issue: Digital Innovation

Why AI Is Not About to Kill the Job Market

Posted on by Alex Terr

Let me be clear upfront — I’m pro-AI. The technology has enormous potential to lower costs, increase productivity, and raise real wages. And once combined with future advances in robotics, the gains will be especially important in physical industries such as manufacturing and construction, which have both seen negative productivity growth over the past decade.

I also acknowledge the need to stay alert for problems, and to regulate as necessary.

But one problem that doesn’t overly worry me is the prospect of a massive short-term “extinction event” of jobs. For example, Dario Amodei, CEO of Anthropic, a leading AI company, recently told Axios that “AI could wipe out half of all entry-level white-collar jobs — and spike unemployment to 10-20% in the next one to five years.”

I find such a negative employment scenario for either college grads or non-college workers highly unlikely. First, previous forecasts of technology-driven job collapses have turned out to be premature, often signaling future job gains instead. It doesn’t make sense to just focus on job destruction from innovation without considering job creation as well.  

For example, the big ecommerce innovation was supposed to lead to a “retail apocalypse,” or a “retail meltdown,” eliminating millions of retail sales jobs and replacing them with fully automated websites. 

In fact, retail turned out to be fundamentally a logistics business, and having a good website was only the beginning of the e-commerce transformation. As I showed in a prophetic 2017 paper, getting fulfillment and delivery right was much more difficult and important, requiring more investment and more people. So while the number of poorly-paid retail sales positions declined by 15-20%, better-paid jobs doing ecommerce fulfillment increased even faster. Employment in the consumer distribution sector — including brick-and-mortar retail, fulfillment, and local delivery — actually rose by 1 million jobs from 2017 to 2024. 

Second, Amodei’s timeframe is far too short. The adoption of AI in business operations is likely to be costly and slow: Applications of AI to the existing workflow of a business will cut some costs by speeding up one step, while exposing other bottlenecks. It typically takes years to adopt a new technology across an entire business, and AI won’t be different.

In a pharma company, for example, speeding up the creation of marketing presentations using AI will do nothing to cut the cost and time of clinical trials. AI can help there as well — but it’s a much slower and painstaking process. Indeed, even if AI helps move us towards new treatments for conditions such as cancer and Alzheimer’s, the necessary lab research and clinical trials to validate the insights will themselves become job producers. 

Third, and related, what Americans complain about the most is the cost of necessities, such as housing, food, transportation, child care, and elder care. High tariffs may also increase the emphasis on domestic manufacturing. AI has a powerful opportunity to modernize these sectors, boosting capacity and creating a new wave of AI-complementary jobs, including for workers without a college education. 

Fourth, the educated employment market has been fed in recent years by a wave of Immigrants. Since 2019, fully one-third of the net new jobs for workers with a college degree or better went to foreign-born individuals. (That’s according to the published data from the BLS. However, adjusting for under-measurement of immigration in the post-pandemic period gives roughly the same percentage.) If that flow is choked off by Trump’s actions against foreign students and educated adult immigrants, we are more likely to end up with skilled labor shortages than surpluses.

There’s no denying that AI will have a big impact on the job market. But for most people, it could be good news rather than a job apocalypse. 

The Data Center Boom

Posted on by Max Sherrill

In a recent blog item, we estimated that in 2025, the five big tech companies — Amazon, Alphabet, Apple, Meta, and Microsoft — are projected to invest $240 billion in the U.S. in capital expenditures, primarily in AI-related data centers and equipment. Other large tech companies and investors are pouring huge amounts of money into new data centers as well. 

This tech and AI investment surge dramatically overshadows domestic investment from major manufacturing industries. For example, in 2023, the motor vehicle industry invested just $29 billion in U.S. structures and equipment, while the primary metals industry, including steel and aluminum, invested only $15 billion.

Indeed, data center construction is providing a much-needed boost to state economies. Consider Virginia, one of the leading locations for data centers. The 2024 report on “Data Centers in Virginia,” from the state’s Joint Legislative Audit and Review Commission, found that “the data center industry provides approximately 74,000 jobs, $5.5 billion in labor income, and $9.1 billion in Virginia GDP overall to the state economy annually.” That estimate was based on average spending by the industry between FY21 and FY23, prior to the AI boom. 

The Virginia report noted that data center revenue has allowed localities to lower real estate tax rates, construct new schools, and establish revenue stabilization or reserve funds. Moreover, “data centers are an attractive industry because they impose minimal direct costs on the provision of government services,” including local roads, and school systems. 

