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National Journal: An Old Idea, Tolling Federal Highways

Posted on March 18, 2014 by The Progressive Policy Institute

Fawn Johnson, writing for National Journal, quoted former Pennsylvania Governor Ed Rendell on the need for further investment in national infrastructure. Johnson was the moderator for PPI’s Investing in Jobs and Infrastructure: Twin Keys for Metro Growth event last week and her quote comes from Rendells opening remarks at that event. In explaining the need for infrastructure invesement, Rendell said:

The argument against tolling on federal highways has been, ‘We paid for it once.’ OK, we paid for it once. …It’s like buying the $45,000 car of your dreams and for the next four or five years not putting a penny into it. It’s silly.

To read the rest of the article, visit National Journal’s website here.

Thanks To Bill Clinton, We Don’t Regulate The Internet Like A Public Utility

Posted on March 18, 2014 by The Progressive Policy Institute

A DC federal court struck down the FCC’s “net neutrality” regulations earlier this year, but did nothing to resolve an ongoing debate over whether or how the government should regulate the Internet. At the heart of the controversy lies a central question – should we regulate the Internet as we did the old telephone network and other so-called “common carrier”?

In a paper to be released this week by the Progressive Policy Institute, I examine the past two decades’ experience to shed light on this question. And the answer that keeps coming up is that proposals for strict utility-style regulation of the Internet have two things in common. First, they are based on the presence of a “natural monopoly” for broadband that simply does not exist. And second, where they have been tried, utility-style rules have been the greatest single obstacle to investment in broadband infrastructure.

From the earliest days of the Bell monopoly, our telephone system was built around an explicit bargain. In exchange for a guaranteed and low-risk profit, the Bell system would provide quality, reliable phone service to the nation. This bargain was deemed necessary because it was assumed that phone service was a “natural monopoly” where the costs of infrastructure were so high that competition wasn’t possible. But by the 1990s, those assumptions had completely broken down. Microwaves and coaxial cable could carry phone calls, phone lines could deliver video, and an “information superhighway” loomed in the future.

The Clinton Administration’s Telecommunications Act of 1996 sorted this mess out and launched the age of modern Internet policy – trusting market forces and technological innovation to the maximum extent. It was an act of incredible political maturity. Its authors knew something remarkable was about to happen and that government could best serve it by stepping back and letting private investment happen.

So the 1996 Act drew a line – the old phone system would remain regulated as a “common carrier,” but the emerging new world of “information services” would be allowed to develop on its own free from utility-style requirements such as government oversight of prices, forced sharing of infrastructure with competitors, or rigid traffic management rules. As a result, we have seen over $1.2 trillion in investment since the 1996 Act, and the innovation, growth and new services the Act’s framers imagined.

Further light is shed by the treatment of the incumbent phone companies. As a transitional measure, the Act preserved the utility model for the telcos, which were forced to share any infrastructure they built with all comers at a government supervised price (well below its long-term cost). That requirement smothered investment since no one would build new infrastructure if they had to share it with competitors at a loss. The result was initial stagnation in DSL broadband. And when that requirement was later –overturned, investment followed there as well – more evidence of the dangers of the utility model in this space.

Europe still relies on these utility-style regulations and has used its state post and phone monopolies to build out broadband. The results haven’t been pretty. Per capital investment in broadband in the U.S. is nearly double that of Europe.

As a result, our major European trading partners are anchored near the bottom of the Internet speed charts – Germany is 27th in the world on the most recent Akamai speed rankings, France is 34th, Italy 48th. The US by contrast is 8th, trailing small, dense, and highly urbanized places like Japan, South Korea, and Hong Kong, in contrast to the U.S.’ sprawling geography. No one wonder EU Digital Policy chief Neelie Kroes says Europe “needs to catch up” in broadband.

The “natural monopoly” pro-regulation arguments depend on clearly does not exist. America now has three different broadband technologies fully deployed and competing for customers (cable, telco, and 4G wireless). The U.S. is near the top of global rankings in both high-end service, with 85 percent of households served by networks capable of 100 mpbs or more and the most affordable entry-level wired broadband of any nation in the OECD. Imagine what would ensue if we were to change course and regulate the Internet as a monopoly utility? Which of the three technologies would regulators adopt? How would we ensure continued investment?

The Internet is undeniably incredibly important. But that importance doesn’t mean that we should treat it as a public utility. Bringing back the days of Ma Bell won’t fulfill broadband’s remarkable promise.

This article was originally posted by Forbes. You can read the original post on their website here.

