Washington Post: Lowest performing D.C. Public Schools should become charters

David Osborne’s newest report, “A Tale of Two Systems: Education Reform in Washington D.C.“, was featured as an exclusive in the Washington Post:

The D.C. Public Schools is not equipped to improve its lowest-performing schools and should have the ability to convert them to charter schools, according to a report being released this week by the Progressive Policy Institute.

What the traditional school system is missing is greater autonomy to create specialty programs, extend school days, and shut down failing schools, or replicate high performing ones, the report said.

“For struggling schools in poor neighborhoods, no strategy has been more effective,” said the report which was authored by David Osbourne, director of the the Institute’s project on Reinventing America’s Schools.

D.C. Schools Chancellor Kaya Henderson has long said that she would like to use charters as a tool to turn around low-performing schools.

Continue reading at the Washington Post.

A Tale of Two Systems: Education Reform in Washington D.C.

An important contest is taking place in Washington, D.C.—a race between two vehicles designed to carry children into the future with the habits and skills they need to live productive, meaningful lives.

The older of the two, the District of Columbia Public Schools (DCPS), uses a “unified governance model” that emerged more than a century ago, in which the district operates all but one of its 113 schools and employs all their staff, with central control and most policies applied equally to most schools. Since 2007, when Michelle Rhee became chancellor, DCPS leaders have pursued the most aggressive reform effort of any unified urban district in America.

Racing against them—and carrying 44 percent of D.C. public school students—is a very different vehicle, designed and built largely in this century. This model does not own or operate any schools. Instead, it contracts with 62 independent organizations—all of them nonprofits—to operate 115 schools. It negotiates contracts with operators, lets parents choose their schools, shuts down those that repeatedly fail to achieve their performance goals, and replicates those that are most effective. We know these as charter schools, authorized by the Public Charter School Board (PCSB), which Congress legislated into existence in 1996. Like DCPS, the Charter Board is a leader in its field, considered by experts one of the best authorizers in the nation.

Under both models, student performance is improving. Comparisons are tricky, because their demographics are different. DCPS students are not as poor: 75 percent qualify for a free or reduced price lunch, compared to 82 percent in charter schools. DCPS has more white students: 12 percent compared to charters’ 5 percent. And DCPS schools get $7,000 to $9,000 more per student each year than charter —particularly for their buildings and pensions.

On the other hand, all charter families make an active choice of schools, while only about half of DCPS families do, so some believe charter students are more motivated. Most experts agree that DCPS has more students “in crisis”—homeless, coming out of jail, former dropouts, and so on—because families in crisis don’t usually make the effort to apply for charters. And many charters don’t accept students midway through the school year or “backfill” seats after students leave, while most DCPS schools do. Far more students leave charters for DCPS during the school year than the reverse, and sometimes the new entrants set back schools’ test scores, graduation rates, and attendance rates.

It is hard to say just how these realities balance out. Fortunately, there are two independent studies that try to compensate for student demographics (but not for other factors). Stanford University’s Center for Research on Education Outcomes (CREDO) is a respected academic organization that has published extensive studies comparing charter and traditional public school performance on standardized tests. Its methodology compares charter students to demographically similar students in traditional public schools who have had similar test scores in the past.

Download “2015.09-Osborne_Tale-of-Two-Systems_Education-Reform-in-Washington-DC”

 

Wall Street Journal: Broadband Investment is Falling

PPI Senior Fellow Hal Singer’s analysis on the impact of the FCC’s net neutrality ruling was cited in the Wall Street Journal:

Before Obamanet went into effect, economist Hal Singer of the Progressive Policy Institute predicted in The Wall Street Journal that if price and other regulations were introduced, capital investments by ISPs could quickly fall from the $77 billion invested in 2014—between 5% and 12% a year, according to his forecast.

Now Mr. Singer has analyzed the latest data, and his prediction has come true. He found that in the first half of 2015, as the new regulations were being crafted in Washington, major ISPs reduced capital expenditure by an average of 12%, while the overall industry average dropped 8%. Capital spending was down 29% at AT&T and Charter Communications, 10% at Cablevision, and 4% at Verizon. ( Comcast increased capital spending, but on a new home-entertainment operating system, not broadband.)

Until now, spending had fallen year-to-year only twice in the history of broadband: in 2001 after the dot-com bust, and in 2009 after the recession. “In every other year,” Mr. Singer wrote for Forbes, “ISPs—like hamsters on a wheel—were forced to upgrade their networks to prevent customers from switching to rivals offering faster connections.”

