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The Student Debt Problem Is Bigger Than Interest Rates

Posted on May 31, 2013 by The Progressive Policy Institute

If you believe the recent blitz of student debt coverage, greedy private lenders and high interest rates are to blame for the economic woes of recent college graduates. Lending at what is seen to be excessively high interest rates, the pressure on private lenders to restructure student loans, even at the expense of public funds, is rising. At the same time, the government is taking concrete actions to squeeze private lenders out of the student loan market. Now Sen. Elizabeth Warren (D-Mass.) has followed in President Obama’s footsteps by proposing to peg student loan interest rates to the government’s historically low borrowing costs.

Tempting as it may be, attacking private lenders alone will not solve the student debt problem. For one, private student loans are an increasingly small fraction of total outstanding student debt. And while overall student loan defaults have been rising, private student loan defaults have been falling. Second, although not innocent, villainizing private lenders misses the point: outstanding student debt is rising too much too fast. A government-controlled student loan market will not solve the underlying problem that recent college graduates are struggling in today’s slow-growth economy.

Since the 2008 financial crisis, the Department of Education has essentially taken over the entire student loan market. The federal guarantee program was scrapped, and interest rates on subsidized Stafford loans were “temporarily” cut in half with another extension debate underway. New government student loans increased 40 percent over 2008-2012 while new private loans fell 75 percent, to just $6 billion last year. The government now holds more than 85 percent of the $1 trillion in outstanding student debt. Meanwhile, just three major private lenders remain active in the market. Continue reading “The Student Debt Problem Is Bigger Than Interest Rates” →

A Senatorial Centennial: How Congress Was Reshaped 100 Years Ago This Week

Posted on May 31, 2013September 18, 2024 by The Progressive Policy Institute

If you think that dysfunction and elitism in the U.S. Senate are now at an all-time high, then this is a good time to recall that for the first 12 decades of American history, it was often much worse.

It was on May 31, 1913 — exactly one hundred years ago — that the 17th Amendment was enacted to shift the election of senators from state legislatures to the voters of each state. This is a largely forgotten episode of American political history, but its effects still resonate down until today.

The original design of Congress only envisioned U.S. Representatives as directly representing the people. Members of the upper house were seen to represent the states and to give them a powerful influence on national domestic politics, and also on the ratification of international treaties. After the Civil War, Populists began calling for the Senate to be more directly representative of the people.

By the Progressive Era of the early 20th century, other problems had also crept in. State legislatures with chambers under the control of different parties sometimes could not agree on a Senate choice, leaving the seat vacant. These deadlocks were all too often broken through corruption and backroom dealing by party bosses, some of the same concerns that also led progressives to champion the introduction of primary elections.

Continue reading “A Senatorial Centennial: How Congress Was Reshaped 100 Years Ago This Week” →

More Good News for Housing

Posted on May 29, 2013September 18, 2024 by The Progressive Policy Institute

As the New York Times reported yesterday, the housing market is recovering, consumer confidence is at a five-year high and the market is in the midst of a strong recovery– The housing market is enjoying sustained momentum alongside record highs in the stock market, and is leading the broader recovery. Fannie Mae and Freddie Mac (GSEs) are making money-lots of it. Fannie has paid about $95 billion and Freddie about $37 billion of the approximate $182 billion used to put them in federal conservatorship. The mortgage giants are now on schedule to pay back the taxpayers for the bailout that lead to their conservatorship. Rates are expected to remain relatively low for the next few years and, according to Core Logic, another 1.8 million mortgages are expected to be freed from negative equity with just a 5% increase in prices. According to data from the Case-Schiller index, prices had appreciated 10.2% in March, ahead of analysts’ expectations.

All of these indicators point to emergency measures no longer being required.

The housing market is not the only factor driving this recovery, however. In addition, the closest thing to a silver bullet solution-more jobs- is happening, slowly, but surely. A declining unemployment rate is the essential precondition to any recovery. And that’s been the case from a high of 10.0%, in October 2009 shortly into President Obama’s first year, to a recent low of 7.5%. An expanding workforce means consistent incomes to get mortgages paid on time and save for future down payments. This translates directly to fewer delinquencies, defaults and more first-time homebuyers to keep the housing market churning.

Policy Brief Cited by San Diego Union-Tribune

Posted on May 28, 2013 by The Progressive Policy Institute

Writing for San Diego Union Tribune, Mike Freeman cites PPI chief economist Michael Mandel’s policy brief on the spread of technology and internet jobs in California:

The Progressive Policy Institute examined a database of online help-wanted ads supplied by the Conference Board — which measures consumer confidence — and South Mountain Economics. The aim was to pick up changes in labor demand before they show up in official employment data.