A Brief History of Internet Regulation

Posted on March 13, 2014 by The Progressive Policy Institute

EXECUTIVE SUMMARY
Proposals to regulate the Internet are often presented as “new” solutions to deal with modern problems, but the most significant of these proposals, such as “network neutrality” and common carrier rules on unbundling and interconnection, are actually vestiges of long-outmoded ways of thinking about telecommunications policy. This paper explores the relevant regulatory history, offering critical context to today’s Internet policy debates.

From the early days of the AT&T monopoly well into the 1990s, regulators, the courts and the Congress engaged in a lengthy effort to protect consumers and ultimately bring competition into the markets for local and long-distance telephone service. This included strict “common carrier” utility regulations and mandatory interconnection requirements and ultimately the 1984 Modified Final Judgment, which forced the breakup of AT&T into regional Baby Bells. From the beginning of “community antenna TV” through the 1990s, a parallel but more limited effort was made to regulate the nascent cable industry. While these regulations had some success, technological change quickly outstripped them—both in the telephone business and the emerging field of high-speed data—and a bipartisan consensus formed in the early 1990s that additional steps were needed to promote competition in all these arenas.

The result was the Telecommunications Act of 1996, watershed legislation that marked the end of the telephone age and the beginning of the Internet age from a policy perspective. The Act embraced and codified the FCC’s distinction between traditional telephony/telecommunications services and the emerging world of information services, with strict common carrier rules limited to the former. On the telephone side, this meant a stifling regime of mandatory “unbundling” and rigid price controls, while giving the private sector more latitude to innovate and invest on the “information services” side. The 1996 Act may not have specifically contemplated the rise of the broadband Internet (the idea of an “information superhighway” was in the air, but the exact form it would take was still unclear as a matter of both technology and policy), but by protecting information services from the common carrier framework, the Act set the stage for the dynamic growth we have seen in American broadband.

The result was a boom in cable broadband investment that telecommunications providers attempted to counter by offering DSL services. But any new DSL capability they constructed had to be leased out to competitors at below market prices under the unbundling regime, which limited their efforts. When fiber and DSL were relieved of their unbundling obligation in the early 2000s, however, capital poured in and these services flourished as fixed-broadband competitors to cable. In fact, that competition drew a competitive response from cable, in turn leading to a virtuous cycle of improvement and enhancement resulting in the United States ascending to the upper reaches of the International broadband rankings.

This background sheds important light on current calls to impose “new” regulations on broadband either through “network neutrality” rules or by reclassifying it as a “telecommunications service” subject to common carrier obligations. While advocates suggest otherwise, these proposals are clearly not new, but would represent a return to the dated—and in the view of this paper failed—approach that the bipartisan 1996 Act was designed to sweep away. Most of these proposals for network micromanagement, forced sharing of investments, and government influence on pricing have been associated with low investment and innovation. These rules may have made sense when the problem was how to protect consumers in the days of the sanctioned Ma Bell monopoly, but the business and consumer landscape is dramatically different today in almost every regard.

Ultimately, three key lessons emerge from this policy review. First, information services and telecommunications services really are different, and broadband has flourished as an information service free from ill-fitting and stifling common carrier constraints. Second, investment and capital flow to where regulation (or the absence thereof) encourages them to flow. And third, technology, business models, and consumer behaviors change and, as they change, the meaning and effect of different regulatory proposals change as well.

Download the entire report.

The Hill: Been there, done that on broadband

Posted on March 13, 2014 by The Progressive Policy Institute

The Clinton administration’s Telecommunications Act of 1996 sorted this mess out and launched the age of modern Internet policy – trusting market forces and technological innovation to the maximum extent. It was an act of incredible political maturity. Its authors knew something remarkable was about to happen and that government could best serve it by stepping back and letting private investment happen.

Continue reading at the Hill.

Sens. Johnson, Crapo On The Right Track to Housing Reform

Posted on March 12, 2014September 18, 2024 by The Progressive Policy Institute

The housing sector is one of the pillars of the U.S. economy. That’s why we have marveled at the many partisan and radical proposals to reform the federal housing finance system that would have trashed both what’s good and what’s bad with the current system. PPI continues to maintain that any reform proposal must stabilize U.S. housing markets, reduce the government’s over-sized footprint in housing finance and protect taxpayers from a repeat of the housing bailout.

While the full details aren’t yet available, a bipartisan proposal from Senators Tim Johnson (D-South Dakota) and John Crapo (R-Idaho) seems to move the housing debate out of the ideological realm and closer to reality. Their blueprint ensures the continued availability to homebuyers of long-term, fixed-rate mortgages, and proposes creation of a fee-based insurance fund, similar to the Federal Deposit Insurance, to shield taxpayers from having to bailout the housing finance sector in the future.

There are still many details in question, but we think Senators Johnson and Crapo have pointed the housing debate in a more promising direction.