Continue reading at the Wall Street Journal.

PRESS RELEASE: New PPI Report Highlights Benefits of TPP, Freer Trade for Vietnam

HANOIThe Progressive Policy Institute (PPI) today released a new policy report highlighting how key reforms Vietnam would need to implement under the Trans Pacific Partnership (TPP) could ultimately provide important benefits for Vietnam itself. The report was made public at an American Chamber of Commerce event in Hanoi attended by influential U.S. and Vietnamese business leaders, as well as leading Vietnamese economic experts and proponents of economic reform.

“Vietnam is poised to benefit significantly from the Trans Pacific Partnership agreement,” said Ed Gerwin, PPI Senior Fellow for Trade and Global Opportunity and author of the report. “But TPP will also require Vietnam to undertake significant legal and regulatory changes in areas including transparency, the rule of law, labor and environmental rules, the digital economy, and rules for state-owned enterprises. These reforms in Vietnam will play a critical role in driving increased U.S. trade and commerce with a growing and vibrant Vietnamese economy.

“Those of us who believe strong trade agreements can promote inclusive growth and positive change need to continue to remind Vietnam that adopting these necessary reforms—and sticking to them—will also deliver tangible benefits for Vietnam and its people. PPI looks forward to continuing to be a constructive voice in this effort.”

In “TPP and the Benefits of Freer Trade for Vietnam: Some Lessons from U.S. Free Trade Agreements,” Gerwin uses the experience of past high-standard U.S. trade agreements to illustrate why undertaking these often-difficult reforms would also be in Vietnam’s self interest. Gerwin notes, “the adjustments required by high-standard [trade deals] can also promote foreign investment, technological advancement, innovation, broader participation in trade, and other key developments that—together with additional reforms—can drive stronger and more broadly shared economic development.”

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TPP and the Benefits of Freer Trade for Vietnam: Some Lessons from U.S. Free Trade Agreements

Countries trade because trade delivers mutual benefits. New market-opening trade agreements like the Trans Pacific Partnership (TPP) can enhance the shared benefits of trade by eliminating barriers to expanded international commerce and deepening economic cooperation between partners. It’s not surprising, therefore, that a detailed economic simulation of freer commerce under the TPP finds that each of the 12 TPP countries would see aggregate income gains and increased ex- ports under a comprehensive TPP. A strong TPP agreement, in short, could be a win—times 12.

But governments and their leaders don’t simply operate in the aggregate. Despite trade’s undeniable overall benefits, not everyone benefits from trade—and beneficial agreements that increase trade and open markets can require sometimes- difficult economic adjustments.

For the United States, for example, the TPP could support more good-paying jobs for U.S. workers who produce and sell American goods and services to growing Pacific Rim economies that should see even stronger growth under TPP. At the same time, however, growing trade can lead to lost jobs and lower wages for some American workers, and will require a renewed U.S. focus on comprehensive solutions, including assistance and better training for lower-skilled workers.

Other countries will need to adjust as well. Japan, for instance, will require reforms to its farm sector, while Canada will need to upgrade its intellectual property rules to comply with global standards.

Download “TPP and the Benefits of Freer Trade for Vietnam: Some Lessons from U.S. Free Trade Agreements”

Press Release: PPI Unveils Report Measuring Vietnam’s App Economy at Public Forum in Hanoi

PPI Unveils Report Measuring Vietnam’s App Economy at Public Forum in Hanoi

Report estimates 29,000 App jobs in Vietnam

HANOI—The Progressive Policy Institute (PPI) today released a new policy report at a public forum in Hanoi, which measures the growing contribution of digital innovation to the Vietnamese economy, compares the environment for investment in Vietnam to other locations in Southeast Asia, and warns of potential policy pitfalls and regulations that might harm future digital growth and economic prosperity in the country.

The report, “Vietnam and the App Economy,” is an effort to measure the thousands of app-related jobs created in Vietnam since the introduction of the smartphone in 2007. Based on a methodology PPI Chief Economic Strategist Dr. Michael Mandel has developed to estimate app job growth in the United States, Great Britain, and Australia, the study is the first to quantify the number of Vietnamese jobs that are directly related to the building, maintenance, support and marketing of applications for smart-devices.

