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Politico: The next regulator of the FHFA

Posted on October 25, 2013 by The Progressive Policy Institute

Politico recently quoted Jason Gold, Director of PPI’s “Rebuilding Middle Class Wealth” project, on his thoughts regarding the next regulator of Fannie Mae and Freddie Mac:

“As the numbers mount, the defense for DeMarco grows,” said Jason Gold, senior fellow at the liberal Progressive Policy Institute.

More than 7 million homeowners owed more on their mortgage than their house is worth as of July, according to data analytics firm CoreLogic. But as house prices have been on a rise even in the hardest hit areas, the amount of these underwater borrowers is down nearly 20 percent from the beginning of the year.

The debate over who should be the next regulator of Fannie and Freddie is also pivoting away from who could best help struggling homeowners toward who can best manage the two companies as Congress debates ways to overhaul the housing finance system.

“We’re moving from recovery to reform,” Gold said.

Read the entire piece in Politico Pro here.

How the Housing Recovery Will Become Sustainable

Posted on October 23, 2013 by The Progressive Policy Institute

After the country (and the world) witnessed the debacle of the government shutdown, most Americans are now convinced there isn’t a thing policymakers in Washington truly agree on. Only the threat of a global economic calamity in the form of a debt ceiling breach forced Congress to agree on reopening the federal government.

But while most issues facing the country have become decidedly red or blue, when it comes to getting private investors back into the mortgage market, and decreasing the reliance on government by resolving the fate of Fannie Mae and Freddie Mac (known as Government Sponsored Enterprises or GSEs), Washington, D.C. is downright purple.

Since the mortgage meltdown in 2008, however, private capital has been a very small part of the mortgage making process. The government currently backs more than 90 percent of all mortgages made. The slow trickle of private investors who have been coming back into the market is increasing, but they have so far only shown interest in the safest, most pristine borrowers.

But as investors increasingly develop an appetite for private mortgages, which is a good thing, the size of the pools of private loans (known as securitizations) seems to be shrinking.

Continue reading at U.S. News & World Report.

The PPI Tech/Info Job Ranking

Posted on October 19, 2013 by The Progressive Policy Institute

The last few years have been tough for many cities and localities. Most places have not yet fully recovered from the financial collapse, either in terms of jobs or revenues. High growth seems unattainable.

But some cities and localities—ranging from New York to New Orleans to Davis County, Utah—are doing unexpectedly well. What they have in common: Strong growth in the tech/information sector. This sector ranges from tech startups to Internet firms such as Google and Facebook to telecom providers such as AT&T and Verizon to content producers such as newspapers and movie studios (see definition below).

New analysis by the Progressive Policy Institute shows that places with strong tech/information growth have survived the recession much better than their counterparts. In particular, counties with a higher number of new tech/information sector jobs from 2007 to 2012 had enjoyed substantially faster growth in both overall private employment and non-tech jobs over the same period.

In order to quantify the link between the tech/information sector and overall growth, we have constructed the PPI Tech/Info Job Index. For each county, the Index measures the number of new tech/information jobs between 2007 and 2012, as a share of 2007 total private sector employment in that county. For example, an index of 1 means that new tech/info jobs equals 1% of total private employment.

On average, the top 25 counties, as measured by the Index, showed an average private sector job gain of 2.4% between 2007 and 2012. That doesn’t seem like much, but the remaining counties had a decline of 3.5%. In other words, a vibrant tech/info sector tended to make the difference between a local economy that had recovered by 2012, and one that was still in decline.

The implication is that policies to encourage tech/info growth are more likely to boost the overall economy. Innovation creates well-paying jobs. What’s more, the diversity of places on our list suggests a high-growth economy is not just for traditional tech powerhouses such as Silicon Valley, but has broader applicability.

Download the ranking.

NYT: Game-Changing Investments for the U.S.

Posted on October 18, 2013 by The Progressive Policy Institute

The New York Times Economix Blog highlighted PPI’s recent “U.S. Investment Heroes of 2013” report in a piece on the importance of increasing private domestic investment:

A recent study by the Progressive Policy Institute found that telecommunications companies, technology companies and energy companies were the largest sources of private investment in 2012. Foreign companies are increasing their investments in American locations to take advantage of growing opportunities in these and other sectors.

Read the entire piece in The New York Times here.

How Many Wireless Carriers Does It Take to Satisfy a Regulator?