For March, the San Diego County region posted a 3.1 percent increase in help-wanted ads for Internet/technology positions, such as Web developers, data analysts and software developers, compared with the same month in 2012.

That was the second highest percentage gain in the state behind the Central Valley, which posted an 11.8 percent increase.

“We’re able to see there is an awful lot of growth in demand for Internet/tech jobs outside the Bay Area,” said Michael Mandel, chief economic strategist with the Progressive Policy Institute. “These jobs are growing faster than the baseline growth in these regions.”

Read the article here.

After Terrorism, Fools Rush In

Posted on May 28, 2013 by The Progressive Policy Institute

The pattern is sickeningly familiar: After every atrocity committed in the name of Islam, left-wing intellectuals and celebrities, scarcely bothering to conceal their schadenfreude, start lecturing us on the West’s moral failings.

So it was this week, when a young British soldier was butchered in broad daylight in the streets of London by men of Nigerian descent claiming to avenge Western violence against Muslims. Before a decent interval could pass, the moral equivocators rushed in to validate the attackers’ claim and say, in effect, it’s all our fault.

Most egregious, as usual, was Michael Moore, whose anti-American agitprop has made him rich and famous. He offered this sarcastic tweet: “I am outraged that we can’t kill people in other countries without them trying to kill us.”

Glenn Greenwald, another American acolyte of the “blowback” thesis, used his column in The Guardian to take British leaders to task for calling the attack an act of terrorism. In Greenwald’s logic-chopping estimation, that’s the wrong word because the victim was a soldier, not a civilian, and since America has declared the whole world the battleground in its fight against terrorism, well, you can’t apply the T-word to this particular “horrific act of violence,” which should instead be properly regarded as an act of war.

This distinction seems unlikely to console the family of 25-year-old Lee Rigby, a drummer in the Royal Fusiliers. And it course it rests on an assumption of moral equivalence in the conflict between Islamist terrorists and the United States and its allies.

Continue reading “After Terrorism, Fools Rush In” →

Mayoral Races of ’70s Offer Similarities, if Little Insight, to the Current Field

Posted on May 26, 2013 by The Progressive Policy Institute

Writing on the New York City mayoral race, New York Times‘ Sam Roberts quotes Fred Siegel on the race’s similarities to the 1970s race:

As it turned out, Mr. Biaggi wound up third in the field of four major candidates. Mr. Beame, then the comptroller, came in first but did not earn enough votes to avoid a runoff against Herman Badillo, a Bronx congressman hoping to become the city’s first mayor of Puerto Rican descent.

But Mr. Badillo’s ill-advised derision of Mr. Beame as “a malicious little man” during a particularly nasty debate helped seal his fate.

Mr. Beame won the runoff, 61 percent to 39 percent, and was easily elected the city’s first Jewish mayor in November, succeeding John V. Lindsay, who had chosen not to run.

“It wasn’t clear who was going to follow him, so you ended up flooding the field,” said Fred Siegel, a senior fellow at the Progressive Policy Institute. “No one could stake a strong claim.”

Read the entire article here.

How to Save the GOP

Posted on May 23, 2013 by The Progressive Policy Institute

The Atlantic’s Molly Ball quotes PPI President Will Marshall while discussing what Republicans can learn from the Democrat’s revival:

The DLC had initially pursued a “big tent” strategy aimed at winning over Democrats from across the political spectrum. But as Kenneth S. Baer recounts in his book on the council, Reinventing Democrats, the group found itself not standing for anything in particular. The DLC eventually embraced a more confrontational strategy, denouncing the party’s ways at meetings across the country. The process was ugly, the sort of spectacle parties generally go to great lengths to avoid. But these New Democrats, as they called themselves, were serious about change. “Our goal was not to unify the party but to expand it,” Al From, the founder of the DLC (which closed down in 2011), told me recently.

Along the way, the DLC tried and discarded other strategies. One was working within the Democratic National Committee. “National committees are consumed by fund-raising, campaigns, and electoral mechanics—they don’t really do doctrine,” Will Marshall, the president of the Progressive Policy Institute, a think tank founded by the DLC in 1989, said. “We needed an external perch from which to critique and change an organization in decline.”

Read the rest of the article at The Atlantic.