“Vietnam has a rapidly growing number of app developers—these are the people who design and create the apps distributed domestically and internationally,” writes Dr. Mandel, author of the report. “Moreover, Vietnamese companies that do app development also have to hire sales people, project managers, database programmers and other types of workers. Finally, each app developer supports a certain number of local jobs.

“In this paper, we estimate that Vietnam has roughly 29,000 App Economy jobs across the entire country. In addition, we show that Vietnam has the top-rated App Economy in Southeast Asia (including Singapore, Indonesia, Malaysia, Thailand, and the Philippines).

“Why is this important? The App Economy is the whole ecosystem of jobs, companies, and income connected with mobile apps. The rise of the App Economy may offer low- and middle-income countries such as Vietnam a faster route to economic success.”

In addition, PPI’s mission to Vietnam includes meetings with: Vietnam Ministry of Foreign Affairs; Vietnam Ministry of Information and Communication; Vietnam Ministry of Science and Technology; Ho Chi Minh City Department of Planning and Investment; Ho Chi Minh City University of Technology and Education; Saigon Hi-Tech Park Management Board; U.S. Embassy Vietnam; American Chamber of Commerce Vietnam; Viettel Corporation; FPT Software; and Vietnam Silicon Valley.

Please contact Cody Tucker at ctucker@ppionline.org with media requests or questions.

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The Progressive Policy Institute is an independent, innovative and high-impact D.C.-based think tank founded in 1989. Through research, policy analysis and dialogue, PPI develops break-the-mold ideas aimed at economic growth, national security and modern, performance-based government. Today, PPI’s unique mix of political realism and policy innovation continues to make it a leading source of pragmatic and creative ideas. PPI is a non-profit, nonpartisan, 501(c)(3) educational organization.

Vietnam and the App Economy

All around the world we are seeing the rise of the App Economy—jobs, companies, and economic growth created by the production and distribution of mobile applications (“apps”) that run on smartphones. Since the introduction of the iPhone in 2007, the App Economy has grown from nothing to a powerful economic force that rivals existing industries.

Many people mistakenly think of mobile apps as simply games. In Vietnam, the mobile game app Flappy Bird got an enormous amount of attention after being released in 2013 by Vietnam-based developer Nguyễn Hà Đông, at one point becoming the number one downloaded free game on the iOS app store.

Games are important—but in reality, mobile games are only a small part of the App Economy. Apps are used by major multinationals, by banks, by media companies, by retailers, and by governments. As of July 2015, there were 1.6 million apps available for Android, and another 1.5 million available on Apple’s App Store.

Apps are the essential front door to the Internet. In the United States, most people use apps to access the Internet on their smartphones. They log onto the Face- book app, or their bank app, or the app of their airline. One could spend an entire day on the Internet while only using apps.

Download “2015.09-Mandel_Vietnam-and-the-App-Economy”

Weinstein on To the Point Discussing Affordable College Education

A three year college degree is just one proposal to rethink the cost of college education. With the average graduate carrying $30 thousand in debt and middle class parents depleting their retirement funds to pay for higher education, has the time come for radical reform? PPI Senior Fellow Paul Weinsten tells Guest host Barbara Bogaev on KCRW’s To the Point why a three-year degree programs would help rein in the soaring cost of a college education and the staggering levels of student loan debt.

Listen to Weinstein on To the Point.

The Hill: No injury. No lawsuit. No service.

The Supreme Court this month received the first round of briefing in a case that could cure one of the newest, most significant abuses in our civil justice system: massive class actions that lawyers file on behalf of people who are not injured. In these cases, the class action plaintiffs’ lawyers use novel legal theories and damage models to get their classes certified and then count on companies to settle the claims and pay them attorney fees – sometimes for more than the class members will end up collecting from the settlement.

The whole point of civil litigation is to make people whole for their losses. Any person who is not injured and has no loss to be corrected should have his or her claim dismissed. The person has no substantive legal basis for the claim, and Article III of the U.S. Constitution gives federal courts jurisdiction only over cases where people allege actual injury traceable to the defendant. But, what happens when uninjured people are nonetheless swept into federal class actions?

This is the issue before the Supreme Court in Tyson Foods, Inc. v. Bouaphakeo. The plaintiffs’ counsel used a controversial damages model to turn discrete wage-and-hour claims for some Tyson employees into a much larger class action. They created an “average employee,” claiming that this “average employee” would be due overtime pay if the time taken to put on and take off protective gear was included in the work week. They then sought to have every class member – some 3,300 people – paid the same overtime as the “average employee,” regardless of how much the real employees actually worked, spent putting on and taking off gear, or were paid.