Infrastructure Investment and Economic Growth: Surveying New Post-Crisis Evidence

Posted on March 11, 2014 by The Progressive Policy Institute

Does an increase in government spending create or destroy private sector jobs? Or more particularly, does additional spending on infrastructure—fixing existing roads and bridges, or building new ones—generate positive spillover effects for the rest of the economy? This question featured prominently in the 2009 debate over the size of the fiscal stimulus package. The Obama Administration, led by Christina Romer of the Council of Economic Advisors, wrote in January 2009, “we expect the proposed recovery plan to have significant effects on the aggregate number of jobs created, relative to the no-stimulus baseline.”

In response, conservative economists and politicians argued that rather than creating new jobs, government spending on infrastructure would crowd out private sector hiring. Over 200 conservative economists expressed stimulus skepticism, with a Cato Institute statement proclaiming “we the undersigned do not believe that more government spending is a way to improve economic performance.”The net result: The Obama administration ended up getting less to spend on infrastructure than it would have and should have.

What’s more, the debate over the size of the spillover effect—also known as “multipliers”—left lasting scars and hardened battle lines. Since then, proponents of higher infrastructure spending, including business stalwarts such as the U.S. Chamber of Commerce, have faced intense skepticism about the economic benefits of improving our transportation infrastructure. For example, the Department of Transportation funding programs were reauthorized in 2012 only after three years of temporary stop-gap extensions, with funding levels essentially unchanged from the previous authorization in 2005.

In this paper, we try to go beyond the sterile back and forth to uncover the real story about the economic spillovers from infrastructure spending. In particular, we look at a series of new studies that have been done since the 2009 policy arguments, using a wide variety of data sources and analytical techniques.

Download the full brief, including a breakdown of the returns on different types of investments, here.

Cuomo schools De Blasio

Posted on March 10, 2014 by The Progressive Policy Institute

“We will save charter schools,” New York Gov. Andrew Cuomo (D) assured thousands of students and their families at a recent rally in Albany. Save them from whom, you wonder? From another Democrat, New York Mayor Bill de Blasio.

The rift between these bull elephants of New York politics isn’t personal. Rather, it illuminates simmering tensions between the Democratic Party’s reform and “populist” camps.

De Blasio thrilled the latter by campaigning last year against the Big Apple’s growing inequality, and vowing to tax the rich to pay for pre-school for low-income kids. Many on the Democratic left see him as just what they’ve been waiting for — an unapologetic champion for a new politics of economic and racial justice.
When it comes to charter schools, however, de Blasio sounds more like the paleoliberals of the 1970s and 1980s, whose distaste for reforming broken public sector systems — urban schools, welfare, public housing – did much to discredit Democrats in the voters’ eyes.

The flap began last week when the de Blasio administration withdrew permission (granted by its predecessor, Michael Bloomberg) for three charter schools to share space with schools run by the school district. The target of this eviction notice is Success Academy, a nonprofit network of charter schools, all of which are co-located with district schools. It’s run by Eva Moskowitz, a sharp-elbowed former city councilwoman who has opened 22 schools in mostly poor neighborhoods over fierce resistance from the city’s education establishment and its political allies.

De Blasio objects to co-location because he sees charters as free riders on the traditional school system. During the campaign, he said Moscowitz’s schools must “stop being tolerated, enabled, supported” by the city’s Education Department. And it’s not just space; the mayor also has shifted $210 million from a charter school expansion fund he inherited to other purposes.

De Blasio’s visceral aversion to the city’s charters is strange on several levels. First, it ignores the fact that, far from being invasive parasites on the district schools, charters are public schools too, even if they aren’t controlled by the central bureaucracy. They must take all comers (space permitting) and they receive significantly less in public money per each student ($13,527) than the district schools ($19,000). The mayor apparently believes that because charters solicit funds from private foundations and philanthropists, they aren’t truly public schools, and they are rolling in dough. Most aren’t, but in any case what’s so terrible about using private donations to improve urban schools?

Second, whereas the city provides buildings to all of its traditional schools, charters must find and pay rent on their own space. The facilities challenge, in fact, has been a major constraint on charter growth nationally. Take Washington, D.C., where nearly half the students are enrolled in charters. As a D.C. charter school authorizer, I was struck by how much time and energy school leaders spend on trying to find suitable and affordable space — even though the city is awash with vacant school buildings.

Third and most important, many charters are giving impoverished minority students what they’ve been denied too long — a quality education. Success Academy Harlem, one of the charters de Blasio wants to expel, had the highest-performing 5th graders in New York’s state math assessment last year. At the district school it shares space with, only five percent of the students passed the test.

