Category: Uncategorized

Election Watch: The Beginning of the End?

Posted on by The Progressive Policy Institute

The Beginning of the End? On one level, Rick Santorum’s campaign got a desperately needed boost from his win in Louisiana’s primary last Saturday. But all the other signs about the campaign indicate a party ready to end the primary season.

Santorum got his ideal electorate in Louisiana, a low-turnout affair in which half the voters were self-identified “very conservative” voters, and half called themselves “strong supporters” of the Tea Party movement.  Two-thirds say they attend worship services weekly or more.

Just as importantly, Newt Gingrich, who was running very well in Louisiana polls not that long ago, saw his support-levels shrink along with his campaign budget.

Continue reading “Election Watch: The Beginning of the End?” →

Home Economics: Obama Ups Game on Housing Crisis

Posted on by The Progressive Policy Institute

In the last six months, President Obama has rolled out a series of proposals to address America’s still ailing housing markets. Elevating housing on the White House priority list is a welcome if belated development—one PPI called for in a major conference on new housing solutions we cosponsored last fall.

To assess the administration’s new proposals, we should start by clearly defining the central problem that must be solved. Contrary to media accounts, it’s not foreclosures, abandoned homes or underwater borrowers. These are all symptoms of a deeper malady: declining home prices. So the question we should ask is whether the President’s new flurry of ideas will move the needle on prices.

Continue reading “Home Economics: Obama Ups Game on Housing Crisis” →

Measuring the Real Impact of Imports on Jobs

Posted on by The Progressive Policy Institute

When it comes to manufacturing, most politicians, economists, and journalists agree: the millions of manufacturing jobs lost in recent years are mostly not coming back. Looking at the official data, it’s easy to understand why. Productivity in the sector has continued to climb even as jobs dwindled, so it must be the case that these jobs were lost to good old human ingenuity.

But this conclusion is derived from faulty official data. Indeed, a closer look at the numbers reveals an entirely different history on what happened to U.S. manufacturing.

Specifically, this paper shows that rising imports play a much larger role in the loss of jobs since 2007 than official data suggests. In fact, we estimate that rising real imports are responsible for approximately 1.3 million of the jobs lost between 2007 and 2011, or almost one-third of total private non-construction job loss.

We reached the estimate of 1.3 million jobs through a process that adjusts for for measurement problems in the official statistics. This adjustment is based on a concept called the “import price bias,” which causes the government to undercount the growth of low-cost imports from countries such as China. After adjusting for the import price bias, our analysis suggests that the import growth of goods, adjusted for price changes, have been underestimated by roughly $117 billion since 2007 (in 2011 dollars).

Moreover, we find undercounting real imports leads to a distortion in most of the official statistics that keep track of economic activity, including real GDP, which was overstated during the Great Recession and subsequent recovery by 0.8%. Our analysis suggests imports of low-cost goods continued to expand their presence in U.S. markets during this period, a phenomenon that likely started in the early 2000’s when developing countries such as China significantly boosted their exporting presence.

In this paper we also discuss how these revised statistics might affect the economic and political landscape going into the 2012 election. Specifically, President Obama’s recently announced “insourcing” initiative has the potential to recover some portion of the 1.3 million jobs lost to rising imports. By comparison, current policies like the payroll tax break are more likely to leak overseas than we realize instead of stimulating demand at home.

Understanding the true effect of rising imports on jobs better explains the everyday reality of Americans who are struggling through a weak job market and stagnant real wages. This is especially true in key states such as Ohio, North Carolina and Pennsylvania, where voters know that jobs have been lost to foreign competition.

In the end, sustainable economic growth and the creation of tomorrow’s jobs cannot be achieved through the consumption, debt driven economy of the past few decades. Instead, we advocate more of the pro-investment, pro-manufacturing policies recently introduced by the Obama Administration, such policies shift America toward a “Production Economy” which emphasizes investment in physical, human, and knowledge capital. Understanding the true role of imports in the U.S. economy, we can design better, more targeted economic policies.

Hidden Toll: Imports and Job Loss Since 2007

Posted on by The Progressive Policy Institute

Hidden Toll: Imports and Job Loss Since 2007“We have a huge opportunity, at this moment, to bring manufacturing back…but we have to seize it.” With these words in his State of the Union address, President Obama signaled that he is getting serious about recapturing factory jobs that have been lost to imports. Since the speech, the White House has outlined a series of policy measures intended to encourage companies to ‘insource’ jobs from overseas, including changes in the tax code and increasing domestic investment.