Posted on October 17, 2013September 18, 2024 by The Progressive Policy Institute

At a Technology Policy Institute breakfast this week, telecom geeks were treated to a robust exchange of ideas between Jim Cicconi, Senior Executive Vice President of AT&T, and Reed Hundt, former chairman of the FCC. When the conversation turned to the upcoming spectrum auction, Mr. Hundt defended ex ante rules for limiting the number of licenses that any single carrier could acquire, arguing that ex post enforcement of excessive concentration would deprive bidders of the certainty they needed when constructing bids. Although that position was consistent with his prior views, Mr. Hundt surprised this blogger when he declared (in response to my question from the peanut gallery) that market forces—and not regulators—should dictate the optimal number of wireless carriers.

Was Mr. Hundt channeling his inner Reagan? Even those who question the FCC’s role as “second antitrust cop on the beat” would be hesitant to permit consolidation among the largest two wireless carriers as market forces dictated. So that raised a follow-up question (which I did not get to ask): Can a regulator tasked with designing spectrum policy really be agnostic about the optimal number of wireless carriers?

It is hard to square Mr. Hundt’s prescription with the FCC’s approach to spectrum policy, including during Mr. Hundt’s tenure. When the FCC first started auctioning spectrum licenses, it decided to give companies the right to serve small, geographic areas rather than large, nationwide footprints. This resulted in myriad small carriers joining the fray to provide wireless services.

The country was cut into a Swiss-cheese board, which required at least a decade for carriers to cobble together enough local licenses to establish nationwide coverage. Given where we ended up—roughly four carriers per geographic area—one wonders whether it would have been more efficient (in terms of avoided transaction costs) to auction fewer licenses for more spectrum per geographic area right from the start.

Over the years, the FCC has gone even further in promoting its vision of an “optimal market structure” populated by several mom-and-pop companies—for example, by promulgating rules that encouraged entry by smaller carriers regardless of the strength of their business plan or qualifications to build and operate networks. Set asides, bidding credits, and bankruptcy ensued, stranding useable spectrum for decades and most certainly delaying some of the wireless innovations we’re all starting to experience. But for a fleeting moment, we had more carriers than before, and that made regulators feel better.

Not to be dissuaded in this quest to induce more entry for the sake of inducing more entry, the Genachowski-led FCC issued a series of reports decrying the market structure for wireless as being excessively concentrated. Adhering to this basic, flawed assumption, the current FCC appears set on designing an upcoming spectrum auction to limit the amount of spectrum that the two largest wireless broadband providers can acquire.

In sum, the FCC’s spectrum policy has been the opposite of the “let the market decide” approach to market structure suggested by Mr. Hundt. While laissez- faire may not be the best alternative to the FCC’s heavy-handed approach, it would behoove regulators tasked with implementing spectrum policy to consider (1) the current demands being placed on wireless networks from the explosion of bandwidth-intensive applications, and (2) the oncoming inter-modal competition between wireless and wireline networks. Both of those factors elevate the importance of economies of scale in wireless services, and thereby militate in favor of fewer, beefier carriers.

If the answer to my market-design question that Mr. Hundt politely brushed off is three or four wireless carriers, then the FCC should revisit its self-appointed mission to focus almost exclusively on the number of competitors at the expense of enabling wireless providers to bulk up and take on their wired brethren. Let the competition for all broadband customers (as opposed to wireless broadband customers) begin!

How Belgium Survived 20 Months Without a Government

Posted on October 11, 2013 by The Progressive Policy Institute

If you think a few days of “government shutdown” in the U.S. is bad, consider that in 2010-2011, Belgium had a political crisis that prevented formation of a government for 589 days. What may be most surprising, though, is that the Belgians found a way to keep their government programs and services running without serious interruption.

Belgians are far more divided than Democrats and Republicans in the U.S., split between a wealthier Flemish-speaking north with 60 percent of the population and a less prosperous French-speaking south. The cultural distinctions, linguistic antagonism, and regional separation between the two halves of the nation have long made it difficult to create a coherent majority in a parliament full of multiple small parties split along communal lines.

But the nation’s long-running divisions hit an all-time-low when the prime minister resigned in April 2010 and no new parliamentary majority could be established. Round after round of fruitless negotiations went on for the rest of 2010 and most of 2011. No faction or party was willing to compromise, nor could any single politician emerge as a unifying figure.

