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Can Insourcing Be A Major Source of Job Creation?

Posted on by The Progressive Policy Institute

Can insourcing be a major source of job creation for the U.S.? The answer is yes, with a caveat. Widespread insourcing–or import recapture, as I like to call it–won’t happen without some help from government policy. In particular, the main role of the government is to provide better data about the relative cost of insourcing vs outsourcing.

Why would better statistics help create new jobs in the U.S. and accelerate insourcing? The reason is hysteresis. Hysteresis is defined as a “lag in response” when the forces acting on a situation have changed. Originally hysteresis worked in favor of keeping jobs in this country, because businesses didn’t want to switch their production to a country thousands of miles away, even if it might be cheaper.But now, with production firmly established in China, India, Mexico, and other low-cost countries, hysteresis is working against the U.S.

As a result, even if production costs have converged, there are three big obstacles to bringing jobs back to the U.S.

First, it is expensive to switch suppliers, especially for noncommodity purchases. Contracts have to be negotiated, the quality of the product has to be checked, suppliers have to be integrated into a supply chain. Wal-mart would rather work with suppliers that it already has been doing business with.

Second, it may be expensive and time-consuming to recreate a production ecosystem here in the U.S., especially if an industry has been hollowed out. That is, if you want to start making shoes in the U.S., it’s easier if you have a repairman in the area who knows have to fix shoe manufacturing machinery.

Third, it may be expensive for small and medium-size companies to determine if switching suppliers will raise or lower costs. That’s especially true if all of their current suppliers are in one country. Big multinationals can afford to run studies on relative costs of the different countries, but small and medium businesses cannot.

One cheap way of boost insourcing is for the Bureau of Labor Statistics to provide better data about the relative costs of production in the U.S. versus production overseas. The BLS already collects information on import prices and domestic production prices, but it doesn’t compare the two.

Assuming that production costs really are converging, better information would make it easier for companies to justify the decision to bring jobs back to this country. Right now the safe decision for executives is to continue sourcing from China and India, since they are generally accepted to be ‘low-cost’ countries. It’s like they used to say, you can’t get fired for buying from IBM. It’s the same today–execs can’t get fired for buying from China and India, because everyone assumes that prices are lower there.

In November 2011 PPI proposed a Competitiveness Audit, to be done by the BLS, to help boost insourcing of jobs. For each industry, the Competitiveness Audit would compare import and domestic prices, and give a sense about the size of the gap and whether it was widening or narrowing. This information would be crucial for identifyng the industries where insourcing makes sense. The Competitiveness Audit would also give executives a sense of security that they were making the right decision by bringing back jobs.

A Competitiveness Audit is a good way of accelerating the rate of insourcing. The goal here is to overcome hysteresis and inertia, and create a sort of bandwagon effect of jobs moving back to this country. Better information is essential to create new jobs.

Crossposted from Innovation and Growth.

The Truth About New Hampshire: It’s the Government Spending, Stupid

Posted on by The Progressive Policy Institute

The AtlanticPPI Chief Economic Strategist Michael Mandel explains in the Atlantic how government spending is responsible for nearly all of the income and job growth in New Hampshire, contrary to what GOP presidential candidates might say:

New Hampshire, scene of the upcoming GOP presidential primary, seems like the perfect illustration of the Republican low-tax philosophy. With no state income tax and one of the lightest tax burdens in the U.S., New Hampshire enjoys an 8.3% poverty rate, the lowest in the country, and an unemployment rate of only 5.2% as of November, far below the national rate.

But here’s a surprise: The “Live Free or Die” State, having lost much of its manufacturing base, seems to be thriving mostly on a steady diet of government spending and public jobs. For one, government employment in New Hampshire is up 14% since 2000, compared to 6% for the country as a whole.

What’s more, real personal income growth in New Hampshire over the past decade has been driven almost entirely by government spending. Here’s how it breaks down: From 2000 to 2010, real personal income in the state rose by $4.6 billion, in 2005 dollars. Out of that, $3 billion, or 66%, came from the growth of government transfer payments such as Medicare, Medicaid, and Social Security. Another $1.4 trillion, or 31%, came from increased wages and benefits to government employees (numbers are rounded and in 2005 dollars).

Read the full article at the Atlantic.

Why Obama Needs to Cut and Invest

Posted on by The Progressive Policy Institute

This article is part of a a series of international responses to Policy Network‘s discussion paper In the black Labour: Why fiscal conservatism and social justice go hand-in-hand.

To most Americans, fiscal responsibility is a question of political morality. If Democrats allow the debate to be framed as a choice between more deficit spending and debt reduction, they lose

Much to the perplexity of US liberals, the politics of debt reduction dominated Washington in 2010, despite a faltering economic recovery.

No one was more incensed by the seeming illogic of this than Paul Krugman. The influential New York Times columnist railed often against “premature austerity” and urged President Obama instead to open the spigots of federal spending. It was the standard Keynesian prescription, but it betrayed a political tin ear. To a public alarmed by large-scale public borrowing and spending, it sounded like throwing good money after bad.

After 2007, US budget deficits ballooned as the Bush and Obama administrations spent heavily to bail out the big banks (plus insurance and auto companies) and counter the worst recession since the 1930s. The federal deficit, $469 billion in 2008, zoomed to an eye-popping $1.3 trillion in 2011. Coming on top of the Bush tax cuts and two costly wars, this emergency spending pushed the US national debt over 70% of GDP.