True, many economists, both liberal and conservative, are skeptical that much can be done to bring back manufacturing jobs. They argue that American factories have become so efficient that they no longer need to hire many workers. “It’s totally implausible to think that there’s going to be a surge in manufacturing jobs,” Lawrence F. Katz, an economist at Harvard who served in the Clinton Administration, told the New York Times. Christina Romer, former head of Obama’s Council of Economic Advisors, recently wrote in the New York Times that “a persuasive case for a manufacturing policy remains to be made.”

But this skepticism about President Obama’s manufacturing initiative relies on faulty official data. In fact, government statisticians are dramatically undercounting the economic impact of imports from low-cost countries such as China, as we will explain, in this paper and the accompanying policy memo, “Trade-related Jobs Lost During the Great Recession.” The reason for this statistical problem is an important economic concept known as “import price bias.”

After doing a preliminary adjustment for import price bias, we find that 1.3 million jobs have been lost to rising imports since the recession started in 2007, accounting for one-third of the private nonconstruction job loss. Many of these are jobs that could potentially be brought back to this country by appropriate incentives that encourage investment and job creation in the U.S. We therefore conclude that President Obama’s manufacturing initiative, combined with other “pro-production” policies, can potentially be a significant source of domestic jobs.

We arrive at this hefty figure by adjusting the official data on trade and domestic production for low-cost imports, which are incorrectly treated in the national income accounts. Correcting for this import price bias, we find that nonpetroleum imports rose by $131 billion from 2007 to 2011, adjusted for price changes, rather than the meager $14 billion rise in imports that the official data shows (measured in 2011$).

This uncounted import growth helps explain why federal stimulus measures did not generate as many jobs as expected. In fact, a hefty slice of fiscal stimulus—both tax cuts and spending increases—leaked overseas, boosting imports rather than domestic production. This leakage, in turn, explains why Obama’s manufacturing strategy is so necessary. We need to reinforce domestic production in order to reaffirm the strength of the economy.

Let’s be clear here: We are not saying that manufacturing is the only form of production, or that globalization is bad. For example, the immense flowering of the creativity in the wireless/social media/communication sectors are clearly a form of 21st century production. The App Economy—the development and use of apps designed for smartphones and social media—has created nearly 500,000 jobs since the first iPhone came out, and will continue to create more.

Second, we’re also not saying that trade is the only cause of job loss. Clearly one impact of information technology has been to massively transform industries such as retailing, reducing the number of workers needed.

However, the U.S. cannot afford to be in a position of perpetually consuming more than it produces. We need to make the shift from a consumption economy to a production economy in order to assure long-term prosperity.

Read the entire report here.

Related Memo: Measuring the Real Impact of Imports on Jobs

Producing Shale Gas: How Industry Can Lead with Best Practice

Posted on by The Progressive Policy Institute

Advances in drilling and recovery technologies for shale gas have reshaped our assumptions about America’s natural gas resources and our future energy options. Expanded development of shale gas and its associated liquids offer the potential for turning energy scarcity into plenty, fostering a renaissance in our petrochemical and manufacturing sectors, and offering a cleaner option for power generation.

If shale gas production realizes its potential of providing reliable supplies of natural gas for decades at affordable prices, it will lower utility bills for households and, by driving down feedstock and production costs, boost American manufacturing. In addition, greater use of natural gas in electricity generation is already providing environmental and climate benefits as a cleaner, market-friendly substitute for coal and as a complement to intermittent renewable resources like wind and solar.

In his 2012 State of the Union address, President Obama gave his strongest endorsement yet to shale gas. “The development of natural gas will create jobs and power trucks and factories that are cleaner and cheaper, proving that we don’t have to choose between our environment and our economy,” he said, adding that his administration “will take every possible action to safely develop this energy.”

But as the president’s remarks suggest, safety, and sustainability are key. For as gas production rises, so too does controversy over the environmental impact of shale gas development. Amid claims and counterclaims about its dangers from environmentalists and gas producers, hydraulic fracturing (“fracking”) has be-come a household word. The public is being bombarded with negative images of shale production, from media reports of an earthquake in Ohio attributed to hydraulic fracturing, to flaming water faucets in the movie Gasland.

In response to real and imagined dangers, there is growing political pressure to regulate production at both the state and federal levels. Some states, including New York, Maryland, and New Jersey, already have limited shale development. Environmental concerns also have inspired proposed legislation in Congress and prompted federal agencies to take tentative steps toward new regulations.

Download the entire brief.

Election Watch: A Turning Point for Romney?