In recognition of the economic benefits of data centers, most states offer an exemption from sales tax for the equipment going into data centers. That’s analogous to the sales tax exemption most states offer for the purchase of manufacturing machinery to go into a factory. Texas, for example, exempts “certain items necessary to the operation of qualifying large data centers,” while also exempting “several types of items used in manufacturing products for sale, including materials that become part of the manufactured product” and equipment “necessary or essential to the manufacturing operation if it causes a physical or chemical change in the product being manufactured.”

Oddly enough, if more factories are built in a state where manufacturing machinery was exempt from sales tax, the nominal revenue loss from the sales tax exemption would rise, even as politicians would cheer. The same would be true if more data centers are built. 

This quirk in the accounting for tax expenditures can produce misleading headlines. For example, one recent report focused on the revenue loss from sales tax exemptions for data center purchases, highlighting Texas: “For example, in the space of just 23 months, Texas revised its FY 2025 cost projection from $130 million to $1 billion.” The report added: “We know of no other form of state spending that is so out of control.” 

But that’s an odd interpretation of good news. Clearly, the increase in the Texas projections was due to the AI boom, which added tens of billions of dollars in genuinely new data center construction in the state. This construction represents a true gain to the Texas economy, not a loss. For comparison, it should also be noted that the size of the sales tax exemption for machinery, equipment, and materials used in Texas manufacturing is projected to be $11.5 billion in FY25, and rising to $15 billion in FY30, reflecting the strength of manufacturing in Texas.

To summarize: A state sales tax exemption for data center equipment, like the one for manufacturing machinery, is designed to boost investment and jobs. Without the exemption, the investment in the state — and the contribution to the state economy — would be lower.

The AI Investment Surge and Manufacturing

Posted on by Alyssa Brown

President Trump’s tariffs aim to boost capital investment in the United States, but one sector is already making massive domestic investments without the need for tariffs. According to PPI’s analysis, the five big tech companies — Amazon, Alphabet, Apple, Meta, and Microsoft — are projected to invest $240 billion in U.S. capital expenditures in 2025, primarily in AI-related structures and equipment. This represents more than double their combined $110 billion U.S. capital spending in 2023 (from PPI’s most recent Investment Heroes report).

This tech investment surge dramatically overshadows domestic investment from major manufacturing industries. By comparison, in 2023, the motor vehicle industry invested just $29 billion in U.S. structures and equipment, while the primary metals industry, including steel and aluminum, invested only $15 billion.

If the U.S. wants to meaningfully increase domestic production, it should leverage our AI leadership rather than attempt a tariff-driven recreation of manufacturing’s past. Trump’s nostalgia for the old manufacturing empire isn’t the future Americans want or need.  

The substantial AI investments being made now point toward a future of flexible digital manufacturing distributed across the country, creating productive capacity that can be easily shifted to meet changing consumer, business, and national security needs, and generating new jobs that will require both digital and physical skills. This vision is impeded, not accelerated, by Trump’s trade war. 

It’s always easier to push on an open door. U.S companies lead in artificial intelligence, and they are showing themselves willing to put their money into this country. Democrats should champion this vision of the future. 

*Note: We developed this projection using our Investment Heroes methodology, which analyzes 10K financial data to estimate U.S. capital spending as a share of global capital expenditures. For this analysis, we applied publicly available 2025 capital spending forecasts and recent earnings reports to our most recently published company estimates of domestic capital spending.

 

A Response to Proposed Moves to Restrict TikTok

Posted on by Max Sherrill

This past November, Canada’s Liberal government ordered TikTok to dissolve its Canadian business operations on November 6. The act does not remove the ability for Canadians to download or access the app, or post content, but presents a significant business disruption. TikTok has challenged this mandate, filing an application for judicial review with Canada’s federal court. 

This follows a more aggressive move by the U.S. Congress and the previous presidential administration to ban U.S. providers from providing hosting and other web services to TikTok, unless ByteDance divests from the app by January 19, 2025. Following a last-minute intervention by President Trump, TikTok was able to continue operating past the deadline but has still not returned to U.S. app stores and cannot be updated. Additionally, President Trump’s directive may be challenged in court and could fail before a more permanent solution is found. 