Had this torrent of spending – reinforced by generous doses of monetary “easing” – unlocked business investment and cut the jobless rate, all might have been forgiven. But it didn’t, and public apprehension about exploding debts amid a jobless recovery rose steadily, reaching a crescendo in the 2010 elections. Republicans swept House races and, lashed on by the Tea Party, stormed into Washington determined to cut government down to size.

Thus 2011 became a year of fiscal brinkmanship. First the government was almost shut down last spring when budget talks broke down. Then came the summer showdown over raising the debt ceiling, which ended when Obama blinked and agreed to GOP demands for spending cuts rather than let America default on its debts for the first time ever. In the fall, a bipartisan “supercommittee” that was granted extraordinary powers to rein in deficits failed to reach agreement, triggering automatic domestic spending cuts in 2013.

Despite such nips and tucks, US leaders thrice failed to come to grips with the structural causes of America’s debt crisis: tax revenues well below historic norms, and the rapid growth of public health and pension costs as the baby boomers throng into retirement. This ensures that the debate over how to control the national debt – $15 trillion and growing – will be front and centre in the 2012 presidential election.

The public’s top priorities are jobs and reviving US competitiveness. But fiscal discipline also matters to most voters, especially the moderates and independents who hold the balance in close races. Only by embracing both goals can progressives forge an electoral majority in 2012. If Obama and the Democrats allow the fiscal debate to be framed as a choice between more deficit spending or debt reduction, they lose. If instead they champion fiscal restraint and focus the debate on the fairest and most growth-friendly way to achieve it, they can win.

That’s because Republicans have painted themselves in a corner by refusing to raise any new tax revenue to help solve the debt crisis. Americans don’t relish paying higher taxes, but they do want their elected leaders to work together to solve the country’s problems. House Republicans have repeatedly put their anti-tax dogma before their responsibility to govern, and have seen their public approval ratings tumble as a result.

In contrast, Obama appears eminently reasonable in calling for “shared sacrifice”, which in practice means reducing the debt with a mix of spending cuts and tax revenues. He has also put Republicans on the defensive for opposing tax hikes on the rich, even to pay for tax relief for working families.

But Obama can’t let his own party off the hook, either. If Republicans are in denial about the need for higher revenues, Democrats have yet to get serious about the other side of the fiscal equation – slowing the unsustainable cost growth of the big “entitlement” programmes: Medicare, Medicaid and Social Security. Washington has promised more to future retirees than it can afford to pay; the government recently put the funding gap at $34 trillion, many times larger than the entire US economy.

There’s nothing “progressive” about denying hard fiscal facts, yet many liberals cling to the habit of opposing any cuts in future benefits – even for wealthy Americans – as a breach of faith, if not a plot to kill social insurance in America. Not only is this stance blind to demographic and budget realities, it’s morally dubious as well.

If benefits for the elderly are deemed untouchable, then Congress will have to either raise taxes on everyone, including working families, or cut domestic spending to the bone, or both. Domestic spending (including defence) has already borne the brunt of the spending cuts agreed to last year. It is only 12% of the budget, but it includes all the key public investments progressives should be for – in infrastructure, education and workforce skills, science and technology – not to mention public health and safety and measures to alleviate poverty. To shield entitlements from cuts is, in effect, to give priority to retirees’ consumption over strategic investments in a more prosperous and equitable society.

There is little mystery over what it will take to solve America’s debt crisis. President Obama’s own Fiscal Commission says $4 trillion in debt reduction over the next decade is necessary to stabilise the national debt at around 60% of GDP. Hitting that ambitious target will require a political “grand bargain” in which Republicans accept increased tax revenues, and Democrats agree to trim benefits for affluent retirees in the future. Unfortunately, Obama’s reluctance to endorse his Commission’s blueprint has left his own party as well as the public in doubt about the depth of his commitment to fiscal stabilisation.

As the presidential race begins in earnest, Obama will come under growing pressure to offer bigger and more specific ideas for spurring economic growth and shrinking the national debt. He needs a concrete plan for restoring fiscal responsibility gradually, through a combination of tax and entitlement reform, while also boosting public investment. Properly sequenced, a “cut and invest” approach can attenuate the dilemma Krugman and others point to – the collision between the stimulative effect of public spending (and tax cuts) and the contractionary impact of fiscal retrenchment.

Adopting a 10-year framework for debt reduction will reassure nervous investors that Washington is determined to get its borrowing under control and protect the nation’s credit. By cutting debt service payments, it will redirect public spending from consumption to productive investment. It will reduce America’s dependence on foreign lenders (especially China) and rebuild the nation’s “fiscal reserve” so that it can borrow to meet future emergencies or downturns without plunging into Greek-style levels of debt.

The economic case for providing certainty about debt reduction is compelling. But most Americans don’t wear green eyeshades; for them, fiscal responsibility is a question of political morality. They see the nation’s runaway debt as emblematic of a corrupt political class that doles out slices of the public weal to privileged interests and rent-seekers in return for campaign contributions. The image of a bloated state that lives beyond its means powerfully buttresses the anti-government populism that resonates not only with Tea Partiers but also with the independent voters that progressives need to win back this year.

The good news for Obama is that the demands of economic growth and fiscal rectitude point in the same direction – away from America’s old economic model of debt-fueled consumption, towards a new progressive growth strategy based on higher levels of investment, faster innovation and expanded production.

