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Reuters Cites PPI Student Debt Data

Posted on by The Progressive Policy Institute

Writing for Reuters on the Student loan bubble, Chadwick Matlin cites PPI published data on the topic.

The New York Federal Reserve, always interested in brightening our days, released a slideshow last week on student loans. It had little good news, but it did offer a reminder that in 2013 fewer people are indebted to the American Dream. Instead, they’re in debt because of it.

College, we’ve long been told, is the great equalizer. (And, despite the doomsayers, there’s reason to think it still is.) But increasingly, people are graduating in vastly different economic situations. More than 40 percent of 25-year-olds now have student debt, and 35 percent of twentysomethings are more than 90 days delinquent on loans that are being repaid. All of this comes as the average income for a 25- to 34-year-old with a bachelor’s degree is the lowest it’s been in years, down about $10,000 since 2000.

Read the full article here.

Financial Innovation Key to Future of Homeownership

Posted on by The Progressive Policy Institute

The housing bubble and ensuing financial crisis not only wreaked havoc on the U.S. economy, but it also shook public confidence in financial markets and robbed Americans of their faith in homeownership as a stable iconic pillar of middle class security.

Much of the fallout can be blamed on the exotic financial “innovations” hawked by Wall Street in the run-up to the financial bust: “liar loans,” where no verification of income was required; synthetic derivatives, whose highly speculative design put the entire financial system at risk; and home equity lines of credit that exceeded the value of homes by up to 125 percent.

Today, housing prices are finally rising and the stock market is going gangbusters. But the idea of “financial innovation” retains its negative aura. That’s a problem, because just as there are good and bad witches in Oz, there’s good and bad innovation on Wall Street.

Read the entire piece at U.S. News & World Report.

Washington Monthly Covers PPI’s Student Debt Proposal

Posted on by The Progressive Policy Institute

Washington Monthly’s Daniel Luzer cites PPI’s new Student Debt Investment Fund (SDIF) proposal as a “potentially useful” plan to alleviate the growing student debt crisis. Luzer contends that a slow deflation of the bubble like that contained in the proposal might not be necessary as “the worst education debt is already deflating on its own.” He also says that PPI’s proposed solution also might not be the most structurally efficient. Overall however, Luzer thinks the policy idea is “interesting” and that it could indeed be part of a solution to a growing problem.

Read the full article here.

Student Debt: A Bubble More Like a Balloon

Posted on by The Progressive Policy Institute

There is an intense debate as to whether the student debt crisis is a bubble or not. The short answer: yes, but it’s more like a balloon. And the good thing about balloons is that they don’t have to burst; there is an option to deflate them slowly.

In some ways the ongoing student debt crisis has the classic symptoms of a bubble. There is an artificial inflation of value (here, tuition) that is in part fueled by low-cost funding (here, government-issued student aid). The latest Federal Reserve numbers show student debt is now a staggering $1 trillion and climbing. Yet the real earnings of young college grads are falling, down 15 percent since 2000. Already student loan defaults are at 11 percent and rising. Moreover, the true default rate is actually higher because of post-graduation grace periods. Not surprisingly, the Wall Street Journal reported earlier this week that student loan debt is now crowding out other borrowing and spending.

In other ways the student debt crisis is different—potentially worse—than the typical financial bubble. First, student debt is uncollateralized. There’s no home or property that can be reclaimed in default. Second, student debt cannot be discharged in bankruptcy, or restructured to meet the repayment ability of struggling debt owners. And most importantly, the majority (85 percent) of student debt is owned by the government. That means taxpayers are directly on the hook for $850 billion in potential losses. Worse, the government doesn’t really have the option to cut back on loan issuances or raise interest rates because that would go against equal access and opportunity.

The fact that the government holds the majority of student debt is what could transform this bubble into a controlled balloon—a balloon that can be deflated slowly. We know where most student debt is; it is not as spread out across unknown entities like subprime mortgage debt.

This week we released a preliminary proposal for the creation of private-sector student debt investment fund (SDIF) that would purchase existing student loans, refinance the debt at today’s historically low interest rates, and apply a discount to the loan amount. This could be the release valve that deflates the balloon, by reducing the financial burden to debt holders and transferring risk. That could free up government resources to address another important issue—rising tuition.