So what happened to the crucial work of Belgium’s government? Nothing much at all – things mostly went on as usual. The prior government stayed on in a “caretaking capacity” and the bureaucracy continued to hum along. As a report in Time put it: ” the absence of a government makes little difference to day-to-day life in Belgium…. Belgium deftly helmed the presidency of the E.U. in the second half of 2010, and the caretaker government last month headed off market jitters over its debt levels by quickly agreeing on a tighter budget. The country is recovering well from the downturn, with growth last year at 2.1 percent (compared with the E.U. average of 1.5%), foreign investment doubling and unemployment at 8.5 percent, well below the E.U. average of 9.4%. ‘By and large, everything still works. We get paid, buses run, schools are open,’ says Marc De Vos, a professor at Ghent University.”

Continue reading at the Washington Monthly.

Democrats Must Avoid Republican Economic Anarchism

Posted on October 8, 2013 by The Progressive Policy Institute

Economic calamity begets radical politics. America’s worst financial panic and recession since the 1930s gave birth to the Tea Party and Occupy Wall Street movements. Now Occupy seems to be fizzling out, but in Week 2 of a government shutdown, it is looking more likely that Tea Party Republicans could plunge the nation gratuitously into a new economic emergency.

The GOP’s surrender to fiscal anarchism is bad for the country. But it does give President Obama and his party an opportunity to seize the high ground on jobs and economic growth — the issue uppermost in Americans’ minds. For that to happen, however, Democrats will need to abandon their ritual business-bashing, embrace the productive forces in U.S. society and honor companies that are investing in America’s future.

Why? Because the nation’s job drought is really an investment drought. With gridlock in Washington and financial troubles at the state and local level, real government spending on productive assets from highways and bridges to computer equipment is down by half compared with the average level of the 2000s.

Private sector investment is doing better but still falls well short of what the country needs to generate “breadwinner” jobs and raise middle-class wages. Although corporate profits have rebounded lustily, many companies are still hoarding cash — about $2 trillion worth — or spending it on stock buy-backs. U.S. business investment, outside of housing, is still 20% below its long-term trend.

Continue reading at USA Today.

Obama Has Demoted Liberty

Posted on October 3, 2013 by The Progressive Policy Institute

President Barack Obama has demoted liberty and democracy as primary U.S. foreign policy goals, at least where the Middle East is concerned. So the president informed the world in his address to the United Nations last week.

Obama said four “core interests” would henceforth guide U.S. policy toward the Middle East and North Africa: protecting our allies, ensuring the flow of oil, fighting anti-American terrorists, and preventing the use of weapons of mass destruction. While he said U.S. efforts to “promote democracy, human rights, and open markets” will continue, they are now relegated explicitly to the second tier of U.S. interests.

Not so fast Mr. President. Shouldn’t Democrats at least be questioning Obama’s logic, if not raising objections? After all, the president’s embrace of realpolitik is at odds with the party’s liberal internationalist outlook, which on balance has served America and the world well for seven decades.

Continue reading at CNN.

Creating jobs: Democrats need to stop business bashing and praise corporate investors

Posted on October 3, 2013 by The Progressive Policy Institute

Economic calamity begets radical politics. America’s worst financial panic and recession since the 1930s gave birth to the tea party and Occupy Wall Street. Now Occupy seems to be fizzling out, but tea party Republicans are plunging America into budget crises this fall.

The GOP’s surrender to fiscal anarchism gives President Obama and his party an opportunity to seize the high ground on jobs and economic growth. For that to happen, however, Democrats will need to eschew ritual business-bashing, embrace the productive forces in U.S. society and honor companies that are investing in America’s future.

The nation’s job drought is really an investment drought. Real government spending on productive assets from highways and bridges to computer equipment (net of depreciation) is down by half compared to the average level of the 2000s. Private sector investment is doing better but still falls well short of what the country needs. Many companies are still hoarding cash — about $2 trillion — or spending it on stock buy-backs, and investment outside of housing remains 20 percent below its long-term trend.

But many companies are investing at home. For the second year running, the Progressive Policy Institute has ranked the top 25 companies that are making the biggest bets on America’s economic future. These “Investment Heroes” invested nearly $150 billion last year in new plants, buildings and equipment (figures do not include investments in research and human capital).

Continue reading at the San Jose Mercury News.