Don’t blame Apple; blame the tax code

Posted on May 23, 2013 by The Progressive Policy Institute

The Capitol Hill hearing on the IRS scandal this week upstaged another Senate investigation into how U.S. technology companies shelter earnings from domestic taxes. That was just as well, since the real culprit here isn’t tax-dodging corporations; it’s America’s absurd corporate tax code.

The Senate Permanent Subcommittee on Investigations had hoped to make a media splash by landing a big fish rarely seen in Washington: Apple CEO Tim Cook. It released a 40-page report on the eve of the hearing, excoriating Apple’s use of “gimmicks” to avoid paying U.S. taxes on $44 billion in offshore income between 2009 and 2012.

Chaired by Sen. Carl Levin, D-Michigan, the subcommittee has been investigating the tax avoidance strategies of major U.S. tech firms. Last year, Microsoft and Hewlett-Packard were in the dock; Tuesday, it was Apple’s turn.

Continue reading at CNN.com.

Why FHFA’s Ed Demarco Isn’t Going Anywhere

Posted on May 22, 2013 by The Progressive Policy Institute

If confirmed by the Senate, Rep. Mel Watt, D-N.C., will replace Ed DeMarco, the current – and controversial – acting director of the Federal Housing Finance Agency. While Democrats have been calling for DeMarco’s head for years as he has pushed back on more extreme housing remedies, Republicans have quietly supported DeMarco’s decisions.

But the president’s pick portends big changes in housing policy. After all, the FHFA is the main federal regulator overseeing housing policy, and whoever runs it will have a major impact on home ownership, mortgage lending, and the future of Fannie Mae and Freddie Mac, the two mortgage giants in federal conservatorship.

But for all the fanfare surrounding the nomination of Watt, there’s one small matter standing in the way. Though DeMarco is a holdover from the Bush administration, the current political climate in Congress means he isn’t going anywhere anytime soon.

That’s because nominees for FHFA Director must be confirmed by the Senate. In years past, Congress routinely ratified the President’s choices. No longer. Nowadays Senate confirmations are the political equivalent of a reality TV show, in which lawmakers preen for the cameras, fight among themselves and nominees are subjected to a merciless and microscopic scrutiny of their personal lives.

Continue reading at US News & World Report.

A Government Takeover of Student Debt Won’t Solve the Problem

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

If you believe the recent blitz of student debt coverage, private student lenders are to blame for the economic woes of recent college graduates. Lending at what is seen to be excessively high interest rates, the pressure on private lenders to restructure student loans, even at the expense of public funds, is rising. At the same time, the government is taking concrete actions to squeeze private lenders out of the student loan market. Most recently, Senator Elizabeth Warren followed in President Obama’s footsteps by proposing to peg student loan interest rates to the government’s historically low borrowing costs.

Since the 2008 financial crisis, the Department of Education has essentially taken over the entire student loan market. The federal guarantee program was scrapped, and interest rates on subsidized Stafford loans were “temporarily” cut in half. New government student loans increased 40 percent over 2008-2012 while new private loans fell 75 percent, to just $6 billion last year. The government now holds over 85 percent of the $1 trillion in outstanding student debt. Meanwhile, just three major private lenders remain active in the market. Continue reading “A Government Takeover of Student Debt Won’t Solve the Problem” →

PPI Releases New Report on Internet Economy — Internet/tech growth has spread far beyond Silicon Valley

Posted on May 14, 2013 by The Progressive Policy Institute

NOTE: The Internet Association will host a press briefing call today on release of PPI’s California Internet Economy Study Results. The call will feature opening remarks by Michael Beckerman, President and CEO of The Internet Association, and a presentation by Dr. Michael Mandel, the chief economic strategist at the Progressive Policy Institute. The call will be at Noon PDT / 3:00 p.m. EST and is expected to last approximately 30 minutes. The teleconference will be live and can be accessed by calling 1-877-375-9151 (toll free). The passcode is 72082938, followed by the pound key. Media are encouraged to RSVP to Betsy Barrett betsy@internetassociation.org. Download the policy brief.

WASHINGTON — In California, internet and tech growth is spreading outside the Bay Area to other regions not traditionally associated with the technology and internet industries, accelerating job growth and economic recovery in the state, says a new report released today by the Progressive Policy Institute (PPI).

The report, written by PPI’s chief economic strategist Dr. Michael Mandel, highlights recent encouraging signs of job growth in the Internet and tech sector in California that could lift the state out of its economic doldrums, including hard-hit areas such as the Central Valley.