Despots Mourn Chavez

Posted on by The Progressive Policy Institute

Sean Penn lamented that he “lost a friend” when Venezuelan caudillo Hugo Chávez died yesterday. Sean, you’re not alone: So did the world’s dictators.

Hugo Chávez championed Venezuela’s poor and America’s adversaries – an irresistible combination in the eyes of what’s left of the Cold War left. Chávez , in fact, seemed positively nostalgic for the old East-West conflict.

When democracy spread across Latin America and Cuba looked like a communist relic, Chávez  cast himself as Fidel Castro’s understudy and kept his creaking regime afloat with Venezuelan petrodollars. When most of the rest of the world had tossed socialism into history’s dustbin, Chávez proclaimed a “Bolivarian” socialism as he nationalized industries and expropriated assets held by foreign investors.

And it wasn’t just Castro; Chávez made a habit of personally befriending the world’s worst dictators, presumably because they were the enemy of his enemy – the United States. Or maybe he simply admired them for brooking no domestic opposition, while he had to put up with an independent media, elections and the other tedious trappings of democracy. Whatever the reason, it was incongruous to see this self-styled tribune of the people getting chummy with the likes of Saddam Hussein, Belarusian dictator Alexander Lukashenko, Zimbabwe’s Robert Mugabe and his “brother” Muammar Qaddafi.

Continue reading “Despots Mourn Chavez” →

Student Debt Investment Fund (SDIF): A Preliminary Proposal for Addressing the Student Debt Crisis

Posted on by The Progressive Policy Institute

The Progressive Policy Institute proposes the creation of a new, private sector Student Debt Investment Fund (“SDIF”) that would address the student debt crisis. The proposed SDIF would act as a secondary market for student loan debt, capitalized by corporate profits currently held abroad. In return, participating U.S. corporate entities would receive tax credits. The SDIF would purchase existing student loans, apply a discount to the loan amount, and restructure the loan through refinancing the debt.

By matching need for financial relief with available investment funds, the proposed SDIF could be a private sector solution to a public problem. Without action, the student debt crisis will be the next financial disaster. One in five households is currently saddled with student debt, now over $1 trillion, which cannot be discharged in bankruptcy or refinanced at today’s historically low interest rates. At the same time, multinational U.S.-based companies are sitting on an estimated $2 trillion in cash reserves, much of it profits held abroad. Companies are unwilling to repatriate these profits under current tax law for fear of excessive financial penalties.

Societal benefits of the proposed SDIF include: (1) deflating the student debt bubble slowly, (2) facilitating economic growth by freeing financial resources for millions of young Americans, (3) enabling more young people to invest in their human capital, and (4) providing a way for U.S. corporate entities to invest their excess funds in America strategically and promote public well-being. The benefits to business include tax credits issued annually over the term of the investment and the potential for an annual return on investment depending on the success of the SDIF. The benefits to government include transferred risk to the private sector from reduced student loan exposure and potential tax revenue that would not have been received otherwise.

Download the policy proposal.

Three Ways to Bring Manufacturing Back to America

Posted on by The Progressive Policy Institute

Writing for The Washington Monthly, Anne Kim discusses insourcing, and how it can affect the U.S. economy and U.S.-based innovation in the future.

In January 2012, President Barack Obama convened nineteen CEOs and business leaders at a White House forum to tout a potentially promising new phenomenon: instead of “shipping jobs overseas,” U.S. companies were bringing them back. “[W]hat these companies represent is a source of optimism and enormous potential for the future of America,” Obama said. “What they have in common is that they’re part of a hopeful trend: they are bringing jobs back
to America.”

Anecdotally, the record is impressive. A number of major companies—including some of the same firms that first took flak for “offshoring” jobs to China—are now expanding their manufacturing operations stateside. General Electric, for example, says it has created 16,000 new U.S. jobs since 2009, including jobs at a new locomotive plant in Fort Worth, Texas; a solar panel factory in Aurora, Colorado; and an engine manufacturing facility in Pennsylvania. The company’s recent revival of Appliance Park, in Louisville, Kentucky, as a maker of high-end refrigerators, was the subject of high-profile coverage, including a recent piece in the Atlantic.

Other companies that have seemingly caught the “reshoring” wave are appliance maker Whirlpool (which rejected sites in Mexico in favor of Tennessee), and iconic brands like Intel, Canon, Caterpillar, and DuPont. All of these firms have reported expanding or building new U.S. facilities in the last few years. In December 2012, computing giant Apple announced it would bring some Mac production back to America, investing about $100 million to do so.