So why do self-proclaimed “progressives” want to punish schools that are doing a good job of educating disadvantaged kids? The conventional answer is that they are carrying water for the adults in the traditional system — especially teachers unions. That’s often true, but there’s another explanation: Populists have a genuine ideological bone to pick with charters, because they inject market concepts of choice and competition into public education.

Progressive education reformers are more pragmatic. What matters to them is closing achievement gaps, not preserving the centralized, one-size-fits all model for school governance. For them, the “public” nature of public education lies not in a uniform school system, but in a commitment to uniformly high standards for all students. What charters offer, reformers say, is room for innovation and diversity within public education. Above all, they offer accountability for results. When charters don’t succeed, they can and should have their charters yanked. De Blasio, on the other hand, wants a moratorium on closing failing district schools.

The progressive reform camp, fortunately, has some formidable assets: Bill Clinton, who first put charters on the national agenda two decades ago; President Obama and Education Secretary Arne Duncan; lots of Democratic mayors, governors and legislators in the 42 states that have charter schools; and, legions of black and Hispanic parents who are demanding better schools for this kids.

Oh yes, and Andrew Cuomo, who vowed to make sure the city’s charters have “the financial capacity and physical space and government support to thrive and grow.” Thus did the governor school the new mayor in what it really means to be a progressive.

This article originally appeared in The Hill, you can read it on their website here.

Marketplace Business: Ghetty Images and IP Rights

Posted on March 6, 2014 by The Progressive Policy Institute

Michael Mandel, PPI’s Chief Economist, was interviewed by Dan Weissmann of Marketplace Business to help unwrap Ghetty’s decision to offer 35 million of its protected images to the public for free. Mandel explained why the status quo wasn’t working:

If you have content that gets used by somebody else, and it gets used for free, then your only option is to sue them, and that’s a really terrible option.”

You can listen to the interview on Marketplace’s website here.

Putin Is a Threat to the Free World America Helped Build

Posted on March 4, 2014 by The Progressive Policy Institute

In occupying Crimea, Vladimir Putin has brought the Russian bear, snarling and clawing, out of its post-Cold War hibernation. An anxious world awaits America’s response.

President Obama’s challenge is three-fold. The first and most urgent task is to discourage Putin from authorizing deeper incursions into Ukrainian territory on the pretext of protecting their Russian-speaking compatriots from “fascists.” That could be the thread that unravels Ukraine‘s independence.

Sending Secretary of State John Kerry to Kiev this week is a welcome gesture of U.S. solidarity, but in truth there is little Washington can do to stop Putin from grabbing a larger chunk of the country. No one is prepared to go to war over Ukraine, and the Russian strongman knows it. Nonetheless, Obama should spell out an escalating chain of penalties Russia will incur for further aggression.

Second, Washington must orchestrate a global chorus of condemnation of Russia’s blatant violation of Ukraine’s sovereignty, reinforced by sustained diplomatic and economic pressure on Putin to withdraw his troops. The third task is to solicit economic aid to help stabilize Ukraine’s fragile new government and lessen its dependence on Russia.

Pundits are calling the crisis the gravest test to date of Obama’s international leadership. Perhaps, but there’s a larger question: Can the divided U.S. government, which can scarcely pass a budget or fill key posts, muster a coherent and forceful reply to Putin’s attempts to bully Russia’s neighbors into submission?

This shouldn’t be a partisan issue, but some Republicans just can’t help themselves. Russia’s aggression, they charge, is the bitter fruit of Obama’s weakness. Never mind that Putin also invaded neighboring Georgia in 2008 on George W. Bush’s watch.

Evidently, the “blame America first” mentality that Republicans used to attribute to Democrats has migrated from the left to the right of the political spectrum.

Occupying Crimea is part of Putin’s grand strategy to restore a strong Russia that’s once again respected — i.e., feared — and halts the advance of Western-style democracy into what Moscow regards as its historic sphere of influence. This complicates Putin’s plan to organize a “Eurasian Union” of compliant autocracies as a counterweight to the European Union.

The Russian leader and former KGB operative has called the 1991 break-up of the Soviet Union a tragedy. But that doesn’t mean he has grandiose visions of recreating Stalin’s old empire. Instead, the wily Putin is trying to revise, not reverse, the Cold War settlement. That’s why he’s focusing on countries on Russia’s borders with large ethnic or Russian-speaking populations. Putin would like to reabsorb as many of them as possible, which is why he doesn’t want these countries to follow the Baltics and Eastern Europe in turning to the West. In championing supposedly endangered Russian minorities, and reestablishing the Russian Orthodox Church as the state religion, Putin is trying to revive the old Russian nationalism of the Tsars.