Photo credit: Andrew.Speight

Will Marshall on Romney’s Win in Iowa

Posted on by The Progressive Policy Institute

PoliticoWill Marshall explains Mitt Romney’s big win in Iowa for Politico’s Arena:

“Let’s not overthink the Iowa result. Mitt Romney won big, pure and simple.

Despite dampening expectations, he finished first. Not a back trick for a candidate who has never had the support of more than a quarter of Iowa Republicans. Romney deftly played a divided field, laying low as one “real conservative” after another stepped into the spotlight, only to be dismissed by a fickle and unsettled electorate. Had Iowa been a two-man race again as it was in 2008, Romney would have finished a distant second, and someone else would be headed to New Hampshire with the Big Mo.”

Read the entire post.

Election Watch–After Iowa: Is the Right Ready to “Settle” for Mitt?”

Posted on by The Progressive Policy Institute

So voters finally got into the act in the Republican presidential nominating contest, and the results from Iowa were about what anyone reading the late polls might have expected. With Ron Paul apparently taking a bit of a hit from bad publicity about his extremist past and attacks on his current foreign policy views by other candidates, he fell just short of Romney and Santorum, who almost literally tied. In many respects, the caucuses were a re-run of 2008: turnout was very much the same despite all the talk about a super-psyched GOP base; the composition of caucus-goers was very similar; and Mitt Romney got about the same number of votes. The main difference is that Romney spent much less time in Iowa than in 2008, and more crucially, the non-Romney vote was more divided. It’s also significant as a sign of politics to come that Mitt didn’t have to spend nearly as much of his own money in 2012, because a “Super PAC” supporting him did the dirty work of destroying Newt Gingrich’s credibility with Iowa conservatives (with some help from Ron Paul’s campaign).

The free-falling Gingrich campaign did have enough energy left to beat Rick Perry in Iowa (Newt got 13 percent of the vote, Perry 10 percent), dealing a huge blow to the candidate still generally thought to be the only enduring threat to a Romney nomination (Perry considered dropping out of the race Tuesday night, but reconsidered, probably after taking a good long look at the poor positioning of the rest of the field in South Carolina and Florida). Michele Bachmann, the winner of the Iowa GOP straw poll back in August, which croaked Tim Pawlenty’s candidacy, had the wheels fall off in the final week before the caucuses and finished a poor sixth, subsequently folding what was left of her campaign.

So technically, at least, Rick Santorum, who benefitted mightily from a last-minute consolidation of social conservative support, is the unlikely winner of the conservative-alternative-to-Romney sweepstakes that Iowa hosted for so many months. I qualify his victory because there are many doubts about his post-Iowa viability, and aside from Paul, who will be in the race to the bitter end, there remains a slim possibility that Perry or Gingrich can rise from the dead to attempt one more comeback when the calendar turns to the South after New Hampshire. Indeed, one of the grand ironies of this entire contest is that perceptions of Romney’s weakness have kept candidates in the field who are mainly keeping each other from consolidating non-Romney support.

Santorum has spent little time outside Iowa, and does not have deep pockets. More importantly, he’s a career politician with a domestic policy record that troubles some conservatives (notably pundit Erick Erickson, who has taken to attacking Santorum regularly and savagely). As a conservative Catholic, he has ties to evangelical activists via the anti-abortion movement (in which he is heavily involved, taking positions that won’t wear well with more moderate voters), but does not have the kind of natural connections to southern political culture that 2008 winner Mike Huckabee enjoyed.

Given Romney’s big lead in New Hampshire, it’s unlikely Santorum will take the time and money to seriously challenge him there, though Newt Gingrich is promising to launch a vengeful attack on Mitt in the Granite State. But the next critical (and perhaps final) phase of the campaign could well be played out behind the scenes, as conservative opinion-leaders decide whether or not to get behind Romney and end the contest before it gets truly ugly and expensive. South Carolina’s Jim DeMint, for example, could send a very big signal that the battle to deny Romney the nomination has become too dangerous for the conservative movement to sustain. A Romney win in the Palmetto State would pretty much wrap things up unless Mitt does or says something uncharacteristically stupid, though rivals (obviously Paul, probably Gingrich, and perhaps even Huntsman if he chooses to spend his family fortune) may stick around in case that happens.

It bears repeating at this point that there are few signs of a general-election “conservative revolt” against a Romney-led ticket, beyond a smattering of evangelicals who really don’t like Mormons. The best way to describe the wingnut mood about this contest is that a Romney nomination would deny them their ideal aspiration of a Goldwater-style candidacy (one, of course, that won this time) aimed at repealing the entire Great Society/New Deal legacy. But that would be considered a tactical setback other than an intolerable defeat, simply delaying the great-gittin’-up-morning they are convinced is on the horizon once those vote-buying socialists in the Democratic Party are driven from power. An early Romney nomination victory, on the other hand, might save the candidate a lot of heartburn by giving conservative activists time to heal their wounds and get used to him as the nominee, while limiting the gestures he will have to make to earn their enthusiastic support, if not their trust or affection.

Nuclear Risk in Perspective: Making Fact-Based Energy Choices

Posted on by The Progressive Policy Institute

March 11, 2011 was a day of calamity the Japanese people will never forget. According to the National Police Agency of Japanthe Tōhoku earthquake and tsunami left 15,841 dead, 5,890 injured and 3,490 people missing (as of December, 2011). Mother Nature’s freakish, one-two punch also triggered the partial meltdowns of four reactors in the Fukushima Daaichi complex, one of the worst commercial nuclear power plant disasters in history.