So given these recent wins, can “insourcing” save America’s economy?

Read the complete piece at The Washington Monthly.

College Cost at a Glance

Posted on by The Progressive Policy Institute

PPI Senior Fellow Paul Weinstein lauds the White House’s creation of the College Scorecard:

If you haven’t yet, you should check out the new version of the College Scorecard launched by the White House this week.  The Scorecard is an example of the power of the President to act without Congress and the potential of “open” information to address social and economic problems—in this case the ability of colleges and universities to raise prices with little impact (to date) on demand, at a time when family incomes remain flat and more and more students are walking away after four or more years of college without degrees, without jobs, and with lots of debt.

Read the full piece at GovStud.

Rethinking the U.S. Presidency

Posted on by The Progressive Policy Institute

In an article for NPR, Linton Weeks discusses alternatives to adapt the U.S. presidency to the challenges of today. He cites Raymond A. Smith’s May 2012 policy brief:

The Progressive Policy Institute’s Smith believes that the president and the nation could benefit from strengthening the role played by the president’s executive committee — the Cabinet. “Generally speaking,” Smith says, “I think that presidents have not made good use of the Cabinet.”

In the past 50 years, Smith argues in his 2012 essay The Fine Art of Cabinet-Making: Five Ways to Build a Stronger Executive Team, the power of the presidential Cabinet has waned while the power of professional White House staffers has waxed, narrowing the breadth of opinions and views.

These days, Smith writes, Cabinet “meetings are often little more than occasional photo ops to bring together POTUS, the VP, the heads of the 15 executive departments and a few other ‘cabinet-rank’ officials such as the heads of the Office of Management and Budget and the Environmental Protection Agency, the Ambassador for the United Nations, and the U.S. Trade Representative.”

Read the entire article.

State of the Union 2013: Right Direction, Wrong Speed

Posted on by The Progressive Policy Institute

President Obama got off on the right foot in last night’s State of the Union address by putting America’s economic revival at the center of his second-term agenda. That was reassuring, since his second inaugural strangely neglected this crucial subject.

There’s no more urgent national challenge than building new economic foundations for shared prosperity. More than anything else, what happens to the U.S. economy over the next four years will decisively shape history’s judgment of Barack Obama’s presidency.

Last night, the president certainly got the goal right. But it’s fair to ask whether the modest means he proposed are adequate to the task.

On the plus side, the president’s endorsement of corporate tax reform was welcome. Eliminating tax loopholes and subsidies will make for better investment decisions, and bringing down the corporate rate will make doing business in the United States more attractive. We also need to overhaul a worldwide tax system that encourages companies to offshore activities and leaves profits stranded abroad.

Continue reading “State of the Union 2013: Right Direction, Wrong Speed” →

The Real Problem with Colleges’ Business Model

Posted on by The Progressive Policy Institute

In the Slate blog Money Box, Mathew Yglesias argues that the decrease of college graduates’ earnings is related to the irrelevant business model followed by most colleges. He uses Diana G. Carew’s graphs from her blog post “Is the Labor Market for College Grads Looking Up?”.

Below is an important chart from Diana Carew of the Progressive Policy Institute showing the falling earnings of college graduates in the 25-to-34-year-old bracket.

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And that right there is the simple problem with the existing higher education business model in the United States, which has involved aggregate per student spending that rises faster than inflation for a long time. This has relatively little bearing on the missplaced worry about whether or not college is “worth it” (the relative earnings of college gradatues are still high) or on the overhyped idea that online education is going to disrupt traditional learning. The real issue is simply that people can’t spend money they don’t have on tuition, nor will banks want to lend people money that they aren’t going to have.

Read Yglesias’s blog post here.

Booming Data Economy Puts EU to the Test

Posted on by The Progressive Policy Institute

In an article for Euractiv, Jeremy Fleming calls for a new regulation adapted to the data economy in Europe. He cites Michael Mandel’s policy brief on the rise of the data-driven economy.

In a policy brief last autumn for the Progressive Policy Institute in Washington, Harvard economist Michael Mandel argued that “economic and regulatory policymakers around the world are not getting the data they need to understand the importance of data for the economy.”

Mandel cited the fact that Eurostat – the European statistical agency – reports how much European businesses invest in buildings and equipment, but not how much those same businesses spend on consumer or business databases, as evidence of a malaise.

