Ehrlich: The Wrong Way to Enact The Wrong Policy — The FCC’s No Good, Very Bad Day

“This is no more a plan to regulate the Internet than the First Amendment is a plan to regulate free speech,” said Federal Communications Commission Chair Tom Wheeler, whereupon he cast the deciding vote for the most far-reaching plan ever developed to regulate the Internet.  Let’s hope he isn’t in charge of the First Amendment, too.

As a veteran of the Clinton Administration, whose policy of light regulation set the stage for today’s burgeoning Internet, Wheeler’s decision is a disappointment, to say the least. This Administration – an administration that in almost every other aspect I support – is shackling the Internet in a regulatory straitjacket designed for the monopoly phone system eight decades ago in order to implement “net neutrality.”  It isn’t going to be a very good fit.

Neutrality is the idea doctrine that everything on the Internet should travel at the same speed, whether it’s a high-definition concert or video game, a signal from a remote heart monitor, an email to Aunt Tilly, or a video of a cat playing the xylophone.  Advocates prefer this “one size fits all” approach to letting the market decide how price and quality should be lined up, much the same way Sears does when it offers the consumer “good,” “better,” and “best.”

But advocates – often paid by the big Internet sites who like the Internet just like it is, thanks – have conflated this issue and used language as surreal as Wheeler’s, claiming this market-based process is equivalent to letting service providers throttle or impede the traffic they don’t like, or asserting that “priority” service will kill the innovative Internet, as if first class travel killed air travel or Priority Mail ended daily delivery to the home.

But it’s one thing to implement a mistaken policy.  It’s even worse to do so in a mistaken way.  Right now, as we speak, there is a bipartisan effort underway in the Congress that would enact the core protections of “neutrality,” but would do so by statute, period, full stop, as opposed to the long and tortuous road today’s decision will find itself on when it is challenged (and probably overturned) in the Courts.

The difference is important.  Aside from eliminating the possibility of legal challenge, The Congressional route would eliminate the regulatory baggage that today’s “reclassification” potentially allows.  For example, the FCC can force a provider of a phone-like service to offer their infrastructure to competitors at government-reviewed prices, and can even regulate prices generally.  Chairman Wheeler says the FCC will “forebear” these extreme regulatory prerogatives, but if he’s serious about that, then why not embrace a Congressional law that makes that clear?

What I fear, and fear greatly, that the advocates for “reclassifying” the Internet as a phone-like service really want more than “net neutrality” – they want the Internet to be a public utility for all purposes.  After all, they might argue – and some have, calling on us to emulate failed public-sector Internets in places like Australia – the Internet is just so damned important that it needs to be under public control.

Yes, the Internet is important.  So is food, but we let farmers grow it.  And the Internet is not at all like public utilities we’ve known, like electricity and the old phone system.  The Internet is not a series of “dumb pipes” that blindly carry content the way the phone system was a “dumb system” that just closed circuits or “dumb wires” carried electricity.  It’s a complex system that requires management and that doesn’t tolerate “busy signals” or “brown outs” if there’s overload.

But more importantly, unlike electricity or phones, there are many ways to provide broadband connectivity in the market today.  Virtually every household in America now can receive broadband from three or four sources – from cable systems, from fiber or, when fiber isn’t there, from ever-improving DSL over the old phone lines, from mobile sources (in which we are the world’s leader), or from satellite, often the last alternative, but usually an acceptable one.

What the “public utility” view really argues is that the government should pick one of these, or some combination of these, to meet our broadband needs rather than letting this competition play itself out, which is something like deciding the winner of a ballgame in the middle of the second inning.  It’s this very “platform competition” that has allowed the U.S. to vault past most of our industrialized competitors, certainly those that don’t crowd their populations into cramped apartment blocks that are cheap to wire.  Is that what we, as Democrats, really want?

There’s still time to adopt a legislative compromise, achieve the “neutrality” objective, and put the issue to bed for good.  And if the making of sound policy doesn’t move my Democratic friends, consider this:  A future Republican President is elected and announces that the FCC will change course and go back to the framework first laid out by President Clinton.  Without a statute in place, there is nothing to prevent President Jeb, Rand, Ben, or whomever from putting net neutrality on the shelf and leaving the Internet without even the most basic consumer protections most would agree are necessary.

And during the debates leading up to that election, President Rick or Rick or Carly will look over at Secretary Clinton and ask if the Clinton Administration made a mistake when it championed the 1996 Telecommunications Act and brought over a trillion dollars of investment in to build the Internet.