The Fukushima incident has stoked nuclear dread around the world and led some to conclude that nuclear power is too risky. Perhaps the most dramatic shift in public attitudes has been in Germany, where a conservative-led government recently unveiled a plan to close down all the country’s nuclear power plants by 2022.

Americans, however, should not endorse this knee-jerk anti-nuclear policy. For the foreseeable future, nuclear power will remain a vital part of a balanced and realistic national energy portfolio. Moreover, as champions of reason and science, U.S. progressives have a responsibility to avoid panicky overreactions and instead undertake a clear-eyed assessment of the actual risks of nuclear energy.

Generating electricity—like getting out of bed in the morning, or any other human activity—carries inherent risks. That’s true regardless of the fuel used to generate power. Instead of carefully weighing and comparing such risks, however, some environmental activists have tried to pose a false choice between “clean” and presumably safe renewable fuels like wind, solar and geothermal energy, and “dirty” fossil fuels or allegedly “unsafe” nuclear power. This dichotomy has nothing to do with science.

No sensible person is against renewable energy. But it will probably be a long time—likely decades, not years—before such sources have a realistic prospect of providing the base load needs of our national economy, let alone meeting the growing requirements of the entire globe. The Obama administration takes a more realistic approach in including nuclear energy along with other non-carbon emitting sources in its “Clean Energy Standard.” To understand why this is the case, we first need to review a few of the often overlooked, but important subtleties of electrical power generation.

Download the memo.

Wingnut Watch: Ideology Versus Electability

Posted on by The Progressive Policy Institute

Up until now, the right-wing conquest of the Republican Party that reached critical mass immediately after Barack Obama’s election in 2008 has not involved a lot of soul-searching questions about the relative value of ideology and “electability.” Indeed, it’s been an article of faith on the right—for some dating all the way back to Phyllis Schlafly’s 1964 book A Choice Not An Echo—that insufficient ideological rigor was precisely the reason for the GOP’s electoral problems. And nothing much has happened since the beginning of 2009, when the GOP made the unusual decision to move away from the political center after two straight electoral debacles, to disabuse them of the idea that they would be rewarded at the ballot box for fully indulging their ideological appetites and thrilling the conservative activist base.

That may be about to change. The House Republicans’ rejection of a two-month stopgap agreement to preserve a payroll tax cut and extend unemployment benefits has finally earned the Tea Party Movement full blame for gridlock and dysfunction in Congress (an institution whose approval rating dropped to 11 percent last week according to Gallup). Opinion surveys indicate that the deeply satisfying sabotage game (i.e., deliberately screwing up the operations of the federal government and then benefitting from public disgruntlement with the competence of said federal government) conservatives have been playing may be coming to an end as Republicans become more firmly identified with unpopular positions on spending, taxes, and the willingness to cooperate across party lines. Even the president’s approval ratings are looking better by comparison.

In other words, Republicans are at long last having to choose between ideology and popularity—or to put it another way, between the “base” and the general electorate—and the current behavior of House Republicans indicates it’s no real contest: ideology comes first.

Many non-conservative political observers think the same choice is at the heart of the turbulent presidential nominating contest, and wonder if and when Republicans will finally “settle” on Mitt Romney as the obvious candidate with the best chance of winning in November. But polling on “electability” indicates that most actual rank-and-file Republicans think whatever candidate they happen to prefer is also the most electable (conservative opinion-leader Erick Erickson is hardly alone in arguing that regardless of the polls, Romney is actually the least electable of the viable candidates), and a steady majority appear to consider electability less important than ideology, values or “character.”

Yet less than two weeks before the Iowa caucuses, Romney’s prospects are indeed on the rise, but for reasons distinct from the ideology/electability choice. To put it simply, the long conservative search for a clear alternative to Romney seems to be terminally failing.

It’s now well-documented that the latest non-Romney to enjoy a surge in the polls, Newt Gingrich, is in deep trouble in Iowa. This is not necessarily a function of a national decline in support for the former Speaker—he continues to run ahead of or even with Romney among Republicans nationally–or (to cite one common CW theory) of some decision by the “Republican Establishment” to deep-six Gingrich on electability grounds. More prosaically, Newt is being savaged in Iowa by heavy negative advertising by Ron Paul and by a “super-PAC” supporting Romney, and he has neither the money nor the organization in the state to fight back. And far from focusing on electability, the anti-Gingrich ads aim at Gingrich’s conservative support by depicting him as an unprincipled flip-flopper and conventional Washington pol.

At the same time, Iowa conservatives appear incapable of uniting around any other candidate. Rick Perry is investing heavily in Iowa in time and money, but is showing relatively little movement in the polls. Both Michele Bachmann and Rick Santorum are moving up a bit in Iowa polls, but are aiming at largely the same evangelical conservative constituency. Two of the most prominent Iowa Christian Right leaders, Bob Vander Plaats and Chuck Hurley, have just endorsed Santorum, but could not convince the board of their own organization, FAMiLY Leader, to make an endorsement, reflecting deep ambivalence in their ranks.

At the moment, the odds are probably better than even that either Romney or Ron Paul will win Iowa. With Romney maintaining a big lead in New Hampshire polls, and also beginning to break the apparent 25 percent cap on his national support, an Iowa win, particularly if Paul finishes second and no other candidate appears to be consolidating conservative support, could give him unstoppable momentum. A Paul victory with Romney second could be nearly as good for Mitt, given Paul’s unpopularity with both rank-and-file conservatives and elites and the vast ammunition his record and radical utterances will provide for future negative ads.