“Since the modern concept of economic growth was developed in the 1930s, economists have been systematically trained to think of the economy as being divided into two big categories: ‘goods’ and ‘services’. But data is neither a good or service,” according to Mandel.

He believes that the key statistics watched by policymakers – economic growth, consumption, investment, and trade – dramatically understate the importance of data for the economy, and that “these misleading statistics distort government policy”.

Read the entire article here.

What Superdome Blackout Says About American Competitiveness

Posted on by The Progressive Policy Institute

In his Forbes article, Thomas J. Basile argues that the Superdome Blackout is a symbol of America’s aging infrastructures which drive down American Competitiveness. He cites Michael Mandel:

Even Michael Mandel of the Progressive Policy Institute lamented last year that Obama’s allocation of stimulus funds did little to help solve the problem because too much money was spent elsewhere.

Read the entire article here.

Is Your 401(k) Obsolete?

Posted on by The Progressive Policy Institute

New research by the firm HelloWallet finds that more than a quarter of Americans who have an employer-sponsored retirement plan are raiding these accounts for other uses.

According to HelloWallet’s report, Americans are withdrawing more than $70 billion a year from their retirement savings—and often paying big penalties to do so. On top of regular income taxes, early withdrawals are subject to a 10 percent additional tax penalty, which depending on the bracket, could eat up nearly half of a person’s withdrawal.

For many people, employer-sponsored retirement plans are the only mechanism “forcing” them to save. Yet the retirement-only focus of the current system isn’t versatile enough to meet people’s real needs—especially to cope with emergencies such as a job loss or a horrifically expensive car repair.

The depth and breadth of this ”leakage” from Americans’ retirement accounts means it’s time to rethink the kinds of savings accounts that all Americans should own. In particular, new ways to encourage emergency savings could help ensure that 401(k)s don’t continue to be an expensive, last-resort piggybank for so many Americans. Continue reading “Is Your 401(k) Obsolete?” →

What Privacy Means to Americans vs. Europeans

Posted on by The Progressive Policy Institute

Paul W. Taylor discusses the different attitudes towards privacy in American and European contexts in Governing Magazine, using PPI’s recent conference in Rome as a backdrop.

In October, I stopped for lunch at an outdoor osteria on Via della Lungara just east of the Tiber River. The pizza served there — puffy Neapolitan crust with buffalo mozzarella and fresh San Marzano tomatoes — was just the early part of a multicourse meal that always includes wine. Compare that to the American pie, a main course with its chewy crust smothered in tomato sauce, cheese and a seemingly endless variety of toppings. It almost always is accompanied by beer. All sorts of pies and slices get called pizza in the U.S., while the name and geographical distinctiveness of Neapolitan pizza is protected under European Union law.

On that trip, just two blocks from the osteria, an international gathering at John Cabot University, a private American liberal arts school in Rome, was considering another transatlantic divide — privacy in an era of big data — that has striking similarities to the different ways Americans and Europeans cook and serve pizza.

Read the entire article here.

Why Fannie and Freddie Aren’t Going Away Anytime Soon

Posted on by The Progressive Policy Institute

Writing for US News & World Report, Jason Gold argues that despite conservatives and progressives’ demand for a reform of Fannie Mae and Freddie Mac, the two GSEs are going to stay as they are for some time.

Fannie Mae and Freddie Mac, the two formerly private mortgage giants, have been in limbo since 2008 when the federal government took them into conservatorship.

Since then, Congress and President Barack Obama have proposed sweeping reforms of Fannie and Freddie—conservatives demand the government-sponsored enterprises (GSEs) be privatized if not abolished altogether, while progressives favor a more gradual phasing out of the two mortgage giants, which have become critical to the housing market recovery during the past several years.

There seems to be no hurry among policymakers to decide the fate of Fannie and Freddie, but it looks increasingly as if the GSEs are here to stay. Fresh evidence of this came last month, when the Consumer Financial Protection Bureau (CFPB) endorsed guidelines Fannie and Freddie now use in making new mortgage loans. The details are complicated, but in essence the bureau’s much anticipated qualified mortgage rule exempts Fannie and Freddie from the strict guidelines private bankers must now follow to ensure that borrowers can repay their loans.

This could mark a turning point in the GSEs’ fortunes.

Read the piece at US News & World Report.