The problem is that hundreds of class members had no injury at all. It was clear under the plaintiffs’ own statistical sampling model that these employees were fully paid, even accounting for the time to put on and take off gear. Yet, the district court certified the case as a class action with these uninjured people. At trial, the jury found that the modeling majorly overstated the damages and about half of the class had no or only a de minimis injury. Yet, the court allowed all class members, including the uninjured, to get the same pro rata share of the award.

Continue reading at The Hill.

Washington Monthly: How New Orleans Made Charter Schools Work

Last year 2.9 million children attended 6,700 charter schools in America—public schools independent of districts and free of many bureaucratic constraints. Since charters were invented in Minnesota twenty-four years ago, they have become the subject of intense battles between supporters and detractors.

Supporters point out that charters receive 28 percent less money per child, on average, but still have higher graduation rates and send a higher percentage of graduates to college than traditional public schools with similar demographics. Detractors counter that charters often push out the hardest-to-teach students, and, citing a national study published in 2013 by Stanford University’s Center for Research on Education Outcomes (CREDO), they report charters barely, on average, outperform those traditional schools on standardized tests.

But that average masks the reality more than reveals it. In truth, we have forty-four different charter school laws and systems in this country. A close look at the CREDO study shows that in states where charters are rarely forced to close when their students are falling behind—in Arizona, Texas, Ohio, and others—charter students do underperform their socioeconomic peers in traditional public schools on standardized tests. In states where charter authorizers close failing charters, however—in Massachusetts, New York, Indiana, the District of Columbia, and others—charters outperform traditional public schools.

The truth is that charters have lived up to their billing in some places and been a disappointment in others. In one city, however, they have fulfilled the vision of even their most ardent supporters: that chartering would not only raise student achievement, but gradually replace the old system.

Ten years after Hurricane Katrina, 92.5 percent of public school students in New Orleans attend charters. The Tulane University economist Douglas Harris, who leads a research team focused on education reform, calls it “the most radical overhaul of any type in any school district in at least a century.”

In Katrina’s wake, a governor and legislature frustrated with New Orleans’s chronic corruption and abysmal public schools placed all but seventeen of them into its new Recovery School District (RSD), created just two years before to take over failing schools. Gradually, the RSD converted them all into charters. Today it oversees fifty-seven charters in the city, while the old Orleans Parish School Board (OPSB) oversees fourteen charters and operates five traditional schools. (The city also has four charters authorized directly by the state board of education and one independent state school.)

The city’s two districts, unlike traditional districts, do more overseeing than operating; they steer more than they row. They authorize schools, negotiate performance contracts (charters), measure results, and close schools whose students are lagging behind. Not all the schools succeed; educating poor, minority students in the inner city is extremely challenging. But on a variety of measures, New Orleans is improving faster than any other district in the state, if not the nation. Indeed, it may soon surpass its state on many metrics, a rare feat for a major American city.

Before Katrina, most public schools were terrible. In 2005 the city ranked sixty-seventh out of sixty-eight districts in Louisiana, itself a low performer compared to other states. Last year, New Orleans was forty-first out of sixty-nine school districts in Louisiana.

Before Katrina, some 62 percent of students attended schools rated “failing” by the state. Though the standard for failure has been raised, only 7 percent of students attend “failing” schools today.

Before Katrina, only 35 percent of students scored at grade level or above on state standardized tests. Last year 62 percent did.

Before Katrina, almost half of New Orleans students dropped out, and less than one in five went on to college. Last year, 73 percent graduated from high school in four years, two points below the state average, and 59 percent of graduates entered college, equaling the state average.

And according to a 2015 CREDO study, between 2006 and 2012 New Orleans’s charter students gained nearly half a year of additional learning in math and a third of a year in reading, every year, compared to similar students in the city’s non-chartered public schools.

Because the OPSB was only allowed to keep schools that scored above the state average, the failing schools were all in the RSD. In the spring of 2007, the first full school year after Katrina, only 23 percent of RSD students tested at or above grade level. Seven years later, fully 57 percent did. As Figure 1 shows (page 68), RSD students in New Orleans have improved almost four times faster than the state average.