Posted on by The Progressive Policy Institute

Mitt RomneyMitt Romney’s solid win in Illinois on Tuesday placed him in an arguably unstoppable position for the GOP presidential nomination. He could claim formal victory perhaps as early as next month, and certainly, barring major mistakes, by June.

Along with his sweep of delegates in Puerto Rico, and the majority of delegates he claimed the previous Tuesday even as Rick Santorum got the headlines, Romney’s prize of 43 (out of 54) delegates in Illinois gives him a grand total (according to CNN’s estimates) of 562 out of 1019 delegates awarded so far; Santorum is more than 300 delegates behind. The “magic number” to clinch the nomination formally is 1144. Louisiana holds its primary this Saturday, and Santorum is a slight favorite; a loss could boost Romney’s sense of “inevitability” considerably. But in any event Romney seems certain to enjoy a big April, with very likely wins in DC, Maryland, Rhode Island, New York and Connecticut, and at least even odds in Wisconsin. Santorum’s home state of Pennsylvania is also on the April calendar, but he’s hardly a cinch there, and the proportional allocation rules will limit his gains.

Continue reading “Election Watch: A Turning Point for Romney?” →

A National Infrastructure Bank: A Road Guide to the Destination

Posted on by The Progressive Policy Institute

Download the entire memo.

President Obama has proposed a National Infrastructure Bank, a simple declarative sentence that left most listeners wondering what he meant. The confusion arises partly because the administration did not follow up the president’s remarks with a specific proposal, but also because the operations of such a bank have never been fully fleshed out. Felix Rohatyn and I have elsewhere laid out the broad outline of how such a bank would function,1 and that description serves as a good starting point for our expectations regarding the president’s proposal and what Bank-type proposals generally ought to do.

As many writers have noted, American infrastructure is depreciating rapidly – we are likely well below the replacement rate of investment in roads, mass transit, airports, ports, rail, and water assets. The logical implication is that we need to invest more. But more investment in and of itself will not move us towards having the right mix of infrastructure assets in place.

The current mix results from one of two selection processes. The first is devolution to the states (for example the cost-sharing grants delivered by the Highway Trust Fund), and the second is selection by Federal agencies (e.g., the Corps of Engineers). At worst, these processes lead to politically motivated outcomes, either because state governments favor some projects for wholly non-economic reasons, or because the Congress can muscle the selection process from the federal agencies. The most recent transportation authorization bill, passed in 2005, made the word “earmark” famous by incorporating a stunning $24 billion of them – the price of having a law passed. Insofar as we have given the task of project selection to the political process, it would be surprising if this kind of event didn’t happen, not that it sometimes does.

Politicized project selection is one of several problems associated with the current process. But it is one of the reasons why a National Infrastructure Bank is so important and so urgently needed: not just because a bank might be able to lever federal dollars, but because it can use the existing dollars more wisely and obtain a higher public return.

What follows, then, is a description of the role a National Infrastructure Bank could play, taken from the perspective of the specific problems in the current process it might solve. This perspective also allows us to evaluate the administration’s proposal.

In a nutshell, Rohatyn and I propose that we collapse all of the federal “modal” transportation programs into the Bank. Any entity – whether state, local, or federal – would have standing to come to the Bank with a proposal requiring federal assistance. The Bank would be able to negotiate the level and form of such assistance based on the particulars of each project proposal. It could offer cash participation or loan guarantees, underwriting or credit subsidies, or financing for a subordinated fund to assure creditors. Any project requiring federal resources above some dollar threshold (on a credit scoring basis) would have to be approved by the Bank. Additionally, we imagine that some part of the funding for existing modal programs would be converted into block grants sent directly to the states and large cities to be spent on projects too small for the Bank’s oversight. Such grants could also be used for those programs desired by the states that do not pass muster on terms proposed by the Bank.

This is more a vision of infrastructure policy than a blueprint for the immediate future. Admittedly, it will take years and a meticulous reorganization to produce this configuration. But the best way to measure our progress in infrastructure policy (and the merits of the administration’s proposal) is not to see how quickly we adopt the Bank’s specific features, but to see how the Bank addresses the underlying infrastructure policy flaws it is designed to fix.

Download the entire memo.

Union Voters and Democrats

Posted on by The Progressive Policy Institute

Top Democratic and union leaders play host this week to prospective 2012 Congressional candidates, highlighting labor’s status as a critical cog in progressive campaigns. Some observers believe that, in the aftermath of Wisconsin Gov. Scott Walker’s efforts to strip the state’s public unions of collective-bargaining rights, labor has found both renewed public sympathy and political momentum.