The similar moves by the U.S. and Canada follow similar justifications. TikTok is owned by ByteDance, a Beijing-based company. According to TikTok, 60% of the company is owned by global investors, 20 percent is owned by its founders, and 20% is owned by its employees. And while it may be owned by a Chinese-based company, TikTok itself is headquartered in Los Angeles and Singapore. But as a result of ByteDance’s association with China, governments across the world have expressed concerns that influence by the Chinese government, which yields wide unilateral authority to affect corporate operations in the country, could be used to force tweaks to its algorithm to advance subversive content or misuse sensitive user data. The data at TikTok’s disposal is vast: the app has become a global phenomenon and economic powerhouse, attracting over 1 billion users worldwide. Over 170 million Americans and 14 million Canadians use the app. 

This follows western relations with China growing increasingly tense in recent years. The West widely views the Chinese government as a foreign adversary, and American public opinion of China, for example, hit an all-time low in 2024. 

While moves to restrict TikTok may seem like low-hanging fruit for hawkish policymakers, the proposals to do so do not address the real concerns that apps like TikTok, but also social media apps broadly, present to user privacy and security.

First, while concerns over national security risks by a known foreign adversary can be legitimate, Canada, the U.S., and various other countries have yet to present definitive proof that TikTok has misused user data or made material platform changes at the behest of the Chinese government. At this time, the justification for the laws targeting TikTok has been speculation. 

As others have also pointed out, there is a broader concern in the TikTok debate about data privacy than just TikTok itself. TikTok, like many social media websites, collects and stores user data to reform its recommendation algorithms and ad targeting. However, as many have pointed out in opposition to the TikTok restrictions, this is not a unique feature of TikTok. All social media sites collect a plethora of user data for similar purposes. But if data privacy is the true concern, banning TikTok is only a small remedy to this issue that does not address the wider systemic need. Laws like Canada’s PIPEDA or California’s CCPA make progress on addressing this issue, but don’t go all the way to address the concerns laid out by data privacy activists.

Furthermore, TikTok is not uniquely vulnerable as a tool for the use of foreign interference. During the 2016 election, Facebook was used by Russian actors in an attempt to influence American public opinion on a large scale, and smaller attempts were made to use Google and Twitter for similar purposes. No evidence has been presented that TikTok has been used for foreign interference efforts.

TikTok serves as a lucrative platform for users, creators, and small businesses across the globe to build a virtual community. If users cannot access TikTok, they will simply move to alternative apps that can pose comparable or even more significant threats. We’ve already seen evidence of this movement in the wake of the U.S. TikTok ban. During the week leading up to January 19, U.S. downloads of RedNote — one of China’s most popular social media apps — nearly tripled, and over 700,000 new users joined the platform.

Outlawing TikTok in North America would have resounding economic and political consequences. According to an Oxford Economics report commissioned by TikTok, the app contributed over $24 billion to the U.S. GDP and $5.3 billion in tax revenue to the U.S. government in 2023. Presumably, a scaled impact on the Canadian economy and workforce would occur, too. If TikTok closes its operations in Vancouver and Toronto, hundreds of local jobs would be eliminated. Going after TikTok in North America not only has resounding economic repercussions — it is also an increasingly unpopular political position among voters. As of August 2024, only 32% of American voters supported a TikTok ban, falling from 50% in March 2023. 

Forcing TikTok to dissolve its operations or outright banning the app is a temporary solution to the broader data and national security issues nations across the globe are facing. Federal governments can maintain the economic benefits of TikTok and act in accordance with the political interest of their voters, while preserving national security and protecting user data by adopting comprehensive data privacy policies.

A Note on Korean Tech Policy

Posted on by Alyssa Brown

Korea has a vibrant tech sector, and a potent App Economy, led by companies such as Samsung, Naver, and Kakao. Korea is also a staunch ally of the U.S.

That’s why it’s particularly disturbing that the Korea Fair Trade Commission (KFTC) is working with Korean lawmakers on legislation that would impact particular U.S. tech companies. This action would make it more difficult for these companies to compete on fair terms with their Korean and Chinese rivals.

PPI believes in free trade, a principle that will come under pressure in the coming months. But we must remember that free trade implies fairness as well.

Missing the Mark: How the DOJ’s Google Antitrust Remedies Fail Consumers and the Economy

Posted on by Max Sherrill

The remedies proposed by the Department of Justice (DOJ) for the Google antitrust case, released on November 19, are a stunning example of prosecutorial overreach. DOJ antitrust chief Jonathan Kanter and his team went far beyond Judge Mehta’s findings, proposing to break up one of America’s most successful, innovative, and consumer-friendly companies.  