If good policy doesn’t move you to accept the legislative solution, perhaps that unfortunate political outcome will.

Politico Pro: Report urges progressives to reconsider Obama trade agenda

PPI Senior Fellow Ed Gerwin’s latest report was featured in a trade story by Politico Pro‘s Doug Palmer:

A new report urges progressive Democrats opposed to President Barack Obama’s trade agenda with countries in the Asia-Pacific to give it another look, arguing that trade deals support progressive goals in a variety of ways, including by helping economic growth.

“Trade-skeptical progressives … should take a thoughtful look at the details of the Obama trade agenda and how it might better position America in the modern global economy,” Ed Gerwin, a senior fellow at the Progressive Policy Institute, said in the report. “If they do, they’re likely to find important policies and initiatives for progressives to like.”

“A progressive society that is both prosperous and fair requires strong and inclusive economic growth. The Administration’s trade agenda can play an important role in assuring that America can tap into one key source of economic vitality — surging demand in key foreign markets,” Gerwin said.

The report comes as Congress is gearing up for action on trade promotion authority, also known as fast-track trade legislation because it would allow the White House to submit trade agreements to Congress for straight up-or-down votes without any amendments.

 

The Obama Trade Agenda: Five Things for Progressives to Like

In his recent State of the Union address, President Obama went all in on international trade.

The Administration has already been aggressively pursuing the most ambitious set of trade agreements in decades—including potentially groundbreaking deals with 11 Asian-Pacific countries (the Trans Pacific Partnership, or TPP), and the European Union (the Transatlantic Trade and Investment Partnership, or T-TIP), as well as agreements in key sectors like services, information technology, and environmental products.

Now, to set the stage for eventual Congressional approval for these deals, the President has launched an Administration-wide effort to obtain Trade Promotion Authority (TPA) from Congress. Under TPA, Congress sets detailed priorities and extensive consultation requirements for U.S. trade negotiators, and agrees to follow special expedited procedures for agreements that meet these rules.

Congressional Republicans largely support TPA and the Administration’s trade agenda. There is less support, however, among Congressional Democrats, many of whom have doubts about new trade deals. And, because trade has long been a difficult political issue, it’s quite tempting for these trade skeptics to readily side with those who have consistently opposed trade agreements.

Download “2015.02-Gerwin_The-Obama-Free-Trade-Agenda”

 

Reuters: One last chance to save the Internet – from the FCC

As the Federal Communications Commission readies new net-neutrality rules this week, congressional Democrats face a choice: Should they work with the Republicans who control Congress to help pass new rules, or should they stay on the sidelines and leave the matter to a volatile regulatory process, subject to possible undoing in the courts?

I disagree with neutrality — the idea that everything on the Internet should travel at the same speed, whether it’s the remote monitoring of a cardiac device or a video of a cat. But both critics and advocates of neutrality would likely agree that a new law is the best way to set new policy — not regulatory decrees.

Let’s start with some history. The Communications Act of 1934 says phone companies are like public utilities and should be strongly regulated. But the 1996 Telecommunications Act, championed by President Bill Clinton, labeled the Internet as an “information service” that should be lightly regulated. That seems like a good decision: The Internet has grown spectacularly in this unregulated format.

But last month, Tom Wheeler, chairman of the Federal Communications Commission, proposed treating the Internet like a public utility, run for the public good. He said that the Web should be regulated much like the Ma Bell telephone companies of generations ago. Why this sudden turnaround?

Continue reading at Reuters.

The Hill: A bipartisan bill is the best way to net neutrality

In a letter to the editor of The Hill today, PPI Executive Director Lindsay Lewis argues for Congress to address net neutrality:

Why not simply bypass the FCC process, which seems sadly divided on partisan lines in any event, and pass stronger bipartisan net neutrality rules through the ordinary legislative process? That would eliminate any concerns about a “tainted process” and bring other benefits as well.

Read the piece in its entirety on The Hill.

WSJ: Why Entrenching Net Neutrality Carries Risks

PPI Senior Fellow Hal Singer was cited by The Wall Street Journal today in an article arguing that the Internet marketplace has so far kept “paid prioritization” of Internet traffic at bay without the heavy hand of regulators:

When regional Bell companies were forced to “unbundle” and lease their infrastructure to competitors at cost, it dampened investment in that infrastructure, Mr. Singer and Robert Litan, an economist at the Brookings Institution, argue in a report for the PPI. Not until the unbundling requirement ended early in the 2000s did cable and fiber investment take off, they say.