A rebound by Gingrich in Iowa, or a last-minute surge by Perry or Santorum, could upset this scenario, but the fact that all three of these candidates have some grounds for optimism illustrates the problem facing conservatives determined to stop Romney.

If Romney wins, in other words, it won’t be because conservatives worried about November have chosen to elevate electability over ideology, but because the large field of candidates available to them has serially imploded, and time has run out for anything other than a desperate anybody-but-Romney rearguard action. At the same time, Romney himself has made just enough concessions to the rightward drift of his party to remain acceptable to all but bitter-enders and Mormon-haters.

Crazy things have been known to happen in Iowa in the last days before the caucuses, although the intercession of the Christmas holidays makes big changes in support levels unlikely. In any event, the invisible primary is finally coming to an end, and with it will expire the hopes of all but a very few candidates.

Photo Credit: Austen Hufford

Will Marshall on Republican Obstructionism

Posted on by The Progressive Policy Institute

PoliticoPPI President Will Marshall discussed how House Republicans continue to obstruct extension of payroll tax cuts and unemployment benefits in Politico’s Arena:

“‘Tis the season, apparently, for House Republicans to deck the halls of Congress with meanspirited obstructionism. In blocking extension of the payroll tax cut and unemployment benefits, they’ve delivered a loud “Bah, Humbug” to working Americans.”

Read the full post here.

Crowd Control: The Need for a Spectrum Management Mitigation Fund

Posted on by The Progressive Policy Institute

Whether it’s 4G cell phones, light-as-a-feather laptops or the latest tablet, Americans are enjoying a wireless revolution. In 2010, Americans typed, tapped, texted, and called on an estimated 300 million mobile devices.

But all this increased connectivity is taking a toll on the nation’s increasingly crowded airwaves. The Federal Communications Commission (FCC) warns of a “spectrum crunch” that could hit as early as 2013, given how quickly wireless traffic is growing.

Innovative companies are devising new ways to maximize spectrum efficiency so more users can take up less space. But while these advances deserve strong support, they’re also not cost-free. In some cases, existing “legacy” users must retrofit older and less efficient technologies to adjust to these new uses.

This brief proposes a “spectrum management mitigation fund” to help legacy users defray the inadvertent costs of adapting to innovations in the marketplace. This fund would involve no new federal money and instead would be financed from a portion of revenues from “voluntary incentive auctions”—a mechanism endorsed by the FCC to encourage more efficient spectrum allocation between current and prospective licensees.

Creating the fund would reconcile two goals: it would both encourage much-needed innovation while also acknowledging the legitimate concerns of users with older technologies. Moreover, it would obviate the politicization of spectrum management issues currently occurring in part due to the absence of a mitigation mechanism. For example, this fund could help re-solve the current controversy between the legacy GPS community and the wireless broadband start-up LightSquared—it could partially compensate legacy GPS users for the cost of retrofitting existing devices, thereby clearing the path for LightSquared to deploy its network.

With the benefits of spectrum innovation too great pass up, this fund could be an important next step to ensure Americans enjoy the next generation and beyond of new wireless technologies.

Read the entire report.

Mandel’s Scale Report Featured in The Economist

Posted on by The Progressive Policy Institute

PPI Chief Economic Strategist Michael Mandel’s new report on scale and innovation is featured in this week’s Economist‘s Schumpeter column:

SOME people say it is neither big nor clever to drink. Viz, a British comic, settled that debate with a letter from a reader who said: “I drink 15 pints a day, I’m 6 foot 3 inches tall and a professor of theoretical physics.” However, another question about size and cleverness has yet to be resolved. Are big companies the best catalysts of innovation, or are small ones better?

Joseph Schumpeter, after whom this column is named, argued both sides of the case. In 1909 he said that small companies were more inventive. In 1942 he reversed himself. Big firms have more incentive to invest in new products, he decided, because they can sell them to more people and reap greater rewards more quickly. In a competitive market, inventions are quickly imitated, so a small inventor’s investment often fails to pay off.

These days the second Schumpeter is out of fashion: people assume that little start-ups are creative and big firms are slow and bureaucratic. But that is a gross oversimplification, says Michael Mandel of the Progressive Policy Institute, a think-tank. In a new report on “scale and innovation”, he concludes that today’s economy favours big companies over small ones. Big is back, as this newspaper has argued. And big is clever, for three reasons.

Read it at The Economist.

Download Mandel’s report – Scale and Innovation in Today’s Economy.

The Credit Gap: Easing the Squeeze on the Smallest Businesses

Posted on by The Progressive Policy Institute

Among the many casualties of the 2007-2008 financial meltdown were small businesses. As the financial system virtually shut down, millions of small business owners across America found themselves unable to get the credit they desperately needed to run their businesses, let alone expand. As a result, thousands of otherwise flourishing firms were forced into bankruptcy or closure, with thousands of American jobs lost.

While this credit freeze has begun to thaw, one critical group of small businesses—firms with fewer than 50 workers—are still at risk of being left behind. These smallest of small businesses provide as much as 30 percent of all private-sector employment. Yet because of their small size, they are much less likely to benefit from government small business loan programs, and they are less likely to win loans from big commercial banks. For this group, the credit crunch is a serious impediment to their success. Many of these businesses relied on personal assets, such as home equity, for financing. But with the crash in home prices, those resources have evaporated. Instead, many smaller businesses rely almost exclusively on risky and expensive credit cards to finance their firms, if they can get credit at all.