Little of this appears to be the result of demographic changes. In the 2012-13 school year, 84 percent of public school students qualified for a free or reduced-price lunch, compared to 77 percent before Katrina. And census data tells us that poverty among residents younger than eighteen rose from 32 percent in 2007 to 39 percent in 2013, approaching pre-storm levels. Some of the improvement could reflect a small increase in white students, who rose from 3 to 7 percent of the total over the past decade. But African Americans still make up 85 percent of the city’s students (down from 93 percent). And they have made the greatest gains relative to their counterparts statewide, no doubt because the RSD schools, which have improved the most, are 91 percent black. If one counts only African Americans, New Orleans had the lowest test scores in the state before Katrina, 8 percentage points below the state average. Last year the city’s African American scores exceeded the state average by five points.

If anything, today’s students may be more disadvantaged than they were before Katrina, because they lived through the hurricane and the subsequent spike in violent crime. A survey of more than 1,000 youths aged ten to sixteen, taken from 2012 to 2014, found that nearly 20 percent showed signs of post-traumatic stress, four times the national rate.

In short, a radically new governance model—a recovery district that converted all of its schools to charters—has produced what some experts believe to be the most rapid improvement in American history.

Continue reading at the Washington Monthly.

The Daily Beast: Will Iran Get a Better Deal Than U.S. Oil?

As Congress takes up the Iran nuclear deal next month, it ought to confront this paradox: The agreement allows the Iranians to do something Americans can’t—sell oil to the rest of the world.

Don’t get me wrong. I support the deal, under which Tehran would stop enriching weapons-grade uranium for the next 15 years in return for relief from economic sanctions. It’s not perfect, but President Obama is right that it’s better than what we’d have if his conservative critics got their way—no deal, leaving the Islamic Republic on the brink of acquiring nuclear weapons.

Still, freeing Iran to crank up its oil exports stands in stark incongruity to what’s happening here at home. Domestic oil production has soared by an amazing 68 percent over the past decade, yet we can sell very little of it abroad thanks to outdated laws banning U.S. oil and gas exports.

Passed during the energy crisis of the 1970s, these laws were intended to protect the nation’s then-dwindling oil and gas resources as a strategic reserve against supply disruptions like the Arab oil embargo. But the premise used to justify this deviation from our country’s free trade principles—energy scarcity—has been shattered by America’s shale boom.

Continue reading at the Daily Beast.

CNN: Why we need the 3-year college degree

In rolling out an ambitious higher education plan this month, Hillary Clinton put a genuine national dilemma — America’s ballooning student debt crisis — at the center of the 2016 debate. What a refreshing contrast to her Republican opponents.

Clinton’s “New College Compact” is a big, multifaceted plan to take the debt monkey off the backs of millennials who attend public universities. But one thing it is not is cheap — the price tag is $350 billion. And it does not do enough to rein in college tuition costs, much less roll them back.

So let us offer a friendly amendment that would do just that and thereby complement Clinton’s otherwise creative proposal. Our suggestion? The three-year college degree.

Three-year colleges are the norm in many European countries, and a few enterprising universities here have begun to follow suit. We propose requiring any U.S. college or university with students who receive any type of federal student aid to offer the option of earning a bachelor’s degree in three years.

While some schools might be tempted to squeeze a four-year degree into three years, that approach would be unwise, given that the majority of today’s college students need six years to complete a bachelors.

Continue reading at CNN.

Forbes: Does The Tumble In Broadband Investment Spell Doom For The FCC’s Open Internet Order?

They said it wouldn’t happen. They offered assurances from three Wall Street analysts, who insisted that Internet service providers (ISPs) would continue to invest at the same levels regardless of the regulatory climate.

When it issued its Open Internet Order in February of this year, the Federal Communications Commission (FCC) never counted on its prediction being falsified before the U.S. Court of Appeals for the District of Columbia Circuit would rule on the legality of the agency’s net neutrality rules. But then came the second quarter S.E.C. filings of the largest ISPs. And the news was grim.

AT&T’s capital expenditure (capex) was down 29 percent in the first half of 2015 compared to the first half of 2014. Charter’s capex was down by the same percentage. Cablevision’s and Verizon’s capex were down ten and four percent, respectively.

This capital flight is remarkable considering there have been only two occasions in the history of the broadband industry when capex declined relative to the prior year: In 2001, after the dot.com meltdown, and in 2009, after the Great Recession. In every other year save 2015, broadband capex has climbed, as ISPs—like hamsters on a wheel—were forced to upgrade their networks to prevent customers from switching to rivals offering faster connections.