Stumping Patent Trolls On The Bridge To Innovation

Posted on October 1, 2013 by The Progressive Policy Institute

President Obama brought much needed attention this June to “patent trolling,” a growing area of litigation abuse vexing America’s high-tech industries. In these lawsuits, shell businesses called Patent Assertion Entities (PAEs) or Non-Practicing Entities (NPEs)—some of which have been nicknamed “patent trolls”—game the patent and litigation systems. They purchase dormant patents, wait for others to independently develop comparable technology, and assert patent infringement suits. As the President explained, PAEs “don’t actually produce anything themselves.” Their quest is to “see if they can extort some money” by claiming they own the technology upon which the other companies’ products are built.

An attorney who used to defend these claims, Peter Detkin, is generally credited with popularizing the “patent troll” moniker. For software, consumer electronics, retail and the many other companies on the receiving end of these lawsuits, PAEs are reminiscent of the mythical trolls that hide under bridges they did not build, but nevertheless require people to pay them a toll to cross. Patent trolling, it turns out, is a better path to the holy grail than hiding under bridges. An oft-cited economic study pegged the overall impact of PAEs in terms of “lost wealth” at $83 billion per year, with legal costs alone amounting in 2011 to $29 billion, up from $7 billion in 2005. At least fifteen PAEs are now publicly traded companies.

This policy brief seeks to address three questions: what caused this recent and rapid rise in PAE litigation, what can be done to stop it, and what is the role for progressives? First, it identifies the confluence of factors that have come together in the past two decades to create the patent equivalent of a 100-year flood, focusing mostly on the explosion of new, widely used technologies, increasing ambiguity in the boundaries of today’s patents, and a litigation system incentivizing “ransom” settlements for even questionable infringement claims.

The brief then examines the adverse impact PAE litigation is having on the development and use of innovation, as well as on traditional patent cases brought by inventors the patent system was created to protect. It discusses the rich history of progressives in leading efforts to stop litigation prospecting, concluding that progressives should be at the forefront of this reform too. It then explores specific proposals the President, Senators Schumer and Leahy, and others have offered to safeguard the patent system from trolling abuse.

Download the memo.

Why Boehner’s to Blame

Posted on October 1, 2013 by The Progressive Policy Institute

The government of the United States of America is closed for business today, courtesy of the Republican Party. It’s a national embarrassment, like a scene from the Marx Brothers’ classic 1933 satire “Duck Soup,” only without the anarchic humor.

Hail Freedonia!

Who produced today’s farce? Was it the Tea Party hotheads, 50 or so House Republicans who love ideological combat but hate governing? Or was it Sen. Ted Cruz, perhaps the most cunning demagogue America has produced since Joe McCarthy?

All played their discreditable parts. But the man in the director’s chair is John Boehner, who is bidding for the title of worst House speaker in U.S. history.

Why Boehner? Because he knows better, and could have prevented the shut-down. And because, as America’s third-ranking constitutional officer, after the President and vice president, he is supposed to serve America’s interests — not the febrile demands of his party’s most rabid partisans. That’s Eric Cantor’s job.
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Read the entire piece at the New York Daily News.

Government Investment Falls Off a Cliff

Posted on September 30, 2013September 18, 2024 by The Progressive Policy Institute

Thanks to massive budget and deficit cutting, government investment is free-falling off a cliff. Net real government investment – by federal, state, and local governments after depreciation and adjusting for inflation – was just $91 billion in the first half of 2013. This is less than half of what it was when the recovery began in 2009.

Government investment is what goes into maintaining and building our nation’s infrastructure, which includes highways, bridges, and ports. It also includes investment in equipment, and intellectual property. The chart below shows what government investment was in our nation’s infrastructure, equipment, and intellectual property after depreciation, and after adjusting for inflation. Since 2009, real net government investment has fallen by about $114 billion, or 56 percent.

The drastic fall-off in real net government investment is quite startling. Worse, the sharp fall-off in real net government investment across the federal, state and local government appears to be accelerating. Current real net government investment is now at levels not seen since 1983 – a historic low.

The largest drop-off in real net government investment has been in structures, which comprises the majority of government investment. Real net government investment in our nation’s physical infrastructure has fallen by an astonishing 53 percent, or $78 billion, since 2009.

Such little investment in our nation’s infrastructure will certainly add to the slow recovery going forward. And with more spending cuts almost assured, the end of this story is not looking bright.

America’s job crisis: What entrepreneurs say

Posted on September 27, 2013 by The Progressive Policy Institute

The worst economic downturn since the Depression is behind us, but the great American job machine keeps sputtering. Four years into “recovery,” too many Americans are still unemployed, underemployed, on disability or out of the workforce altogether.