Smaller businesses clearly need more options for getting credit, and credit unions, which already help many small borrowers finance their self-employment and small business ventures with personal loans, lines of credit, and limited business loans, could be an ideal source of credit for these underserved entrepreneurs. However, credit unions are blocked from offering as much help as they could because of an arbitrary and outdated cap on the amount of small business lending that credit unions can do. Bipartisan proposals to increase this limit—such as the ones offered by Sens. Mark Udall and Susan Collins and Reps. Ed Royce and Carolyn McCarthy—would help credit unions fill the “credit gap” that these smaller businesses face. It would also be a sensible and cost-effective way to jumpstart the job creation our country urgently needs.

Read the entire brief:12.2011-Martin_The-Credit-Gap_Easing-the-Squeeze-on-the-Small-Businesses

 

Wingnut Watch: The Race to Iowa

Posted on by The Progressive Policy Institute

Newt GingrichCongress is mired this week in a complex struggle over an omnibus appropriations bill (with the total amount dictated by the earlier deficit reduction agreement) linked to a continuation of unemployment benefits and payroll tax relief. It’s almost entirely a matter of partisan Kabuki theater at this point, and neither a collapse of negotiations (followed, presumably, by another short-term continuing resolution on appropriations) nor an agreement (within the current parameters of the fight) would produce a major wingnut meltdown. Republicans generally are trying to secure a measure forcing the administration, among other indignities, to build the controversial Keystone KL pipeline, but again, this is more of a partisan that a purely ideological concern.

But conservative activists are reaching a failsafe point in the presidential nomination contest, with less than three weeks to go (or less in actual campaign time, given the limitations in attention-span and tolerance for “comparative” messages imposed by Christmas) before the Iowa caucuses.

With Herman Cain having finally suspended his campaign, conservatives in Iowa and elsewhere are struggling to decide whether to get behind the current frontrunner, Newt Gingrich, as an alternative to the chronically disfavored Mitt Romney, or to find some way to unite behind other, previously failed candidacies like those of Perry or Bachmann (while very much a viable candidate in Iowa, Ron Paul is generally considered unacceptable as an actual nominee because of his foreign policy views, and Rick Santorum would need an Iowa miracle to become viable). Perry and Paul are spending extensively on campaign ads in Iowa, and Paul, in particular, has been pounding Gingrich for his many flip-flops, his ideological heresies, and his Washington ties. Iowa polls all show Gingrich in the lead at present, though at least one, from PPP, shows Gingrich losing ground with steadily eroding favorable/unfavorable ratios.

There’s one more Iowa debate on tap (tomorrow, sponsored by Fox), and some key endorsements still likely to come (notably from wingnut leaders Bob Vander Plaats of the Iowa FAMiLY Leader and Rep. Steve King; both could go for about anyone other than Romney). It’s anybody’s guess what will happen; Gingrich, Paul and Romney are all in a decent position to win a close split decision, though the bulk of polls still favor Gingrich, who is particularly strong among self-identified Republicans. Meanwhile, Gingrich has been gaining on Romney in New Hampshire, and has built huge leads in South Carolina and Florida. A Gingrich win in Iowa would probably mean the end for Perry, Bachmann and Santorum, and put Romney on the ropes; a Paul win would be nearly as good for Romney as a win himself, particularly if Gingrich fades notably, which could indicate that the other candidates’ attacks are having and will continue to have an effect.

At this point it’s worth noting that the nomination schedule features both an early January blitz, and then something of a lull, meaning that unless someone scores the early knockout with wins in all or nearly all the January states, then money, organization, and sheer endurance could become very large factors and the contest could extend at least to Super Tuesday in March, and perhaps into the post-April 1 period when states can award delegates on a statewide winner-take-all basis if they so choose. There’s already talk that if Gingrich wins big in January, Republican Establishment figures (alarmed by Gingrich’s very poor standing in the general electorate) could either mount a major push to force conservatives to accept Romney, or even get behind a very late candidacy for someone more acceptable than either Romney or Gingrich among Tea Party supporters, but who has less glaring weaknesses than those in the existing field.

With all these variables in play, the overriding reality is that going on three years after the outbreak of the Tea Party Movement, conservatives can’t agree on much in the GOP presidential campaign other than a general disdain for Mitt Romney. Reading major conservative opinion outlets like National Review you can find both warm reassessments of and vicious attacks on Gingrich, who is far and away the current national front-runner among conservative voters at the moment. There’s a lot of regret about how poorly Rick Perry has performed, amidst very occasional expressions of hope that the Texan’s campaign could be resurrected by a late surge in Iowa. It’s all, frankly, a mess, and the possibility of an outcome that will please Wingnut World from either an ideological or an electability point of view continues to decline as actual voting grows near.

Photo credit: Chase McAlpine

Newt Gingrich’s Tax Plan Is a Giveaway to America’s Global Elite

Posted on by The Progressive Policy Institute

The Atlantic

PPI Chief Economic Strategist Michael Mandel writes for the Atlantic on Newt Gingrich’s tax plan:

“It starts very simply: Taxes, lower taxes.”