What changed in early 2015 besides the FCC’s Open Internet Order that can explain the ISP capex tumble? GDP grew in both the first and second quarters of 2015. Broadband capital intensity—defined as the ratio of ISP capex to revenues—decreased over the period, ruling out the possibility that falling revenues were to blame. Although cord cutting is on the rise, pay TV revenue is still growing, and the closest substitute to cable TV is broadband video. Absent compelling alternatives, the FCC’s Order is the best explanation for the capex meltdown.

Despite Comcast’s modest increase in capex in the first half of 2015—attributed to “customer premises equipment” to support its X1 entertainment operating system and other “cloud-based initiatives”—the net decrease across the six largest ISPs amounted to $3.3 billion in capital flight.

Why care about capital flight here? Every million-dollar increase in broadband capex in a given year generates almost 20 jobs through the multiplier effect. Chase a billion dollars in investment from the broadband ecosystem with heavy-handed regulation and you can wipe out 20,000 jobs. And if a billion dollars of withdrawn capital destroys 20,000 jobs, imagine what three billion . . . Shutter the thought.

In unrelated news, AT&T announced in June that it would invest $3 billion in Mexico to “extend mobile Internet to 100 million consumers and businesses” by 2018. It’s not as if investment dollars of the largest U.S. companies are fungible. Right?

Sadly, this capital flight was predictable. Reclassifying ISPs as public utilities under Title II of the Communications Act reduces the expected return of broadband investment. Although the ultimate purpose of Title II is to pry open the incumbents’ networks to resellers at regulated access rates, the FCC’s Open Internet Order promises to “forbear” from appropriating the ISPs’ property this way, at least as long as the political winds stay below a fresh gale.

Some analysts such as Anna-Maria Kovacs of Georgetown’s Center for Business and Public Policy tried to warn the FCC about the likely investment effects. Her submission was relegated to footnote 1229 on page 197 of the Order, while the FCC credited contrary (and demonstrably false) predictions of Philip Cusick (J.P. Morgan), Paul Gallant (Guggenheim), and Paul de Sa (Bernstein Research) in footnote 34 on page 13.

Economists fared no better. A seemingly relevant paper published in the prestigious Journal of Law and Economics in 2009 estimated that an increase in “regulatory intensity” in the European Union reduced “incumbents’ infrastructure stock by approximately 47 percent over the long term.” The FCC’s Order ignored that study altogether, as well as a rich economics literature with similar results.

Although the FCC’s Order failed to perform any cost-benefit analysis, a companion statement issued by the agency pursuant to the Congressional Review Act speculated that the Open Internet rules would generate $100 million in annual benefits for content providers. (I’ve assessed this casual empiricism here.)

Given the roughly $78 billion in ISP capex in 2014, Title II would need to scare off a mere 0.13 percent of ISP capex (equal to $101 million) to generate net losses for the economy. Based on the results from the first half of 2015, we’re heading for a capex decline nearly 100 times that level. Put differently, if just three percent of the observed $3.3 billion decline in ISP capex in the first half of 2015 can be attributed to Title II, the Order fails a cost-benefit test.

On December 4, some unfortunate FCC attorney will have to defend the Open Internet Order before a panel of judges on, among other things, cost-benefit grounds. With luck, a judge will ask about those assurances from the three Wall Street analysts.

This was cross posted from Forbes.

The Hill: A run by Biden would reinforce VP trend

Throughout his vice presidency, Joe Biden has rarely been considered as a potential presidential candidate in his own right. His two prior runs had come to little, his advancing age worked against him and his party had its eye on another candidate. Further, his immediate predecessor, Dick Cheney, had set something of an example by shunning presidential ambitions of his own.

Still, if Biden does decide to run, it would bring him in line with a strong trend among the 13 men who have held the vice presidency since 1945. More than 75 precent (10) ran for the top job; of these 10, 80 percent got their party’s nominations and 40 percent won their elections — not a bad track record.

Continue reading at The Hill.

PPI WEEKLY WRAP-UP: Taxing Broadband, China’s Currency Depreciation, & Innovation Struggles

TAXING BROADBAND: In a piece for Forbes on Thursday, PPI Senior Fellow Hal Singer argues against the FCC taxing broadband in order to subsidize it.