It’s not clear, however, that such attitudinal shifts will be enough to reverse the steady erosion of union membership, and the voting power that goes with it. That’s the fundamental reality progressives must reckon with as they ponder how to forge electoral majorities.

To offset labor’s declining share of the electorate, Democrats logically must do one of two things: do better among union households or do better among non-union households. As it happens, the key to both is the same – winning more moderate voters.

Read the entire memo

Will Marshall on Why Gingrich Should Quit Now

Posted on by The Progressive Policy Institute

Will MarshallWill Marshall explains why Gingrich should leave the race now in Politico’s Arena:

If Newt Gingrich quits the race now, he just may escape with his dignity intact. He can take pride in the fact that his chaotic campaign sparked several times, even if it never caught fire anywhere but South Carolina. Not bad for a guy whose been out of politics for more than a decade, and jumped into the race with no money, no organization and no clear plan to capture the GOP nomination.

The longer he stays in, the greater the risk that his campaign degenerates into an exercise in self-parody. Gingrich, the GOP’s certified Deep Thinker in the race, is now pushing the dumbest gimmick – $2.50 per gallon gas – since Herman Cain’s skeletal 9-9-9 plan.

Read the full article.

Home Economics: Job Picture May Be Improving, But Not Housing Markets

Posted on by The Progressive Policy Institute

Why not?

PPI’s Battleground Home Values Index for January 2012 shows home values staying essentially flat in 15 of 16 president battleground states. The one exception was Iowa, where a decline in values was severe enough to drag down the entire index by two points—the lowest level this year. According to our index, the weighted average of median home values in these states is now down a total of 18% since October 2008.

In the Hawkeye state—the one state where prices took a more serious downward turn—median values have fallen sharply from October 2011 ($124,400) to January’s low ($108,500).

While most pundits seem focused on rising gas prices as the reason for the recent drop in the president’s approval ratings, the continuing slump in home prices might offer another explanation. People still don’t quite feel they’ve regained the wealth they’ve lost in the recession.

Continue reading “Home Economics: Job Picture May Be Improving, But Not Housing Markets” →

When Paperwork Attacks! Five Ideas for Smarter Government

Posted on by The Progressive Policy Institute

In the minds of many Americans, “government” is synonymous with “red tape,” “bureaucracy” and “paperwork.”

And no wonder.

According to the government’s own estimates, American people and businesses collectively spent 8.8 billion hours dealing with federal paperwork requirements in 2010. That’s equal to nearly 367 million days and more than one million years.And while this figure is down from 2009, it’s still 1.4 billion hours more than what people and companies spent on government paperwork in 2000.

Make no mistake: Paperwork is absolutely essential to the basic functions of government. It ensures compliance with health and safety regulations and the proper collection of taxes. It’s the only way for the government to gather information about its citizens and determine who is eligible for such crucial programs as Medicare and Social Security. It’s also an important avenue for Americans to get more information about the services and benefits government provides. As a consequence, policymakers should avoid the “meat cleaver” approach to reducing paperwork.

Nevertheless, there’s a difference between “smart” paperwork (paperwork that is as painless and efficient as possible) and plain old red tape. And too much of the latter still exists. The amount of time demanded from companies and citizens for paperwork compliance should be as precious to the government as the tax dollars it collects.

Modern technology can provide more effective, efficient and tree-friendly means for government to communicate with citizens or for companies to comply with regulatory requirements. As an example, allowing the “e-delivery” of just some annual retirement plan documents would conservatively save as much as $60 million in printing costs a year, in addition to 11,600 trees.

Fortunately, the Obama administration recognizes the problems posed by burdensome paperwork, and in January 2011, the president issued an executive order aimed at reviewing and pruning paperwork requirements.

To supplement that effort, this memo offers up five ideas for reforming paperwork—not only to save work and paper, but to improve the effectiveness of how government, people and companies interact with each other so that the public benefits.

Five ideas for a more modern government with less paper and less hassle:

  1. Removing obstacles to small business success. Waive the first year of quarterly tax filing requirements for start-ups and small businesses.
  2. Helping savers make better retirement decisions. Allow default e-delivery of 401(k) statements and retirement plan documents.
  3. Helping taxpayers understand their benefits. Resume delivery of Social Security Statements by email and add a “Medicare Statement.”
  4. Facilitating job creation. Fast-track paperwork reduction efforts with the best potential for job creation and require estimates of economic impact.
  5. Building a more responsive government. Create a “silver scissors” challenge to solicit and reward citizens’ ideas for creative (and effective) paperwork reduction strategies.

Read the entire brief.