That was the first line of Newt Gingrich’s explanation of how he would create jobs, given at the December 10 Republican debate in Iowa. Gingrich talked about his desire to end the capital gains tax and cut the corporate income tax to 12.5%. In addition, Gingrich has proposed a 15% flat tax as an option for all Americans, going further than the 20% flat tax advocated by Rick Perry.

On one level, Gingrich’s intense focus on lower taxes fits current dogma in the Republican party, which puts tax cuts above almost everything else. He is playing to the conservative base, as a way of counteracting some of his other personal liabilities.

If enacted in their entirety, Gingrich’s proposed changes would turn the U.S. tax system from progressive to regressive. Someone earning $40,000 in wages could pay a higher tax rate than another person who made $400,000 a year in capital gains.

This shift from progressive to regressive is not acceptable, of course. The tax system should be a tool for reducing the stresses of inequality in the economy, not increasing it. That’s especially true now, coming out of such a devastating recession where so many American are unemployed or underemployed.

Read the full article at the Atlantic.

Newt Gingrich’s Tax Plan Is a Giveaway to America’s Global Elite

Posted on by The Progressive Policy Institute

The Atlantic “It starts very simply: Taxes, lower taxes.”

That was the first line of Newt Gingrich’s explanation of how he would create jobs, given at the December 10 Republican debate in Iowa. Gingrich talked about his desire to end the capital gains tax and cut the corporate income tax to 12.5%. In addition, Gingrich has proposed a 15% flat tax as an option for all Americans, going further than the 20% flat tax advocated by Rick Perry.

On one level, Gingrich’s intense focus on lower taxes fits current dogma in the Republican party, which puts tax cuts above almost everything else. He is playing to the conservative base, as a way of counteracting some of his other personal liabilities.

If enacted in their entirety, Gingrich’s proposed changes would turn the U.S. tax system from progressive to regressive. Someone earning $40,000 in wages could pay a higher tax rate than another person who made $400,000 a year in capital gains.

This shift from progressive to regressive is not acceptable, of course. The tax system should be a tool for reducing the stresses of inequality in the economy, not increasing it. That’s especially true now, coming out of such a devastating recession where so many American are unemployed or underemployed.

Read the full article at the Atlantic.

Wingnut Watch: Supercommittee Failure and the Gingrich Surge

Posted on by The Progressive Policy Institute

The official failure of the congressional “supercommittee” came and went without much hand-wringing in Wingnut World; indeed, the prevailing sentiment was quiet satisfaction that Republicans had not “caved” by accepting tax increases as part of any deficit reduction package. It was all a reminder that most conservative activists are not, as advertised, obsessed with reducing deficits or debts, but only with deficits and debts as a lever to obtain a vast reduction in the size and scope of the federal government, and the elimination of progressive taxation. For the most part, the very same people wearing tricorner hats and wailing about the terrible burden we are placing on our grandchildren were just a few years ago agreeing with Dick Cheney’s casual assertion that deficits did not actually matter at all.

It is interesting that throughout the Kabuki Theater of the supercommittee’s “negotiations,” the GOP’s congressional leadership came to largely accept the Tea Party fundamental rejection of any compromise between the two parties’ very different concepts of the deficit problem. From the get-go, Democrats were offering both non-defense-discretionary and entitlement cuts in exchange for restoring tax rates for the very wealthy to levels a bit closer to (though still lower than) their historic position. The maximum Republican offer was to engage in some small-change loophole closing accompanied by an actual lowering of the top rates in incomes, plus extension of the Bush tax cuts to infinity. Conservatives are perfectly happy to let an on-paper “sequestration” of spending take place, with the expectation that a Republican victory in 2012 will put them in a position to brush aside the defense cuts so authorized and then go after their federal spending targets with a real vengeance.

The GOP presidential candidates have offered two opportunities during the last week for wingnuts of a particular flavor to assess their views and character. The much-awaited Thanksgiving Family Forum in Des Moines was perhaps the first candidate forum of the cycle in which no one even pretended to set aside cultural issues in favor of an obsessive focus on the economy or the federal budget. The format, involving not a debate but a serial interrogation of candidates by focus group master Frank Luntz, was explicitly aimed at getting to each contender’s “worldview,” the classic Christian Right buzzword for one’s willingness to subordinate any and all secular considerations and choose positions on the issues of the day via a conservative-literalist interpretation of the Bible (i.e., one in which phantom references to abortion are somehow found everywhere, and Jesus’ many injunctions to social activism are treated as demands for private charity rather than redistributive efforts by government).

According to The Iowa Republican’s Craig Robinson in his assessment of the event, Rick Santorum, Michele Bachmann and Rick Perry were the only candidates who succeeded in articulating a “biblical worldview” under Luntz’s questioning. Newt Gingrich got secular media attention for his Archie Bunkerish “take a bath and get a job” shot at the dirty hippies of OWS, but inside the megachurch where the event was held, the star was probably Santorum, whose slim presidential hopes strictly depend on Iowa social conservatives adopting him as their candidate much as they united around Mike Huckabee in 2008.

It is interesting that immediately after the event, Rick Perry joined Santorum and Bachmann as the only candidates willing to sign the radical “marriage vow” pledge document released back in July by the FAMiLY Leader organization, the primary sponsor of the Thanksgiving Family Forum. This makes him eligible for an endorsement by FL and its would-be kingmaking founder, Bob Vander Plaats.  It appears a battle has been going on for some time in Iowa’s influential social conservative circles between those wanting to get behind a “true believer” like Santorum or Bachmann and those preferring to give a crucial boost to acceptable if less fervent candidates like Perry or Gingrich. The outcome of this internal debate, which was apparently discussed in a private “summit” meeting on Monday, will play a very important role in shaping the endgame of the Iowa caucus contest—as will the decision by Mitt Romney as to whether or not he will fully commit to an Iowa campaign (he is opening a shiny new HQ in Des Moines, which some observers are interpreting as an “all-in” gesture).

