to contribute industry-level SME data to public and private data trusts that could be used by everyone.
Invest in making more government datasets open to the public.
Fund Focused Research Organizations or similar groups with the explicit goal of creating new scientific and commercial public datasets.
Provide regulatory certainty:
Clarify existing regulations and the obligations that SMEs must meet when utilizing a new AI tool.
Encourage the development of a risk-based framework that allows for more stringent regulation of sensitive applications while giving certainty to SMEs on investment in low-risk applications.
Pass an overriding national privacy law so that SMEs aren’t deterred from investing by a patchwork of differing state-by-state laws.
Consider the creation of a new SME regulatory website that provides informational resources to SMEs about the benefits of AI adoption for their business and the potential roadblocks that they need to be aware of.
Expand the AI talent pool
Encourage upskilling of the U.S. population by making worker retraining deductible as a business expense.
Reevaluate U.S. immigration pathways to make them more attractive for international technical talent.
Streamline the immigration application process and waive fees for firms below a certain size to make it easier for SMEs to compete for technical talent.
[1] This report is an adaptation of an earlier paper coauthored with Dirk Auer titled “Encouraging AI Adoption in the EU”.
[2] Annual Survey of Entrepreneurs – Characteristics of Businesses: 2016 Tables, United States Census Bureau