Yes, We Can Contain Iran

Posted on by The Progressive Policy Institute

In Foreign Policy, PPI President Will Marshall explains how President Obama is needlessly increasing the risks of a ruinous war by ruling out the possibility of deterring a nuclear Iran.

U.S. President Barack Obama, under pressure from Israel and American conservatives to take a harder line on Iran, keeps insisting that “all options are on the table.” That’s a diplomatic way of saying that the United States is willing to use force to keep Iran from getting nuclear weapons.

To buttress this thinly veiled threat, however, Obama recently took one important option off the table: deterrence. In an interview with the Atlantic, he ruled out “containing” a nuclear Iran in the same way the United States has contained other unfriendly nuclear powers — by threatening the country with massive retaliation if it attacks us or our allies.

This is a significant — and needless — change in U.S. foreign policy. It raises the likelihood of war with Iran, despite Obama’s preference for a diplomatic solution. And launching air strikes on Tehran’s nuclear facilities would undercut America’s ability to play the long game in Iran by abetting a “Persian Spring” that could eventually topple the Islamic Republic.

Read the entire piece at Foreign Policy.

Election Watch: The Romney-Santorum Fight Continues

Posted on by The Progressive Policy Institute

By my reckoning, Mitt Romney lost his fourth opportunity yesterday to all but end the GOP presidential nominating contest (previously once after New Hampshire, once after Nevada, and once after Michigan). Had he won in Alabama and Mississippi, as much of the commentariat predicted and several polls suggested might happen, he would have banished the “Mitt can’t win in the South” meme, killed off Gingrich’s southern-based campaign, and left Santorum gasping for oxygen. But it was not to be, and now Santorum may have the long-awaited one-on-one contest with Romney as, finally, the “conservative alternative to Mitt” that so many opinion-leaders and voters alike have been seeking for more than a year.

Continue reading “Election Watch: The Romney-Santorum Fight Continues” →

Home Economics: Middle Class Homeowners shouldn’t be a Congressional ATM

Posted on by The Progressive Policy Institute

ATMIn a classic example of a “slippery slope,” Congress once again is looking for easy pickings by increasing guarantee fees (g-fees) that Fannie Mae and Freddie Mac charge lenders to guarantee their mortgage lending. Last December, Congress raised the GSE’s g-fee by 10 basis points for 10 years. The goal was to raise almost $36 billion to pay for the extension of the payroll tax cut. Although this was supposed to be a one-time revenue plug, some lawmakers called for extending the new fees (at a slightly decreased rate) for an eleventh year to pay for restoration and clean up of the Gulf coast.

We understand it’s difficult for Congress to find “pay fors” for important initiatives at a time when Republicans have dug in their heels against tax increases for any purpose, even debt reduction. But treating g-fees as a piggy bank is ill-advised. Here’s why: Raising g-fees will compound the weakness of an already anemic lending environment, discourage home refinancing and lower housing demand.

Continue reading “Home Economics: Middle Class Homeowners shouldn’t be a Congressional ATM” →

Election Watch: The Republican Slog Continues

Posted on by The Progressive Policy Institute

Mitt RomneyYesterday’s Super Tuesday primaries and caucuses, stretching across ten states from Vermont to Alaska, did not resolve the GOP presidential nomination contest, but did place Mitt Romney in a position where probably the most he has to lose going forward is time and money.

Romney won four primaries (Vermont, Massachusetts, Virginia and Ohio) and two caucuses (Idaho and Arkansas), and looks sure to win a majority of delegates at stake last night.  According to 538’s Nate Silver, the cumulative delegate totals at this point are 332 for Romney, 139 for Santorum, 75 for Gingrich and 35 for Paul.  1144 are needed to win the nomination.  So Romney is clearly on a pace that will, if continued, carry him to the nomination.

Continue reading “Election Watch: The Republican Slog Continues” →

How Rising Health Costs Slow Wage Growth

Posted on by The Progressive Policy Institute

How Rising Health Costs Slow Wage GrowthMost Americans are painfully aware that their health care premiums are rising faster than other necessities of life. Many also know that their earnings are growing slowly or not at all, despite apparent increases in worker productivity. These problems have been widely reported, but are seldom linked.

Yet they are directly connected. The costs of health benefits has gotten so large in recent years, and has been growing so fast, that they are now contributing to the slowdown in workers’ pay and income growth. In economic terms, more of the productivity generated by each worker is being used to pay their health insurance premiums, so less gets paid out in wages.

This shift in compensation helps to explain a mystery that has puzzled economists for nearly a decade: Why have workers’ wages stagnated as their productivity has been increasing? In theory, the two are supposed to rise in tandem.

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