Unfortunately, he also seems bent on resurrecting the worst features of that tradition — creeping imperial expansion, stifling autocracy, paranoia about being “encircled” by enemies and resentful envy of the modern West, led nowadays by America.

This backsliding from the hopeful days of post-Soviet Russia, when Boris Yeltsin tried to put his country on a “normal” course toward market democracy, is a tragedy for Russians, not just their fearful neighbors. Fabricating conflicts with newly independent neighbors and whipping up anti-Americanism strikes a revanchist chord, especially among older Russians. Moreover, such antics distract the world’s eye from popular protests in Russia, as well as harsh crackdowns on dissent and civil society, and the ruthless stamping out of real political competition.

President Obama hasn’t paid nearly enough attention to the rising authoritarian tide in Russia. Instead, in classic “realpolitik” fashion, the White House keeps emphasizing the need to win Russia’s cooperation on what it regards as more important issues, like reaching a political resolution of Syria‘s civil war (though Moscow has no interest in Assad’s departure) and striking a nuclear deal with Iran.

More fundamentally, Obama appears to have internalized the critique — which now joins the anti-war left to the libertarian right — that America’s problems abroad stem mainly from our own moralizing and overreaching, not what bad actors elsewhere do. That’s why he has demoted freedom and democracy as U.S. foreign policy goals, and stood aloof from the Syrian bloodbath, even as the human and strategic costs of inaction keep mounting.

Let’s hope the Ukraine crisis jolts the president out of his solipsistic complacency. Russia’s resort to brute force to intimidate its neighbors is a threat to the international system shaped and sustained mainly by American power over the last half-century. Are we really too war-weary, overstretched or poor to rise to this new challenge? Not unless our leaders think we are.

This op-ed was originally posted in Real Clear World, you can read the original article on their website here.

A Merger of Necessity

Posted on March 4, 2014 by The Progressive Policy Institute

The proposed merger between Comcast and Time Warner highlights the vast gap between the imagined world the broadband industry’s critics and the real world in which these companies must compete.

For years, the critics have advocated forcing companies such as Verizon and Comcast to share their infrastructure with their competitors or mandating that the broadband market only offer one level of service. Their argument is that America’s broadband is gripped by a “cable/telco duopoly” that uses its market power to slow innovation and gouge the consumer. And the Comcast-Time Warner combination is their new monster under the bed.

In fact, the substance of these criticisms is simply wrong. The latest rankings from Akamai show the U.S. eighth and rising in global Internet connection speeds, and a new report from the International Telecommunications Union depicts U.S. wireline broadband as being the most affordable among our trading partners as well.

But even more dissonant are the data on profitability. In a new study set to be released next week by the Progressive Policy Institute, I examine the rates of profit of two subgroups of the Fortune 500 — companies that provide the Internet (from ATT and Verizon down to Level 3 and Frontier) versus companies who reside on it (from Apple and Microsoft to Facebook and Yahoo). The (average weighted) rate of profit on sales for the “providers” is 3.7 percent, versus 24.4 percent for the “residers.” Calculated on assets, the rates are 2.1 percent versus 17.7 percent, respectively.

So the companies that use the broadband Internet are making six to eight times the margins of the allegedly monopolistic companies who provide it — the exact opposite of what you’d see if the price gouging accusation was real.

The problem is that advocates for regulation simply don’t get the competitive dynamics of the broadband industry. And if we don’t have that understanding, we can’t understand the Comcast/Time Warner merger.

In the rotary phone world, “connectivity” — dial tone — created all the system’s value, once you had a phone. But the Internet is different. Rather than a “dumb” signal, Internet connectivity is part of a multi-part parlay with devices, services, applications and other components that deliver value to the consumer. All of these components compete for a larger slice of the integrated customer value pie.

Consider the iPhone. Its vaunted voice recognition technology, for example, has been around for a long time. It’s only been offered in phones now because mobile broadband is powerful enough to let the cloud deliver the service to the user in real time.

So the innovation that makes the iPhone and its applications more valuable to consumers was really the faster speeds offered by mobile service providers. And this is the competitive reality today. The device, website, app and content companies are capturing most of the benefits created by the connectivity “providers,” hence their lusher margins. Yet the providers must continually innovate and improve their service so their customers will bring those devices and applications to the providers’ platforms. In essence, the “providers” are caught in a loop in which they innovate, the downstream device and service providers capture the value created by those innovations, and the providers must then innovate all over again. No wonder the residers make money far outstripping providers.

And it’s not just the mobile market. Watch bandwidth-munching UltraHD TV — so-called “K4” — as it enters the consumer market, now that there’s enough bandwidth to support it. Will the set-makers make the margin, or the broadband providers who made the new sets possible?