What are U.S. political leaders doing about the nation’s jobs emergency? Next to nothing. Instead, House Republicans have plunged Washington into another senseless round of fiscal brinksmanship, jeopardizing economic recovery in their Ahab-style quest to destroy the great white whale of Obamacare.

Imagine, instead, that we had a functioning political system. What could Congress and the White House do to goose the pace of job creation?

Instead of turning to the usual (partisan) experts and Beltway interest groups for answers, why not put that question directly to U.S. job creators themselves? That inspired suggestion comes from John Dearie of the Financial Services Roundtable and Courtney Geduldig of Standard & Poor, who hit the road two years ago to do exactly that.

They present the findings of this unique survey in a new book, Where the Jobs Are: Entrepreneurship and the Soul of the American Economy. It’s based on the authors’ intensive conversations with over 200 entrepreneurs who attended roundtables in 12 cities. What results is a concrete and practical blueprint for policy changes that can help entrepreneurs launch new businesses, expand existing ones and create the good “breadwinner” jobs that can support middle class families.

There are no blinding revelations here; most of their prescriptions are familiar to Washington policy hounds like me. But this only underscores that job creation isn’t some arcane branch of economics that only Nobel laureates can fathom. U.S. policymakers mostly know what to do – which makes their failure to act all the more tragic.

Continue reading at The Hill.

Energy is an Important Driver of U.S. Investment

Posted on September 25, 2013September 18, 2024 by The Progressive Policy Institute

Given the ongoing boom in oil and natural gas production, it’s no surprise that U.S. and non-U.S. energy companies are among the top companies investing in America. Still, the sheer magnitude of the investments by these companies means the contribution of the energy sector to economic growth should not be ignored or discounted in the larger conversation.

Of the U.S. companies highlighted in our new U.S. Investment Heroes report, eight of our top 25 U.S. Investment Heroes of 2013 were energy companies. Together, we estimate these eight companies invested a total $56 billion over the last year in plants, property, and equipment in the United States, comprising almost 40 percent of the total $150 billion invested by the top 25 companies. Exxon Mobil, the top energy company on our list, invested over $12 billion in the U.S. in 2012 alone.

Due to incomparability across financial statements, our non-U.S. Investment Heroes report separately considered companies in energy production, automotive manufacturing, and industrial manufacturing.

Still, our research found that of the three categories, energy companies were by far making the biggest bet on America’s future. Global energy giant BP was the top non-U.S. Investment Hero out of all the companies we considered across the three categories, putting a combined $19.3 billion into the U.S. economy in 2011 and 2012. (To the best of our knowledge, these funds did not include any payouts related to the Deepwater Horizon oil spill.) Together, the top four energy non-U.S. energy companies we considered invested an estimated $58.7 billion in 2011 and 2012.

At a time of weakness in other industries, these studies highlight that energy production is a bright spot for U.S. business investment. That this message is clear in both our U.S. Investment Heroes and non-U.S. Investment Heroes reports suggests energy will continue to be a driver of U.S. growth and job creation.

Jamie Dimon, JP Morgan and the ‘Whale Trade’ Fallout

Posted on September 25, 2013 by The Progressive Policy Institute

Last week, JP Morgan Chase settled with regulators in both the United States and United Kingdom over massive losses suffered in the 2012 “London Whale” trading fiasco. Chase, America‘s largest bank, fessed up to wrongdoing and agreed to pay a stiff $920 million fine. As part of the agreement, regulators agreed not to pursue further charges against Chase’s top brass.

Thus ends the biggest financial hiccup since Wall Street nearly tanked in 2008. The story begins in April of 2012, when Bruno Iksil, an obscure trader in the big bank’s London unit, got caught in a series of outsized derivatives trades that went bad. Fellow traders dubbed Iksil the “London Whale” for the monstrous size of his bad bets. Chase CEO Jamie Dimon was initially dismissive, calling the burgeoning scandal a “tempest in a teapot.”

Iksil escaped prosecution by cooperating with authorities. But two former employees in the London branch weren’t so lucky and are being prosecuted for falsifying books and regulatory filings in an effort to cover up the trader’s disastrous positions.

“The defendants deliberately and repeatedly lied about the fair value of assets on JPMorgan’s books in order to cover up massive losses that mounted up month after month,” Preet Bharara, the U.S. Attorney for the Southern District of New York, said when announcing the charges. “Those lies misled investors, regulators and the public, and they constituted federal crimes.”

Continue reading at U.S. News & World Report.