“The Federal Communications Commission (FCC) recently proposed amending its low-income ‘Lifeline’ program—which provides a $9.25 per month credit for consumers of voice services—to permit recipients to apply that same subsidy instead to broadband services. Who could argue against increasing options for low-income Americans?

“Before critiquing the FCC’s proposal, it’s important to point out that expanding broadband access is a laudable goal. But financing this expansion through the Lifeline program will eventually lead to the perverse outcome of taxing broadband in order to subsidize it. Better to raise the funds for subsidized broadband from taxes imposed on behavior we want to discourage.”

CHINA’S CURRENCY DEPRECIATION: In a post on the PPI blog this week, Chief Economic Strategist Michael Mandel argues “that critics of China’s recent currency depreciation are missing the big picture. First, depreciation is a desperate measure which is a sign of the coming implosion of the Chinese economic model. Second, depreciation is a double-edged sword for China, because the Chinese export machine is heavily dependent on imported components that will rise in prices with depreciation. Third, the ultimate effect of a China economic implosion will be to send US interest rates and inflation soaring. Fourth, on the positive side, there may be an opportunity to rebuild the US manufacturing sector, if China’s economy is in turmoil. Fifth, the political implication is that presidential and other candidates should not expect a stable economy going into 2016, and a ‘crisis’ message may be needed.”

INNOVATION STRUGGLES: A new study by Mandel, “Where is Innovation Falling Short?: Using Labor Market Indicators to Map the Successful Innovation Frontier,” was highlighted this week in an article by Wall Street Journal chief economics commentator Greg Ip, “Beyond the Internet, Innovation Struggles.” The study was prepared for the Kauffman Foundation New Entrepreneurial Growth Conference, which took place in Amelia Island, Florida from June 17 to 19, 2015.

“In a new study, Michael Mandel of the Progressive Policy Institute notes that previous innovation waves straddled numerous disciplines: information processing, transportation, medicine, energy and materials.

“Where are the comparable advances in materials today? The Nobel prize was awarded in 1987 for the discovery of high-temperature superconductors—material that can carry electric current without resistance at temperatures above extreme cold. But as Mr. Mandel notes, few commercial superconductor applications are on the market. Nanotechnology—building materials out of microscopic particles—has found its way into tennis balls and odor-resistant fabrics but hardly measures up to steel or plastic in its breadth of uses.

“The staggering sums invested in biosciences haven’t yielded breakthroughs comparable to antibiotics in the 1930s and 1940s. The human genome was sequenced more than a decade ago. Yet as Mr. Mandel notes, there is still no approved gene therapy for sale.

“Quantifying innovation is difficult: Government statistics don’t adequately measure activities that only recently came into existence. Mr. Mandel circumvents this problem by surmising that innovation leaves its mark in the sorts of skills employers demand.

“His conclusion: Today’s economy is ‘unevenly innovative.’”

Forbes: Don’t Tax Broadband In Order To Subsidize It

The Federal Communications Commission (FCC) recently proposed amending its low-income “Lifeline” program—which provides a $9.25 per month credit for consumers of voice services—to permit recipients to apply that same subsidy instead to broadband services. Who could argue against increasing options for low-income Americans?

Before critiquing the FCC’s proposal, it’s important to point out that expanding broadband access is a laudable goal. But financing this expansion through the Lifeline program will eventually lead to the perverse outcome of taxing broadband in order to subsidize it. Better to raise the funds for subsidized broadband from taxes imposed on behavior we want to discourage.

To an economist, a subsidy (or a tax) is warranted only in the presence of a market failure. When the market produces too much a product—think driving—it’s because producers are not internalizing a negative externality (traffic or air pollution). When the market produces too little—think general (as opposed to applied) research and development (R&D)—it’s because producers are not internalizing a positive externality or spillover.

This understanding leads to a simple policy prescription: Tax the industries that produce negative externalities and subsidize those that produce positive spillovers. Yet our politicians won’t support a gas tax to finance our crumbling roads, reflecting their constituents’ myopic desires, even if the result runs counter to economic theory.

Broadband is a classic case of positive spillovers in that every person who joins the network makes the network more valuable for existing users and for application providers. In addition to tapping into those positive spillovers, a broadband subsidy could stimulate more broadband investment: If a broadband provider needs a 30 percent take rate to deploy fiber to a neighborhood, and if a broadband subsidy gives it assurance that that target will be exceeded, the neighborhood has a better chance of being deployed.