Indeed, the DOJ’s proposed remedies serve as an ironic post-election punctuation mark, emphasizing how the Biden Administration poured vast amounts of resources and attention into a case against Google that working Americans simply didn’t care about. Voters rightfully complained about the high price of food and homes, and voted that way. Tech firms were not on their list of major policy concerns, especially since tech was a low-inflation sector of the economy. 

Moreover, PPI’s analysis shows that rather than Google suppressing growth, the tech sector has been a powerful source of jobs during the pandemic and after. Since 2019, domestic tech employment has risen by some 700,000 workers, spread around the country, including significant job gains in states such as Colorado, Arizona, Pennsylvania, and Florida.  

Antitrust policy is not a popularity contest, of course. But if there’s one thing that the election teaches us, it’s that government actions have to serve the needs of ordinary consumers. And by that measuring stick, many of the proposed remedies from the DOJ fail miserably. 

For example, the DOJ would force Google to provide vast amounts of user and search data at a minimal cost to “rivals and potential rivals” — that is, anybody who asked — creating inevitable data security and privacy nightmares. No sane consumer would support a “remedy” that increases the exposure of their data. 

The DOJ would also require Google to divest Chrome and hobble Android in ways that would make these popular products less useful to consumers. These changes would be a disaster for ordinary users. 

DOJ’s ambitious and expansive remedy proposals serve as an illustration of how the Biden Administration missed the boat politically and economically. 

Antitrust regulators shouldn’t disassemble one of America’s engines of growth

Posted on by Alex Terr

The Department of Justice has presented its framework of sweeping potential remedies in the Google antitrust case, including “behavioral and structural” changes that go far beyond the specifics of the court’s findings.

But government antitrust regulators should be wary about disassembling one of America’s engines of growth. The information sector — of which Google is an important contributor — has performed amazingly well in recent years, accounting for more than a quarter of all private sector growth since 2019. Over the same stretch, the information sector also benefited customers by lowering prices while the rest of the economy was going through an inflationary surge.

Equally important, tech firms are America’s technological leaders in an increasingly competitive world, filling in the gap left by a lack of government funding for research and development.  Over the past ten years, inflation-adjusted U.S. R&D spending has risen by more than 60%. Virtually none of that increase in real R&D spending came from government. Ironically, the competitiveness-enhancing R&D gains have been almost totally driven by businesses such as Google, which invested a stunning $45 billion in R&D in 2023, more than triple a decade earlier.

In a 2022 report from PPI’s Innovation Frontier Project, “American Science And Technology Leadership Under Threat: Restrictive Antitrust Legislation And Growing Global Competition,” co-authors Sharon Belenzon and Ashish Arora of Duke University argue that:

“Antitrust regulations that reduce the size and limit the scope of tech firms weaken their incentives to make the large-scale, long-run investments in science and technology, vital for national security and economic prosperity….At a time when the United States critically depends on a handful of firms to pursue large scale research projects, such proposals would play into the hands of foreign rivals.” 

They further went on to conclude that:

“There is a close relationship between the incentives to invest in research and the scale and scope of the firm. Without the leadership of firms with substantial scale and scope, the full potential of general-purpose technologies may not be realized.” 

Antitrust regulators may be tempted to “fix” America’s engines of growth by disconnecting parts deemed to be unnecessary. But remember: The rest of the world looks enviously at the U.S. tech sector, which is running fast and investing for the future.

Closing the Digital Verification Divide

Posted on by Max Sherrill

Introduction

In the internet era, the digitization of government is essential for the efficient and fair provision of public services. From faster access to unemployment benefits and food stamps to easier taxpayer retrieval of IRS tax records, digitization has the potential to make federal and local government work better, especially for lower-income Americans who need its services the most. It is not an exaggeration to say that “making government work better” requires digitization.

But successful digitization of government was slowed until recently by several factors. First, the “digital access divide” meant that many low-income or rural Americans did not have good enough quality Internet to seamlessly make use of digital government services. As a result, digitization of government ran the risk of widening existing inequities. Moreover, government had to maintain non-digital legacy systems as well as the new digital means of access, driving up the expense of service delivery and undercutting potential cost savings.

True, the original digital access divide has been narrowing. Post-pandemic efforts to bring highspeed broadband internet to everyone, such as the BEAD program, are in the process of successfully reducing the obstacles to access.