Read the piece in its entirety at The Wall Street Journal.

WSJ: Best Web Regulator Not Necessarily Net Neutrality

PPI Senior Fellow Hal Singer was quoted in the Wall Street Journal in a piece examining the adverse consequences of reclassifying the Internet as a public utility under Title II:

“Somebody has to pay for the infrastructure,” said Hal Singer, a consultant and scholar at the Progressive Policy Institute. If ISPs can’t charge content providers, they’ll charge consumers, who generally are more price-sensitive, and the result will be less usage.

Read the piece in its entirety on The Wall Street Journal. 

NYT: Internet Taxes, Another Window Into the Net Neutrality Debate

PPI Senior Fellow Hal Singer was quoted by the New York Times in a piece on how reclassifying the Internet as a public utility may hurt the wallet of consumers:

The Internet Tax Freedom Forever Act, according to Hal Singer, an economist and senior fellow at the Progressive Policy Institute, “limits the damage” from Title II regulation and its tax implications. Mr. Singer is the co-author, with Robert Litan, an economist and nonresident senior fellow at the Brookings Institution, of a recent study that estimated the potential cost to consumers of Title II regulation of Internet service. (The Progressive Policy Institute’s supporters include the National Cable and Telecommunications Association, which opposes Title II regulation. A spokesman for the institute, Cody Tucker, would not identify its financial backers, but he said that the research organization receives more funding from foundations, individuals and corporations that support Title II classification for broadband Internet service than oppose it.)

The potential pitfall, Mr. Singer said, is that the Internet tax freedom law mainly bans “general sales taxes,” but there is still room for states and municipalities to assess fees that are related to the “obligations of a telecommunications provider.” In their study, the two economists assembled a database of the taxes and fees states place on phone bills, and then assumed those charges would be levied proportionately on Internet broadband service.

Read the piece in its entirety on The New York Times.

PRESS RELEASE: New Survey Finds Americans Skeptical that FCC Regulation of the Internet Will Be Helpful; Favor More Disclosure

For Immediate Release

WASHINGTON—The Progressive Policy Institute (PPI) today released the results of a new survey finding that most Americans are unfamiliar with the term “net neutrality,” want greater disclosure of the details of the FCC’s proposal to regulate the Internet, and think that the government regulating the Internet like a public utility will not be helpful.

The nationwide survey, by Hart Research Associates, was conducted from February 13 to 15, 2015 on behalf of PPI. The survey was conducted by telephone (both landline and cell phone) among a cross section of 800 adults age 18 and over. It found:

  • Nearly three out of four (74%) Americans are unfamiliar with the term “net neutrality” and what it refers to.
  • 73% of Americans want greater disclosure of the details of the FCC’s proposal to regulate the Internet.
  • Nearly eight in ten (79%) Americans favor public disclosure of the exact wording and details of the FCC’s proposal to regulate the Internet before the FCC votes on it.
  • Only one in three Americans thinks that regulating the Internet like telephone service will be helpful.

“The public neither understands nor supports the FCC voting on net neutrality rules without greater disclosure of the exact wording and the details of the proposal,” said Peter Hart, Founder of Hart Research Associates. “Net neutrality is near net zero understanding: just one in four Americans knows what the term refers to, and just one in 10 Americans has positive feelings about it. In addition, a majority of Americans think ‘the government should not take a stronger and more active role in overseeing and regulating the Internet.’”

“These findings suggest that the FCC’s bid to impose outdated telephone regulations on the Internet is driven more by professional activists than by the public, which seems instinctively to resist the idea,” said Will Marshall, PPI President. “That’s why Congress should take a closer look at what the FCC is up to and make sure these issues get a thorough public airing.”

The survey’s margin of error is ±3.46 percentage points for 800 adults at the 95% confidence level.  Sample tolerances for subgroups are larger. This is the first of several public opinion surveys PPI plans to release on issues related to regulation of the Internet and telecommunications law.

Download “2015.02_Survey_FCC-Approach-to-Net-Neutrality.pdf/”

Survey Questionnaire

For more information, please contact Cody Tucker or Steven Chlapecka at 202.525.3926.

# # #

The Hill: Ukraine crisis tests the West

Thanks to determined diplomacy by Germany and France, Russia agreed Wednesday to a new cease-fire in Ukraine, to begin Sunday. But German Chancellor Angela Merkel was anything but triumphant, calling the deal a mere “glimmer of hope” for peace.