So, unlike their caricature as duopolists, provider market power is extremely limited. They are essentially high fixed-cost systems that must continually attract new customers to spread their fixed costs over a larger base, even as other companies garner most of the benefits of their innovation.

And they have little power over content as well. If Comcast were to block, say, YouTube, would you keep their service, or switch to Verizon, ATT, Sprint, Dish, DirectTV or any of several other provides to get what you want to see? And which is the danger — that Comcast will charge you to reach YouTube, or that YouTube will one day charge Comcast to be on its system? In the real world, content, not connectivity, has the muscle.

And this is the backdrop against which we should see the Comcast/Time Warner merger. Comcast’s offerings will immediately improve the service Time Warner’s customers receive. And that will make the combined company a better competitor and innovator in the competitive cage match in which the providers of connectivity, devices, apps, services, content fight for a share of the value the broadband world creates. Rather than a denial of competition, the proposed merger demonstrates that active, aggressive competition is underway in broadband, and Comcast is girding itself for that content. The right policy is to let them do so.

This article was originally posted in The Baltimore Sun, read it on their website here.

China’s Data Fog

Posted on February 28, 2014September 18, 2024 by The Progressive Policy Institute

China recently released its January trade data, showing export growth of 10.6% and performing way above predictions – if you believe the numbers. Many don’t. After last year’s round of inflated figures, stories began to appear about just how businesses were cooking the books. For example, some corporations were sending their goods on a “round trip” to Hong Kong and back, whereby a good produced in China goes “abroad,” to count as an export for tax purposes, and then is brought back to the mainland and sold at a premium because the same good is now also an “import.” Businesses being less than honest is neither a new nor a China-specific phenomenon — but as with every accomplishment the Chinese seem to be doing it bigger and more prolifically than most.

Exports aren’t the only quarter where domestically counted economic indicators have come under criticism. Former Prime Minister Li Keqiang was quoted in a 2007 communique recently released by Wikileaks describing the data used to report China’s GDP as “man-made.” In 2013, a Chinese university released a Gini coefficient estimate, a measure of a country’s rich-poor gap, at .61. A short month later the Chinese government released their first official estimate in a decade coming in at 0.47 – where 0 is perfect equality and 1 is extreme disparities in wealth. (The U.S. for comparison is a middle-of-the-pack nation with a World Bank Gini coefficient of .45). Foreign economists familiar with China labeled the official number, politely, as ‘optimistic.’

These examples highlight two related, but separate issues: Chinese economic data is manipulated at both the macro and at the micro level. Government offices are incentivised to report good numbers and individual firms/households are incentivised to hide their wealth and keep it out of China. Exacerbating the government’s stranglehold on numbers with any meaning is the aggressive harassment of investigative reporters. Last December’s reporterpocalypse, whereby in retaliation for “biased” articles Beijing held up the visas for dozens of foreign reporters, was resolved only by United States Vice President Joe Biden’s direct intervention. Even so, China has continued the trend of kicking out individual journalists with the banning of another New York Times reporter two weeks ago. Of course, no one has it as rough as the Chinese national reporters, who are subject to intimidation, jail time, and annual mandatory classes on how to be a loyal “marxist” reporter.

Formerly, China’s data fog wouldn’t have much global impact. But in an age of unprecedented investment, trade, and interdependence China’s behavior is a problem for actors worldwide. U.S. current Foreign Direct Investment in China is a cool $51 billion, most of which is tied up in manufacturing and outside of finance. American investors need to know the true quality of the environment in which they spend U.S. dollars. Furthermore, globalization has led to the unprecedented integration of economies whereby governments need accurate data from abroad to determine domestic competitiveness. Finally, as the 2007 financial crises demonstrated – failure in the number one (and presumably two) global economy has consequences far beyond a single state’s borders.

Can the US or other outside forces encourage transparency? The fact is that the United States government has little to no political capital in Beijing. When Chinese officials are approached directly by US counterparts, their “advice” is interpreted as at best, condescending and at worst, part of a massive beltway plot to keep China down. This situation illustrates one aspect of a global sea change where the most effective ambassadors aren’t coming from the government, they are the corporations.

For corporations however, the need for accurate information is tempered by other considerations. Companies operating in China have an obvious vested interest in staying on the good side of local/national authorities. It’s hard enough to get things done even when you are courting, bribing and hiring the relatives of the right people. But that doesn’t mean we should underestimate how much China wants to attract foreign business, and the leverage that this desire gives investors. With the roll out of Shanghai’s new Free Trade Zone, Beijing has shown its hand. The government desperately wants to shift the focus of China’s economy away from heavy industry and towards financial and service sectors – ideally with foreign role models around to “unleash diversity and competition.”