The study examined help-wanted ads across California and found that ads for computer and mathematical occupations in the Central Valley are up by almost 12% over the past year, compared to a smaller 3% gain in the Bay Area. The number of want ads for media and communications workers—many of them related to social media, websites, and other online activities—is up by 34% in Southern California and 42% in the San Diego region. And, demand for web developers is skyrocketing in the Central Valley and Central Coast.

Each of these jobs has the added benefit of creating more jobs in the local economy, from plumbers and janitors to accountants.

The data, notes Mandel, “suggests that the California economy may be approaching a critical inflection point. If the Internet/tech growth continues at its current pace, it may be enough to lift the whole state out of its economic doldrums, including hard-hit areas such as the Central Valley. It also suggests that state government policy should be directed toward encouraging Internet/tech growth, rather than suppressing it.”

Download the policy brief.

The Rebalancing Of The California Economy: How Internet/Tech Jobs Are Spreading Across The State

Posted on May 14, 2013 by The Progressive Policy Institute

Over the last year, California has added jobs faster than the country as a whole, in large part because of the booming Internet/tech sector.

Indeed, the latest official figures still show the Bay Area driving California’s economic growth, while the rest of the state lags behind. According to data from California’s Economic Development Department, the number of jobs rose by 2.2% in the Bay Area in the year ended March 2013, compared to 1.5% for Southern California and only 1.2% for the Central Valley, the region that stretches from Redding in the north to Bakersfield in the south.

However, something new and very encouraging is starting to happen: The economic benefits of Internet/tech growth are spreading outside the Bay Area to other regions of California. These gains are so recent that they don’t show up yet in the official government data.

So how do we know Internet/tech growth is spilling over to other areas? To put it simply, we look at the want ads. Internet/tech-related want ads have surged across California. For example, want ads for computer and mathematical occupations in the Central Valley are up by almost 12% over the past year, compared to a smaller 3% gain in the Bay Area. Want ads for media and communications workers—many of them related to social media, websites, and other online activities— are up by 34% in Southern California and 42% in the San Diego region. And want ads for web developers and related occupations are rising in the Central Valley and Central Coast, albeit off a very small base.

What’s more, each of these jobs tends to have a significant multiplier effect on the local economy, creating jobs for everybody from plumbers and janitors to accountants.

This suggests that the California economy may be approaching a critical inflection point. If the Internet/tech growth continues at its current pace, it may be enough to lift the whole state out of its economic doldrums, including hard-hit areas such as the Central Valley. It also suggests that state government policy should be directed toward encouraging Internet/tech growth, rather than suppressing it.

Download the policy brief.

PPI Releases New Report on Regulatory Reform

Posted on May 10, 2013 by The Progressive Policy Institute

NEWS RELEASE
FOR IMMEDIATE RELEASE
May 10, 2013

PRESS CONTACT:
Steven Chlapecka—schlapecka@ppionline.org, T: 202.525.3931

Regulatory Improvement Commission Would Drive Growth and Innovation

WASHINGTON—The creation of an independent, Congressionally-authorized Regulatory Improvement Commission (RIC) is the most effective way to address the build-up of regulations over time affecting businesses, says a new report released today by the Progressive Policy Institute (PPI).

The report, Regulatory Improvement Commission: A Politically-Viable Approach to U.S. Regulatory Reform, is by PPI’s Chief Economic Strategist Dr. Michael Mandel and PPI economist Diana G. Carew. It was prepared for a conference on “Regulating in the Digital Economy” held in Washington DC on May 9 and sponsored by the Kauffman Foundation.

The natural accumulation of federal regulations over time imposes an unintended but significant cost to businesses and economic growth. President Obama’s approach to regulatory look back has made some headway in clearing the regulatory underbrush but much more needs to be done. No satisfactory process currently exists for retrospectively improving or removing regulations.

“The status quo of agency self-review is not, and has never been, an effective way to address old or outdated regulations affecting consumers, as well as small and large businesses,”says one of the report’s authors, Diana G. Carew. “Regulations are important to a well-functioning economy, but a regulatory system that facilitates innovation is a critical part of a high-growth strategy – that means we need to address regulatory accumulation using a different, politically-viable approach.”

That approach, the report argues, is to establish a Regulatory Improvement Commission (RIC) that would be tasked by Congress to review the cost-effectiveness of existing regulations. Modeled after the success of the Base Realignment and Closure Commission (BRAC), the RIC would review regulations as submitted by the public and pass along a recommendation to Congress on a package of 15-20 regulations. Once Congress votes on the package, in an up-or-down vote, the RIC would be dissolved until Congress decides to restart the process.