Merkel has good reasons for curbing her enthusiasm. The previous cease-fire agreement reached last September didn’t hold for long. And Russian strongman Vladimir Putin still holds the high cards in any peace negotiation with Ukraine and the West.

Under the new truce, both pro-Russian separatists and Ukrainian forces are to pull back heavy weapons from the front. But the deal still leaves separatists in control of a big chunk of territory in eastern Ukraine. If the cease-fire is violated and fighting resumes, Ukraine will again find itself in an unequal fight with rebels amply supplied with Russian weapons and, Kiev says, regular Russian troops.

Continue reading at The Hill.

Wall Street Journal: A Disconnect on Municipal Broadband

Should city governments get into the Internet service business, competing with the likes of Verizon, AT&T and Comcast for the right to pipe the Web into your living room or office? President Obama thinks so. He visited Cedar Falls, Iowa, on Jan. 14 to laud the city’s publicly owned utility, which offers residents fiber-optic Internet. He urged other municipalities to follow its example.

“Today, tens of millions of Americans have only one choice for that next-generation broadband, so they’re pretty much at the whim of whatever Internet provider is around,” Mr. Obama said. “And what happens when there’s no competition? You’re stuck on hold. You’re watching the loading icon spin. You’re waiting, and waiting, and waiting. And meanwhile, you’re wondering why your rates keep on getting jacked up when the service doesn’t seem to improve.”

Government-owned networks, the White House claims, can bring healthy competition to Internet service, increasing speeds and lowering prices. Mr. Obama even included a line about this in his recent State of the Union address, saying he intended to “help folks build the fastest networks.” Unfortunately for the president, his premise—that our current broadband is slow, costly and inaccessible to many Americans—simply does not check out.

Internet speeds in the U.S. are among the fastest in the world. More than 90% of American households are now served by connections capable of neck-snapping speeds of 100 megabits per second. (Streaming a movie from Netflix on the “ultra high-definition” setting requires a connection of only 25 megabits per second.) Many consumers choose to pay lower fees for slower service. Still, if individual U.S. states were ranked by average broadband speed alongside countries from across the globe, we would hold 12 of the top 20 spots.

Continue reading at The Wall Street Journal.

Forbes: The Truth Behind The FCC’s “Fact Sheet”

Earlier this week, the FCC gave us a sneak preview of what’s in store for its upcoming order on net neutrality. The ironically named “Fact Sheet” is anything but—it is filled with half-truths and internal contradictions.

At the urging of protestors and “public-interest” groups, the FCC has arrived at a fairly radical prescription—regulating Internet service providers (“ISPs”) as public utilities—and is now looking for ways to justify its approach. The problem with this politically driven result is that it exposes the FCC’s pending order to significant litigation risks, and it undermines the agency’s long-standing credibility as a dispassionate expert agency in the eyes of Congress.

The biggest whopper of the “Fact Sheet” is the claim that the FCC will forbear from rate regulation: “the Order makes clear that broadband providers shall not be subject to tariffs or other form of rate approval, unbundling, or other forms of utility regulation.” (emphasis in original). Really? By choosing to ban paid priority while permitting unpaid priority for “reasonable network management,” the FCC has effectively imposed rate regulation: a zero access price for priority arrangements within an ISP’s network.

In a further nod to rate regulation, the FCC previews that the order “will apply” sections 201 and 202 of the Title II, which will permit edge providers such as Netflix to complain that an ISP’s access rates for interconnection are “unjust and unreasonable.” The result of any such complaint process, assuming the edge provider prevails, would be a regulated access rate. And yet the FCC would have the public believe that its so-called “light-touch” Title II approach—an oxymoron if there ever was one—is free from rate regulation.

The entire purpose of embracing Title II was to permit edge providers to achieve near-zero access fees for interconnection. Under the now jettisoned “commercially reasonable” approach from section 706, which the FCC’s May 2014 notice of proposed rulemaking seemed inclined to adopt, Netflix would have little assurance of getting its access fees down to zero. Any such concerns have now been allayed. This is the very essence of rate regulation.

The “Fact Sheet” is also dishonest when it comes to the likely taxes that broadband customers will face as a result of reclassifying Internet service as a telecom service. It claims that the “Order will not impose, suggest or authorize any new taxes or fees – there will be no automatic Universal Service fees applied and the congressional moratorium on Internet taxation applies to broadband.” (emphasis in original)

The mere inclusion of broadband revenues in the rate base for federal universal service—also promised by the “Fact Sheet” as a way to “bolster universal service fund support”—will generate about $500 million in new federal fees for residential consumers. This stealth tax arises because voice revenues, which form the current rate base for universal service, are disproportionately paid by businesses. Even without an increase in program demand, the formulas used to generate federal universal service fees will automatically shift the burden at the margin away from businesses and onto consumers.