Encouraging transparency in China, the United States’ biggest trade partner and the number two global economy, is good economic policy and a smart business strategy. Both official and commercial actors need to participate in lobbying for transparency. In the end, the prospects of foreign businesses in China contribute to the development of the US and the global economies. Governments and the participating corporations are responsible for pressuring China to do the right thing, and as their relative power shifts, pressure is best applied through multiple governmental and business channels.

How Season 2 of House of Cards Murders the 25th Amendment

Posted on February 28, 2014 by The Progressive Policy Institute

As the nation binges on Season 2 of “House of Cards,” we have witnessed ruthless House Majority Whip Frank Underwood (Kevin Spacey) maneuver for the vice president to resign and for himself to be appointed to the position. It’s no spoiler to say that Underwood clearly won’t be content to remain a heartbeat away from the presidency.

But the biggest casualty of “House of Cards” might well turn out to be the 25th Amendment, which governs vice presidential succession. Once again, the amendment has, at least in popular fiction, been transformed from a pragmatic constitutional provision into a Machiavellian route to power. And that’s a shame, because in a real-world time of crisis it could be incredibly valuable — but only if an ongoing stream of fictional portrayals hasn’t distorted its public image beyond recognition.

The 25th Amendment was enacted in 1967 during the height of the Cold War, at time of hair-trigger tensions and the ever-present reality of nuclear missiles mounted on fast-flying intercontinental ballistic missiles. The need for near-instantaneous decision making and continuity of the command authority during the Cold War was clear, yet the nation had twice found itself with a vacancy in the vice presidency, for nearly 4 years after Truman succeeded to the top job 1945 and again for over a year after the Kennedy assassination.

This problem was rooted in an oversight of the founders. They had crafted a vice presidency to assume executive authority in the case of the death, resignation, or removal of a president, but had not provided a way to fill the ensuing vice presidential vacancy before the next regularly scheduled general election. As a result, between 1789 and 1967, through a combination of presidential and vice presidential deaths and resignations, the VP slot had been vacant 16 times for some 40 years in total, or nearly 20 percent of American history.

Depending upon the Law of Presidential Succession at the time, the secretary of state or the speaker of the House were bumped up to next in line to the Oval Office. But the former lacked democratic validation, while the latter was not part of the sitting administration, and might even be its vehement political enemy. The 25th Amendment was thus enacted to enable the president to fill a vacancy in the vice president position, subject only to confirmation by simple majorities of both houses of Congress.

On “House of Cards,” Underwood’s machinations have arranged for the unhappy sitting Vice President to step down and for him to be named in his stead, with various types of murder and mayhem enacted along the way. This is a far cry, however, from how the mild-mannered and upstanding Gerald Ford actually found his way to the Oval Office via the 25th Amendment in 1974.

After VP Spiro Agnew was pressured to resign due to bribery charges, Nixon looked around for a harmless placeholder until the 1976 election. Neither he nor Ford, imagined that Nixon would himself likewise be forced from office, following what Ford termed the “long national nightmare” of the Watergate crisis. A longtime member of the House, Ford had never been elected by any constituency larger than the area around Grand Rapids, Michigan, yet he assumed full executive authority, more in sadness than in triumph. Now though, thanks to “House of Cards,” what was then a constitutional lifeline is now best known as a vaguely illegitimate back route to power.

And “House of Cards” is not the only fictional outlet to rough up the 25th Amendment, which includes two other provisions addressing another oversight of the founders: what to do about a president who was not dead but was severely incapacitated. Section 3 of the amendment allows for the president to designate the VP to temporarily become acting president. This can be initiated by a still-conscious president, as has been done three times by presidents who were anesthetized for brief medical procedures. Its intention was for such short-term situations or, even more so, for protracted periods such as following Woodrow Wilson’s stroke in 1919 or Dwight Eisenhower’s heart attack in 1955.

Predictably, though, television took this sober precaution to an outlandish level on the long-running series “The West Wing,” in which the daughter of Democratic President Jed Bartlet (Martin Sheen) was at one point kidnapped by terrorists. This created an insoluble conflict-of-interest for the president, leading him to invoke Section 3 of the 25th Amendment and to temporarily to step aside. Conveniently, the vice president on the series had also recently resigned. This enabled the next in line, a boorish Republican speaker of the House (John Goodman), to briefly become commander-in-chief and thus to play havoc with the administration’s policies.