Without question, it became abundantly clear during the last week that the “Gingrich surge” in the nomination contest is real, or at least as real as earlier booms for Bachmann, Perry and Cain. The last five big national polls of Republicans (PPP, Fox, USAToday/Gallup, Quinnipiac and CNN) have all showed Gingrich in the lead. The big question is whether and when his rivals choose to unleash a massive attack on the former Speaker based on their bulging oppo research files featuring whole decades of flip-flops, gaffes, failures and personal “issues.”

Interestingly, though, Gingrich may have already opened the door to suspicious wingnut scrutiny without any overt encouragement from his rivals. During the last week’s second major multi-candidate event, the CNN/AEI/Heritage “national security” debate last night, Gingrich may have ignored the lessons of the Perry campaign by risking his own moment of heresy on the hot-button issue of immigration, calling for a Selective Service model whereby some undocumented workers with exemplary records could obtain legal permanent status if not citizenship. He was immediately rapped by Romney and Bachmann for supporting “amnesty.”  We’ll soon see if Newt’s long identification with the conservative movement and his more recent savagery towards “secular socialists” will give him protection from such attacks, or if his signature vice of hubris is once again about to smite him now that he’s finally become a viable candidate for president.

Regulators: Listen to Workers

Posted on by The Progressive Policy Institute

AT&T is a big company, which perhaps explains why federal regulators are ganging up to block its proposed merger with T-Mobile. Big must be bad, right?

That’s certainly the view of consumer advocacy groups, which routinely oppose business mergers as threats to competition. They seem to have the ear of the Federal Communications Commission, which announced last week that it would join the Justice Department in opposing the deal, citing concerns about job losses and higher consumer prices.

But there’s another important group of stakeholders that regulators should be listening to: AT&T’s workers. They are urging the government to take a broader view of the merger’s potential impact on U.S. investment and competitiveness.
At a time of shrinking private sector union membership, it’s worth noting that the company’s 42,000 wireless workers are represented by the Communications Workers of America (CWA). The union issued a report this month strongly supporting the company’s acquisition of T-Mobile as a spur to innovation and a job-creator.

Such arguments merit attention, if only because it’s not often that you find a successful U.S. company in synch with its unionized workforce. Beyond that, however, there are compelling economic reasons for regulators to start looking at proposed mergers through the eyes of America’s producers, not just its consumers.

President Obama, fresh from a tour of the Asia-Pacific, articulated them in a recent radio address. “Over the last decade, we became a country that relied too much on what we bought and consumed,” he said. “We racked up a lot of debt, but we didn’t create many jobs at all.” Reviving U.S. competitiveness, he said, will require Americans to focus more on building things than buying them. Obama also called for “restoring America’s manufacturing might, which is what helped us build the largest middle-class in history.”

Opponents say CWA backs the merger because it has its eyes on T-Mobile’s workers, who aren’t organized. But the union’s analysis of the $39 billion deal emphasizes AT&T’s plans to boost capital investment in the wireless broadband sector. It cites think tank estimates that such investment could produce up to 96,000 new jobs, not including another 5,000 jobs the company promises to bring back to the United States from overseas.

AT&T has said it will merge its networks with those of T-Mobile, and invest an additional $8 billion to expand its 4G LTE wireless broadband infrastructure. It also has pledged to retain T-Mobile’s non-managerial workers. The CWA report asserts that, absent the merger, T-Mobile is headed toward extinction. Having been cut loose by its parent company, Deutsch Telecom, it lacks the capital to acquire spectrum and build its own 4G network.

Opponents of the merger—including AT&T’s competitors as well as consumer groups—say the merger would give the telecom giant too much market power and lead to higher prices. Regulators ought to carefully weigh such claims. But as a forthcoming PPI report argues, mergers and acquisitions among dynamic, high-tech companies often have the effect of spurring more innovation. In the fiercely competitive telecommunications sector, prices for wireless services—voice, text, and data—have been trending downward, even as quality of these services has improved dramatically.

Even so, low consumer prices aren’t the only public interest at stake here. More important is expanding investment—in technological innovation, a highly skilled workforce and world-class infrastructure. This is the only way to make U.S. companies and workers more competitive in global markets that does not entail lowering our standard of living.

As the Progressive Policy Institute has documented here, the telecom sector is leading a dynamic wave of innovation in mobile telephony and broadband that is creating good jobs in the United States. That’s no mean achievement at a time when unemployment is stuck at 9 percent—and about twice that if you take into account people who have given up looking for jobs.

While other corporations chase cheap labor by moving production offshore, we have dubbed communications companies like AT&T, Verizon and Comcast “Investment Heroes” because they are making huge bets on the American economy. Surely that’s something government regulators ought to factor into their decisions.

Our country needs a new model for economic growth that emphasizes production over consumption, saving over borrowing, and exports over imports. Such a shift is essential not only to rebuild the great American job machine, but also to rebalance a global economy that has become overly dependent on U.S. consumers.

It’s time once again for America to be a global center for production—and we need federal regulators to get with the program too.

Photo credit: reticulating