Moreover, states and localities don’t need the FCC to “suggest or authorize” any new taxes to include broadband revenues in their own rate base. Existing state and local fees that apply to the “obligations of a telecommunications carrier” could easily be extended to Internet service after reclassification.

Indeed, Vermont’s telecom director admitted this week that he is already counting on the new source of funding: “One of the things that would come along with [reclassification] is the ability to assess a universal service fee on broadband services. If that happens, the money might be there to fund these higher speeds.” To the extent that states and localities tax Internet service to the same degree as they currently tax telecom service, broadband consumers would be hit with billions in new fees.

The FCC’s promise to forbear from the scariest parts of Title II is mere window dressing. The current chairman cannot make commitments on behalf of future commissioners. So if a new chair decided to make a run at mandatory unbundling, for example, the door has now been left wide open. Given Mr. Wheeler’s sharp ideological reversal relative to his statement that accompanied the FCC’s Notice in May 2014—when he vowed to bifurcate interconnection from net neutrality—there is little reason to believe that Mr. Wheeler himself won’t change his mind on forbearance in a few months.

The “Fact Sheet” lays out a blueprint for heavy-handed regulation that is certain to meet fierce litigation, and likely to meet a swift reversal by the courts on both substantive and procedural grounds. Banning paid priority, even under Title II, is highly unorthodox. While the D.C. Circuit suggested that case-by-case treatment of paid priority under Title II with the same “guilty-until-proven-innocent” presumption from the 2010 Order might be kosher, a blanket prohibition is a different animal.

And reclassifying carriers without a finding of market power seems very sketchy. Does the FCC really think that Sprint can raise wireless prices above competitive levels or exclude rivals?

Setting aside the substance, the FCC’s rush to beat Congress to a legislative solution to net neutrality has caused the agency to take short cuts, which will also be frowned upon by the courts. Neither forbearance nor interconnection has been properly briefed. Accordingly, ISPs and tech startups are complaining about potential violations of the Administrative Procedure Act.

The FCC should level with Americans on the merits and demerits of Title II. It is a highly risky maneuver that necessarily entails rate regulation and a dose of new taxes. The “Fact Sheet” sugarcoats the truth.

This piece is cross-posted from Forbes.

Ignore Today’s Jobs Report: Read the MGI Debt Report Instead

Ignore the January jobs report. Yes, the US economy has added 1 million jobs in the past three months, and that’s great news for everyone. [ed. added Friday morning] But really, just forget it. If you really want to know what’s going on in the global economy and what’s at stake in the 2016 election,  read McKinsey Global Institute’s latest report “Debt and (not much) deleveraging.”  And while you are at it, read two other groundbreaking MGI reports, “Disruptive technologies: Advances that will transform life, business, and the global economy” and Global flows in a digital age.

Together the three MGI reports tell a persuasive story that the global status quo going to break sometime soon–the only question is in what direction.  On the one hand, global debt has grown by $57 trillion, as the first report shows, which “poses new risks to financial stability and may undermine global economic growth.”

This massive global borrowing is only justified if global growth accelerates enough to pay down the debt. That sort of global boom will require the   disruptive technologies that MGI so ably describes in the other reports.

So here’s what we can expect around the corner–either a global financial crisis bigger than the last one, or an explosion of disruptive technologies that will transform our world. Or as a friend said, somewhat sarcastically, “Great! I can’t wait!”

And that’s why the 2016 election in the U.S., and comparable elections around the world, are so important. The next stage of the global economy is going to be fraught with surprises, both good and bad. We need political leaders with the skills to negotiate a complicated and unexplored economic and technological landscape.

[Headline modified on 2/6/15]

[Text added  on 2/7/15]

 

CNN: The problem with Obama’s budget

The $4 trillion budget President Barack Obama sent Congress on Monday is his blueprint for reviving “middle class opportunity.” Liberals are thrilled by the redistributive thrust of the president’s budget — it would hit affluent Americans with a battery of new tax hikes, totaling $2 trillion over the next decade, and use the proceeds to finance substantial tax cuts for low and middle income families.