However, government agencies face a more subtle but pervasive issue — what we call the “digital verification divide.” Verification is the process by which a user verifies that they are who they say they are. Verification includes identity proofing, in which an individual provides sufficient information (e.g., identity history, credentials, documents) to establish a trusted identity online. That’s a prerequisite for higher levels of authentication, which verifies the identity of a user, process, or device, in order to allow access to more protected resources in an information system.

The process of identity proofing and authentication is especially important when users are trying to tap into government systems that contain sensitive personal data, such as individual accounts at the Internal Revenue Service (IRS), the Social Security Administration (SSA), Federal Student Aid (.gov) or Veterans Administration (VA). If government agencies make verification too easy relative to the risk of the transaction, then the wrong people can get access to sensitive personal data. If agencies make verification too hard relative to the risk of the transaction, then it becomes more difficult for constituents to prove their identity, unnecessarily locking them out of services and data that they are entitled to.

A “digital verification divide” is created by two factors that make it harder for low-income and other Americans with sparse document trails to take advantage of digital government. One issue is that low-income and marginalized Americans are less likely to have bank accounts, mortgages, passports, or any of the accumulation of documentation that most people can use to establish their identity and help authenticate themselves for government systems.

The second issue in closing the digital verification divide is that the use of biometrics for identity verification has been mistakenly conflated with the use of biometrics for
surveillance and law enforcement, which poses a very different set of technological and implementation challenges. A typical identity verification system might use a face-matching algorithm that does a “1 to 1” comparison between an individual’s face and a particular government-issued ID. A law enforcement application, by contrast, might use a facial recognition algorithm that does a “1 to many” comparison between an individual’s face and a database of millions of potential matches.

National Institute of Standards and Technology (NIST) testing has shown a steady reduction in the errors from the sort of face-matching algorithms used for identity verification, with the top-scoring ones performing consistently across demographics. Nevertheless, the continuing debate over the use of biometrics in situations such as surveillance and law enforcement has made policymakers reluctant to mandate biometrics for identity verification.

Closing the digital verification divide should be an important goal of policy, both for equity and efficiency reasons. Enabling government to interact digitally with all citizens in a safe way is essential to move the government into the future. Unfortunately, that progress has been slowed by challenges facing “Login.gov,” the widely-used identity proofing and authentication system originally launched by the General Services Administration (GSA) in 2017. The GSA was faced with conflicting demands: On the one hand,
guidelines issued by NIST required a physical or biometric component to achieve a high level of assurance needed by federal agencies to ensure legitimate access to restricted information or accounts requiring identity verification. On the other hand, the GSA apparently felt pressure to stay away from biometrics.

The result: the GSA ended up significantly misrepresenting the capabilities of Login.gov to the agencies using (and paying for) the system, according to a report released in March 2023 by the GSA Inspector General. GSA officials claimed that Login.gov met NIST guidelines which required a physical or biometric component. But “Login.gov has never included a physical or biometric comparison for its customer agencies,” according to the report, titled “GSA Misled Customers on Login.gov’s Compliance with Digital Identity Standards.” Along the same lines, the Treasury Inspector General for Tax Administration came out in September 2023 with a report raising concerns about Login.gov’s ability to stop the types of fraud experienced by the IRS and other government agencies — though its deployment across agencies continues to expand.

This policy brief will examine new evidence about how government agencies on the federal, state and local levels can digitize without creating or widening a digital verification divide. First, we note that the digitization of government needs to both boost efficiency and promote inclusion in order to meet its goals. Second, the success of
digitization of government requires fair treatment to all individuals who need to log on remotely to public-facing government systems. In practice, this may mean following NIST guidelines that suggest providing an alternative video chat with a “trusted referee” for anyone who chooses and is verifying remotely. Finally, we conclude that with the availability of “trusted referees” or a similar alternative channel, biometric facial verification using leading NIST-tested algorithms can provide a high level of security and strong performance, while closing the digital verification divide.

In particular, an integrated system that includes both biometric face matching and the ability to verify users via alternative channels, such as video chat or in-person, can produce better access to digital government for low-income and other Americans with sparse document trails while limiting fraud. By contrast, an approach that relies only on online records is likely to be both less secure and less inclusive

Summarizing, this policy brief identifies and names a major roadblock to digitization of government on every level, and explains how following the NIST guidelines helps overcome those obstacles. Indeed, misguided opposition to biometrics as part of a well-constructed digital verification process has been slowing down effective digitization, and widening the digital verification divide.