Most controversially, Section 4 of the 25th Amendment enables vice presidents themselves to initiate the power transfer, provided that they have the counter-signatures of a majority of cabinet officials. The single time this provision unambiguously should have been enacted was in 1981 after an assassination attempt left Ronald Reagan unconscious. But a mere three months into their term, Vice President George H.W. Bush was determined to create even a hint of an unseemly power grab, and never invoked the amendment despite Reagan’s manifest incapacitation. One of the indelible images of that day was mass confusion at the White House and the infamous, and erroneous, declaration by Secretary of State Alexander Haig that he was in charge while Bush was traveling back to DC.

Of course, popular culture has likewise since latched onto this scenario, most famously in the Hollywood movie “Air Force One,” in which the president’s plane has been hijacked with him aboard. Although this was hardly the circumstances originally envisioned for the amendment, it undoubtedly applied — the president (Harrison Ford) could hardly have been more incapacitated than while evading terrorists at 35,000 feet. But the vice president (Glenn Close) stalwartly refuses to make the correct choice to temporarily transfer power to herself, despite urging from a cabinet more sensible than herself.

So, what do these fictional scenarios have in common with reality? Not very much. But they do play to an enduring fascination with convoluted Shakespearean scheming to seize the throne, such as in “Macbeth” and “Richard III.” Hopefully, the 25th Amendment will never need to be invoked in such dramatic circumstances. But, the reality is that it conceivablycould be — and in a moment of crisis and confusion, the perception of order and legitimacy may count for a lot. It certainly won’t help if the public’s most enduring impression of the mechanism for orderly succession involves the scheming of Frank Underwood.

This piece was originally published in The Daily Beast, you can read it on their website here.

Obama Goes Big on Infrastructure

Posted on February 27, 2014September 18, 2024 by The Progressive Policy Institute

President Obama’s new budget proposes a bold, $300-billion push to modernize the nation’s aging and inadequate transportation systems over the next four years. Here at last is a call for action on the scale we need to get the U.S. economy out of its slow growth rut and back on a high-growth path. Two generations of federal underinvestment in public infrastructure has left much of it in disrepair, deterred private investment and limited the economy’s growth potential.

There’s only one problem: Obama’s plans to get America moving again by improving roads, ports and transit systems have been repeatedly stalled by ultra-conservatives within the GOP. It’s bad enough that there are those in Congress who automatically oppose whatever Obama proposes. But many far-right politicians also seem to have forgotten what they learned in Economics 101 – investment in public goods like transport, water and energy infrastructure are essential foundations for robust economic growth.

PPI’s forthcoming paper highlights new research conducted post-crisis confirming that the economic returns from infrastructure spending are enormous. In fact, our analysis shows an emerging consensus that for every $1 spent on transportation infrastructure, the increase in economic growth is between $1.5 and $2.

The United States faces an enormous deficit in transportation investment – almost $900 billion by 2020 by some accounts. Yet there’s no doubt that modern transport systems are essential to our nation’s competitiveness – to facilitate U.S. international trade, regional commerce, and local access to essential services. Not having access to fast and reliable public transit services could disproportionately affect the low-income and inner city populations relying most on fast and affordable public transit to get to work.

So we applaud President Obama’s proposal, and hope that Congress will finally start investing in America too.

Tech Hubs Have Better Inequality Performance since 2007 Than Other Large Cities

Posted on February 20, 2014September 18, 2024 by The Progressive Policy Institute

The title of the NYT article seems to say it all: “Study Finds Greater Income Inequality in Nation’s Thriving Cities.” The implication is that the tech/info boom is increasing inequality.

But a closer look at the Brookings data underlying the article shows exactly the opposite. In fact, based on the Brookings data, tech hubs have on average seen a smaller increase in inequality than other large cities since 2007.

Let’s walk through the evidence. The Brookings study used Census data to measure the change in the 95/20 ratio for large cities from 2007 to 2012. Their list of 50 large cities included 9 tech hubs–San Francisco, Boston, NYC, Denver, Austin, Seattle, San Jose, Raleigh, Colorado Springs.

1. Out of those 9 tech hubs, only 2 (22%) had a statistically significant increase in inequality from 2007 to 2012, according to the Brookings report. Out of the remaining 41 cities, 17 (41%) had a statistically significant increase in inequality form 2007 to 2012.

2. The median increase in inequality for the tech hubs was 0.4 percentage points, compared to 0.7 percentage points for the remaining cities.

3. The average increase in inequality for the tech hubs was 0.8 percentage points, compared to 0.9 percentage points for the remaining cities.

4. Two tech hubs (Denver and Seattle) had declining inequality over this period, compared to only one non-techhub (El Paso).

Preliminary conclusion: Tech hubs have seen better inequality performance since 2007, compared to other large cities.

Caveats: This is a real-time preliminary analysis of the Brookings data. I reserve the right to modify it (or correct mistakes!!) in response to comments. Go for it!