However, this has, of course, scandalized tax-averse congressional Republicans, who echo House Ways and Means Chairman Paul Ryan in denouncing the Obama budget as an exercise in “envy economics.”

Given the partisan stalemate in Washington, many pundits therefore view the White House budget as a purely political statement intended to frame the 2016 presidential debate. Next, the GOP Congress will produce a conservative alternative, and each side will spend the next two years accusing the other of waging class warfare.

Except that the federal government actually does need a budget, especially one that reinforces the economy’s gathering momentum. The one thing both parties seem to agree on is that reversing middle class stagnation is the nation’s top priority. What America needs more than anything else is a long stretch of robust economic growth, something we have not seen since the 1990s, when both the growth and unemployment rates averaged about 4 percent a year.

Continue reading at CNN.

The Hill: The Keystone distraction

The Senate will vote soon on what the GOP has made their top legislative priority: expedited approval of the Keystone XL pipeline. Given the realities of today’s crude oil market, the political wrangling over Keystone has a decidedly retro feel.

The United States has experienced an energy revolution since the Keystone XL pipeline was first proposed seven years ago. Most important is America’s shale oil and gas boom, which has contributed to a sharp drop in global oil prices. With U.S. oil production in particular surging, why do Republicans persist in claiming that Keystone is a matter of such urgent national interest?

The answer clearly has more to do with politics than with the new realities of U.S. energy abundance.

The energy sector has become an important driver of U.S. investment during our painfully slow economic recovery. Investment is projected to total $890 billion over the next two decades. And all this investment is spawning good, middle-class jobs for Americans. Unfortunately, inadequate infrastructure constrains our ability to take full advantage of such investment and job growth.

Continue reading at The Hill.

Why GDP and productivity growth may be underestimated

On Friday, the very fine economists at the Bureau of Economic Analysis will release their estimate of fourth quarter GDP growth.  Current estimates peg the US economy’s growth at roughly 3% for the quarter.

But here’s the rub:  The rise of the data-driven economy means government economic statistics may significantly understate US GDP growth and productivity growth. Official numbers are afflicted by huge and growing blind spots that increasingly distort the published figures.  To summarize, we are building a mammoth data-driven economy that, perversely, is only partly visible in the economic data.

To give just one simple example:  As of January 29, the official statistics report that the real value of of Internet access consumed by households has fallen by 5% over the past year.   The official statistics also report that real value of cable and satellite television and radio services has fallen by 2% over the same stretch.  And supposedly the real consumer value to households, as measured by the government, of mobile, cable, and internet access together has risen by a measly 0.4% over the past year.

These numbers can’t be right (for more of the theory here, see PPI’s 2012 paper “Beyond Goods and Services:The (Unmeasured) Rise of the Data-Driven Economy” )

Or to give another example, private investment in big data.  All sorts of organization are building up huge data stores with long-term value.  For example, the shift to electronic health records is predicated on the value of that data for lowering health care costs and improving patient treatments. (see, for example https://www.healthit.gov/providers-professionals/benefits-electronic-health-records-ehrs).

In theory, the investment in big data should be reported as part of GDP. Indeed, the BEA has recently started reporting spending on R&D and “entertainment, literary, and artistic originals” as part of investment spending.  And the original researchers on intangible investment did in fact include investment in databases.

However, in practice, the BEA does not include investment in big data in GDP: The tech equipment and the programming, yes, but  not the actual labor and costs necessary to collect and clean the data. For example, when a hospital employs medical coders to clean up their electronic patient records, that coder’s salary is recorded as an expense, but not as a contribution to GDP.  Similarly, the costs of converting from paper to electronic records is not being counted a part of GDP.

The distortion in the statistics from omitting big data is becoming bigger as big data becomes more important.  I cite health care because health care organizations are devoting vast resources to electronic health records, but the same holds for any company collecting big data.

We can list example after example where the data-driven economy is simply missed by the current statistics.  An earlier PPI paper,   Data, Trade and Growth, showed that the government does a terrible job measuring cross-border data flows, because many of them do not leave a monetary footprint. to the extent that the US holds a commanding position in cross-border data trade, this omission may be important for GDP and productivity growth.

Finally, it’s worth noting that reshoring may be artificially depressing the growth and productivity statistics, just as offshoring artificially inflated growth and productivity gains in the early part of the 2000s (this give me a chance to plug a new conference volume edited by myself and Susan Houseman, entitled “Measuring Globalization: Better Trade Statistics for Better Policy“). I will address this point at length in a future post.