Read the full report.

Lewis for Jacksonville Journal Courier: Federal boondoggles threaten our privacy

Posted on by Max Sherrill

By Lindsay Mark Lewis

With cyberattacks on the rise, our data privacy has never been in greater peril.

Illinois Attorney General Kwame Raoul’s work helping keep that information safe has been welcome, including his recent call for Meta to step up efforts to thwart hackers. Unfortunately, even with the best intentions, protections can go too far. And now we need his leadership to set things straight.

Keep reading in the Jacksonville Journal Courier.

Backdoors and Balance Sheets: The Consequences of Weakening Encryption on the Future of Work: Joint Report Launch with The McKell Institute

Sydney, Australia

As governments around the world have sought to regulate tech, security agencies have sought new ways to identify ‘backdoors’ into encrypted communications. But to what extent does this stifle innovation, harm Western economies, and serve as a template for autocratic regimes to do the same?

Join us in conversation with the McKell Institute as we delve into encryption and innovation as it relates to the future of work.

RSVP here.

Backdoors and Balance Sheets: The Consequences of Weakening Encryption on the Future of Work: Joint Report Launch with The McKell Institute

Melbourne, Australia

As governments around the world have sought to regulate tech, security agencies have sought new ways to identify ‘backdoors’ into encrypted communications. But to what extent does this stifle innovation, harm Western economies, and serve as a template for autocratic regimes to do the same?

Join us in conversation with the McKell Institute as we delve into encryption and innovation as it relates to the future of work.

RSVP here.

Duty-Free Cyberspace: Why the WTO Should Continue the E-Commerce Tariff Moratorium

Posted on by Max Sherrill

Washington, D.C. — As the World Trade Organization (WTO) prepares for its 13th Ministerial Conference late this February, its 164 members face a key decision — whether to renew a 25-year-old e-commerce tariff “moratorium” that helped create a “duty-free cyberspace” principle for the group in 1998 and has done so ever since. The 2024 world of 5.4 billion internet users, and an electronic commerce value likely approaching that of global GDP, may vastly differ from the 150-million-user experiments-with-email world of 1998, but as noted in a new PPI report, duty-free cyberspace is still at the foundation of the digital economy and still essential to policy.

Today, the Progressive Policy Institute (PPI) released a report titled “WTO E-Commerce Tariff Moratorium at 25,” which examines whether the WTO members should continue their current “moratorium” on imposing tariffs on (or otherwise taxing) electronic transmissions over the internet. Report authors Malena Dailey, PPI’s Director of Technology Policy, and Ed Gresser, PPI’s Vice President and Director for Trade and Global Markets, argue that the WTO members should continue this moratorium and outline the extensive policy reasons for why they should do so.

The report demonstrates the value of this moratorium for the growth of the digital economy overall, and for small businesses, individual creators, and entrepreneurs in particular. If the WTO members heed the authors’ advice, they will also help grow and develop the economies of lower-income countries, and simultaneously help the Biden administration achieve its goal of a more “inclusive” trading system.

“This commitment, simply by avoiding unintentional harm, would allow the digital economy to continue the natural growth that has helped hundreds of thousands of small businesses, and countless individuals, enter the global economy and find new ways to realize dreams and earn incomes,” said Malena Dailey.

“Abandoning the moratorium would be a sad mistake — for global progress, for innovation, and for the governments who are losing sight of larger growth and development opportunities in favor of potential tax revenues,” said Ed Gresser. “Duty-free cyberspace remains critical to all these things, and the WTO members should enthusiastically endorse it once again.”

Read and download the report here.

 

The Progressive Policy Institute (PPI) is a catalyst for policy innovation and political reform based in Washington, D.C. Its mission is to create radically pragmatic ideas for moving America beyond ideological and partisan deadlock. Learn more about PPI by visiting progressivepolicy.org. Find an expert at PPI and follow us on Twitter.

 

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Media Contact: Amelia Fox – afox@ppionline.org

WTO E-Commerce Tariff Moratorium at 25

Posted on by Max Sherrill

INTRODUCTION

Here’s semi-mythical classical sage Lao Tzu, with some poetic advice to authorities who long to fix things. Sometimes they’re not broken, and are best left as is:

“Those who would gain all under heaven by tampering with it — I have seen that they do not succeed. Those that tamper with it, harm it. Those that grab at it, lose it.”