The RIC would be politically viable even in today’s charged Washington environment. It could independently take on regulatory reform in small pieces with no preconceived agenda, thus building trust over time.

Regulatory Improvement Commission: A Politically-Viable Approach to U.S. Regulatory Reform

Posted on May 9, 2013 by The Progressive Policy Institute

The natural accumulation of federal regulations over time imposes an unintended but significant cost to businesses and to economic growth. However, no effective process currently exists for retrospectively improving or removing regulations. This paper first puts forward three explanations for how regulatory accumulation itself imposes an economic burden, and how this burden has historically been addressed with little result. We then propose the creation of an independent Regulatory Improvement Commission (RIC) to reduce regulatory accumulation. We conclude by explaining why the RIC is the most effective and politically-viable approach.

A well-functioning regulatory system is an essential part of a high-growth economy. Regulations drive business decisions, such as where to locate production and where to invest in the local workforce. They provide guidelines that keep the air clean, protect consumers, and ensure worker safety. Smart regulations enable the capital markets to function properly, financing the trades, contracts, and insurance that allows businesses to survive and grow.

A successful high-growth strategy requires a regulatory system that balances innovation and growth with consumer well-being. A regulatory structure that is too prescriptive could restrict investment in job-creating innovation if companies are overwhelmed by costly rules, hampering potential economic growth. On the other hand, a regulatory structure that is too relaxed may threaten the environment or unnecessarily place consumers at risk.

A regulatory system that achieves this balance must include a mechanism for addressing regulatory accumulation—what we define as the natural buildup of regulations over time.

Regulatory accumulation is both a process and an outcome of our reactive regulatory structure. Over time regulations naturally accumulate and layer on top of existing rules, resulting in a maze of duplicative and outdated rules companies must comply with.

However, our current regulatory system has no effective process for addressing regulatory accumulation. Every president since Jimmy Carter has mandated self-evaluation by regulatory agencies, but for various reasons this approach has been met with limited success.

In this paper we propose the creation of an independent Regulatory Improvement Commission (RIC), to be authorized by Congress on an ongoing basis. The RIC will review regulations as submitted by the public and present a recommendation to Congress for an up or down vote. It will have a simple, streamlined process and be completely transparent. Most importantly, it will review regulations en masse in a way that is politically viable.

Download “205.2013-Mandel-Carew_Regulatory-Improvement-Commission_A-Politically-Viable-Approach-to-US-Regulatory-Reform”

Photo credit: Shutterstock

Rating the Credit Raters

Posted on May 6, 2013September 18, 2024 by The Progressive Policy Institute

Credit rating agencies (CRAs) are supposed to be hard-eyed accountants whose job is to assess credit risk. But they also got swept up in the euphoria that swelled the housing bubble, failing with the Fed and other market participants to predict the extent of the housing crash. That’s partly because they over-extended the use of AAA-ratings, the highest “grade” given to a structured financial product, which falsely indicated low-risk assets.

Senator Al Franken (D-Minn.) has introduced an amendment to make credit raters more transparent and accountable. But while this amendment has the right intention, whether it could actually work is another question. Even Sen. Franken himself doesn’t seem all that confident that his measure will work. “I would like to emphasize that we hold no pride in authorship,” Franken said in an e-mailed statement. “We will applaud the implementation of any proposal or set of proposals that ultimately protect consumers and the American public.”[i]

The Franken Amendment essentially calls on the Securities and Exchange Commission (SEC) to create an oversight board of the rating agencies. The private sector rating agencies and investment firms would have majority representation. The board would oversee a process where a random firm is selected to conduct the initial evaluation of each new financial product that requires a CRA review. Under the proposal, issuers of new securities aren’t allowed to be involved in this part of the process.

But a public-private coordinated oversight board tucked within the SEC is destined for failure. If the pendulum swung too far in one direction prior to 2007, with issuers and most players underestimating risk, this move swings the pendulum right back. A structure like this is confusing to markets and will easily be seen as the federal government granting a guaranteed seal of approval on all ratings. Even risky debt might be seen as a viable investment inviting dangerous behavior fraught with moral hazard. The market needs to create the appropriate amount of risk, with appropriate public oversight; this proposed set up will
only exacerbate it.
Continue reading “Rating the Credit Raters” →