Now back to the FCC’s Lifeline proposal. Lifeline is currently funded by a “universal service fee” that shows up on your phone bill for services that are designated as interstate (as opposed to intrastate). The FCC imposes a fee on providers of these voice services, who in turn pass that fee onto their customers. Roughly half of the funds that flow to low-income residential users are raised on the backs of businesses, creating a cross-subsidy of sorts. The FCC proposes to leave the funding alone (for now), but to give Lifeline recipients the option to apply the existing subsidy to broadband instead of voice service.

By my calculations (produced below), to induce non-adopting Americans to share in the costs of broadband, the annual subsidy would cost between $1.1 billion (for a modest addition of 10 million of the 32 million disconnected homes) and $4.3 billion (for 20 million homes, leaving just 12 million disconnected). The immediate problem is that a large chunk of this cost estimate does not fit within the contours of the existing Lifeline budget, which stood at $1.7 billion in 2014.

How did I arrive at these cost estimates? A 2014 study by three FCC economists estimates that up to 10 million disconnected homes would be willing to subscribe to broadband if a subsidy of 15 percent were offered. The annualized cost of connecting the first 10 million disconnected homes would be $1.1 billion (equal to 10M x 15% x $60 per month x 12 months). Because the next tranche of non-adopters are less inclined to adopt, a larger subsidy would be required to reduce the disconnected share further. To the extent that 20 million homes could be induced to adopt broadband in response to a 30 percent subsidy, the subsidy would cost $4.3 billion per year (equal to 20M x 30% x $60 per month x 12 months).

Telling Lifeline-enrolled families that already purchase a bundled voice and broadband service that they can apply their existing $9.25 per month subsidy to broadband rather than voice is not going to reduce the number of disconnected broadband households (nor would it make their lives any better). And Lifeline-enrolled families that didn’t have broadband because they purchase voice on a standalone basis would be forced to lose their voice subsidy if they applied the subsidy to broadband instead (making their lives only slightly better). Tapping the existing base of Lifeline funds just won’t make a big difference when it comes to shrinking the digital divide.

And therein lies the problem. The current base of revenues—interstate voice services—are under siege as consumers increasingly obtain voice service as a free add-on to a wireless broadband data package. To raise the funds to make a real dent in the number of disconnected homes and improve lives, the Lifeline revenue base likely would have to be expanded to include broadband services.

As unelected officials, the FCC Commissioners would be happy to oblige. Some activists are practically begging the FCC to tax broadband to preserve the Universal Service program. And the FCC is not bashful about taxing and spending: In 2014, the FCC expanded the E-Rate program by $1.6 billion to give schools and libraries greater access to broadband.

But for the same reason we would never finance a general R&D subsidy by taxing firms engaged in general R&D, it makes no sense to tax broadband in order to subsidize it. Indeed, for those 10 to 20 million non-adopting households that would come aboard in response to a modest subsidy, there are likely millions of price-sensitive broadband households that would leave the broadband market in response to a modest tax. Unlike interstate voice revenues, which are paid in part by businesses, fixed broadband revenues are overwhelmingly paid by residential consumers. Thus, bringing broadband into the revenue base would cause U.S. households to bear a larger burden of the universal service subsidy.

Even worse, as soon as the FCC imposes a federal universal service fee on broadband to meet the surging demand for broadband among low-income Americans, the states are free to get in on the action. By reclassifying broadband as a “telecommunications service” in its February Open Internet Order, the FCC activated a series of dormant state and local telecom-based fees that had never been extended to broadband; Internet service was previously designated as an “information service,” and thereby immunized from this form of state taxation.

Recognizing this risk, the FCC preempted states from moving forward with their own universal service fees for broadband until the FCC adopted fees at the federal level: “[W]e preempt any state from imposing any new state USF contributions on broadband—at least until the Commission rules on whether to provide for such contributions.” The combined universal service fees from the FCC and the states would perversely contribute to the digital divide by driving even more price-sensitive adopters out of the broadband market.

To avoid this spiral, we need to look elsewhere for the financing of a broadband subsidy. Were it designed by an economist, the subsidy would be financed through the general treasury so as to reduce any distortions in the broadband marketplace. And the source of the funds would be the elimination of existing subsidies for sugar, corn, coal, or oil—all of which generate negative externalities.

Raising taxes on broadband users in order to subsidize broadband makes no economic sense.

This is cross posted from Forbes.