Prosaic modern economists occasionally echo him, with the unexciting but sometimes correct advice: “Don’t just do something, stand there.”

As the World Trade Organization (WTO) prepares for its 13th Ministerial Conference late in February, both the ancient sage and the modern wonks are offering very good (if also very modest) advice on the most modern of all technologies: the internet and the world’s digital economy. If the WTO members take heed, they will help growth and development in lower-income countries, and simultaneously help the Biden administration achieve its goal of a more “inclusive” trading system that does more to create opportunities for the small and the less powerful “empowering small businesses to enter the market, grow, and compete.”

Read the full report.

Some Observations on Digital Advertising Prices

Posted on by The Progressive Policy Institute

One important focus in the current Google antitrust trial is the question of competition and prices in the digital advertising market. In a 2019 paper titled “The Declining Cost of Advertising: Policy Implications,” we examined long-term trends in the price of digital and print advertising, using data from the Bureau of Labor Statistics.

The paper showed that print media such as newspapers and periodicals had long boosted ad prices faster than the overall rate of inflation. For example,  from 1982 to 2010, the price of newspaper advertising quadrupled, while the GDP price deflator only doubled. In other words, the real price of newspaper advertising actually doubled over those three decades. Published prices for classified ads confirmed these observations.

The paper then showed that this trend shifted with the increased competition from digital advertising. The price of digital advertising, excluding ads sold by print publishers, fell sharply from 2010 through the beginning of the pandemic. Moreover, the share of GDP going to advertising was lower, suggesting gains for advertisers and consumers.

We now extend the analysis through 2022. Figure 1 compares the price of all advertising from 2010 to 2022 with the GDP price deflator over that period. We see that in this period of great expansion of digital advertising, the real price of advertising compared to other goods and services fell by 26%, as the nominal price of advertising fell by 2% while the GDP price deflator rose by 32%. Over the pandemic period 2019 to 2022, the overall price of advertising rose by 2%, while the GDP deflator rose by 13%, suggesting that the real price of advertising was still falling.

Table 1 looks at prices for individual components of advertising. We see that the price of Internet advertising sales, excluding Internet advertising sold by print publishers, fell by 27% from 2010 to 2022.  Meanwhile the price of television advertising, for example, only fell by 1%.

Our conclusion from this data is that the shift to digital advertising has generally been associated with a period of falling real prices for advertising, especially compared to the pre-digital period of rising real prices for newspaper advertising.

Two important caveats here. First, we do not know how well the BLS price indices reflect the full set of prices charged in the market.  Second, this analysis does not speak directly to the question of anti-competitive behavior in digital advertising. However, it does set the broader context.

 

Table 1.  Advertising Prices, 2010-2022
Percentage price change, 2010-2022
Internet advertising sales, excluding Internet advertising sold by print publishers -27.3%
Advertising space sales in newspapers -8.4%
Advertising space and time sales -2.2%
Radio advertising time sales -1.3%
Television advertising time sales -1.2%
Advertising space sales in periodicals 14.1%

Data: BLS

 

Ritz and Verral for The Hill: One year after the CHIPS Act, Congress is starving science

Posted on by Alyssa Brown

By Ben Ritz and Stephen Verral

Public investments in research and development (R&D) during the 20th century have powered many of America’s greatest advancements. However, federal funding for R&D has been declining over the past 50 years. Now, as Congress negotiates spending bills for the new fiscal year, investments in R&D are being further starved in an effort to reduce budget deficits. Although now is a time when the federal government should be unwinding the nation’s debts, cutting R&D funding is a shortsighted decision that will barely change the fiscal trajectory while hobbling America’s ability to innovate.

When Congress passed the bipartisan CHIPS and Science Act one year ago, it was supposed to herald a $200 billion increase in public R&D that reversed the long-term funding decline and prevented China from gaining a technological edge. But lawmakers failed to appropriate the funds needed to meet this target in Fiscal Year 2023 — and the outlook for 2024 is even worse.

Congress will return to Washington in September embroiled in a partisan standoff over spending. Extremists in the far-right Freedom Caucus are demanding massive spending cuts beyond those agreed upon in the debt ceiling negotiations earlier this summer. Included in the House GOP’s proposed appropriations bills are deep cuts to R&D investments in energy, agriculture, the environment, space exploration, and health and medicine. Only the defense sector will see an expansion of R&D funding.

Read more in The Hill.