issue: Economy

Recode: Google wants to prove its app business is just as good as Apple’s

Posted on by The Progressive Policy Institute

A PPI report on App Economy jobs is cited in this article from Recode.

Beyond flaunting the growth of Play, Google has another motive in highlighting the success of apps like Prune. It needs to convince regulators in Europe, who have opened an antitrust case against Android, that the operating system boosts other companies instead of thwarting them.

In its argument to regulators, Google is likely to point here, to a recent report from the Progressive Policy Institute. It claims that some 1.66 million app jobs emerged in the U.S. from the “app economy,” more than double the number from three years ago.”

Read the full article at Recode.

Argentina: The Road to the App Economy

Posted on by The Progressive Policy Institute

All around the world we are seeing the rise of the App Economy—jobs, companies, and economic growth created by the production and distribution of mobile applications (“apps”) that run on smartphones. Since the introduction of the iPhone in 2007, the App Economy has grown from nothing to a powerful economic force that rivals existing industries.

In this paper we examine the production and distribution of mobile apps as a source of growth and job creation for Argentina. We find that Argentina had roughly 33,250 App Economy jobs as of March 2016.

What’s more, Argentina has the potential to add many more App Economy jobs in the near future. With President Mauricio Macri taking office in December 2015, Argentina began the arduous process of regaining its economic stability after the country’s crippling debt disputes of the prior 15 years.

Macri has made some large strides in normalizing the economy such as lifting currency controls, removing several export taxes, and most importantly, settling the debt dispute. By reaching an agreement with the holdout bondholders, Ar- gentina has regained access to international financial markets, giving Argentines, as well as outsider investors, hope for Argentina’s return to economic stability.

Download “2016.05-DiIonno_Mandel_Argentina_The-Road-to-the-App-Economy”

Beware the Trump Inflation Balloon

Posted on by The Progressive Policy Institute

Since entering the presidential race, Donald Trump has been all over the economic map, with fantasy plans like getting Mexico to pay for a wall between the two countries.

But when Trump starts talking about how the U.S. never has to default because we “print the money,” he’s finally pointing to an economic strategy he could actually execute: The Trump ‘inflation balloon.’ If elected, Trump—the king of reneging on debt–would likely do everything he could to pump up the money supply. His goal: To create a rapid and unexpected inflationary surge that would transfer wealth from creditors to debtors.

Trump has already said that he would likely replace Federal Reserve Chairman Janet Yellen, as well as auditing the Fed and running bigger deficits. Taken together, President Trump could engineer an inflationary spiral with little difficulty compared to fixing basic economic problems.

Unexpected inflation makes it easier for debtors to pay back debt, especially when interest rates are fixed and the debt is in the national currency. As a result, in the short-term, the Trump inflation balloon would temporarily help the United States, the world’s biggest debtor country, and hurt China, Germany, and Japan, all creditor nations.

However, history shows that a Trump inflation balloon would end disastrously, sending interest rates soaring, impoverishing the next generation, and potentially leading to global conflict.

Politically, progressives need to be wary of the Trump inflation balloon. The idea of higher inflation will appeal to millions of Americans who have seen their student debt and auto loans soar by 81% since 2007, while their wages have stagnated. To a new graduate struggling to pay back a fixed-rate student loan, a burst of inflation would seem mighty attractive right now.

To fight back, progressive candidates need to stress the importance of growth and innovation for reducing the burden of debt. Rising real wages, propelled by higher productivity, would raise living standards for today’s voters and their children without the need to borrow.

By contrast, a Trump inflation balloon would bring the U.S. back to the 1970s, a time when the misery index—the inflation rate plus the unemployment rate—was sky-high. That would be a disaster.

Market Realist: What’s behind the US Economy’s Remarkable Labor Market Strength

Posted on by The Progressive Policy Institute

Rick Rieder cites a PPI report in this piece about the recent growth of the United States economy.

Technology (IGM) is not only one of the fastest-growing industries. It has also created millions of jobs. It’s an important enabler of innovative product development. For example, technology has led to the emergence of the new app economy, creating new jobs. A recent report from the Washington, DC, based Progressive Policy Institute said that the United States had 1.7 million app economy jobs in 2015—up from 750,000 in 2013.”

Read the article in its entirety at Market Realist.

The Productivity Growth Slump and The Case of the (Missing) Contact Lens

Posted on by The Progressive Policy Institute

Productivity growth in the United States continues to slump.  The latest numbers from the BLS show that multifactor productivity growth was only a tiny 0.2% in 2015.

In particular, gross medical productivity of the US healthcare system fell by 1.2% in 2015, according to PPI’s calculations.* That’s after two years of ticking up slightly.

Falling gross medical productivity implies that healthcare employment is increasing faster than the population, even after adjusting for the changing age mix. That’s not fiscally or economically sustainable over the long run, because it means that healthcare is absorbing more and more of the workforce, and leaving less for other productive activities.

Is this negative productivity trend going to continue? The good news is that innovation in pharma, medical devices, and apps has the potential for reducing the amount of excess labor costs in the healthcare system (see, for example, “The Folly of Targeting Big Pharma,” WSJ, December 10, 2015).

The bad news is that some groups of medical providers are looking to retain or even extend inefficient and costly practices by fighting back against new technologies and online delivery systems. For example, the trade group for optometrists recently filed what they called an “expansive” FDA complaint against a vision-texting app. This app would cut costs and save labor by letting people test their vision at home and send the data to a licensed ophthalmologist for a prescription.  Similarly, the optometrists also support a new bill in the Senate that would make it harder and more expensive for consumers to use valid prescriptions to buy their contact lens online, even at a time when more and more shopping is done via the Internet.**

The U.S. needs to embrace productivity growth in the healthcare sector if overall productivity and living standards are to rise for everyone. Hopefully 2015 will turn out to be a blip rather than a trend.

*Gross medical productivity is defined to be the age-adjusted population, divided by the number of workers in the broad healthcare sector, and benchmarked to 2009=100. The population is adjusted for the relative cost of health care at different ages. The broad healthcare sector includes private and public hospitals, ambulatory care facilities, nursing homes, pharma and medical device manufacturers, biotech companies, and health insurers.

Gross medical productivity is an easy-to-calculate measure of how well the health care system is using labor resources to treat the potential patient population. Labor is important because it accounts for a large share of the cost of health care. We use age-adjusted population as the numerator because any of us—no matter how healthy—can become an involuntary consumer of healthcare at any moment.

** PPI first wrote about this issue in 2001, in a policy paper entitled “The Revenge of the Disintermediated: How the Middleman is Fighting E-Commerce and Hurting the Consumer.”

CNNMoney: The economy needs a Cheerleader-in-Chief

Posted on by The Progressive Policy Institute

PPI President Will Marshall was quoted in an article on economic despair from CNNMoney‘s Steven A. Holmes.

In a recent AP poll, 54% of respondents described the economy as “poor.” In a new CNNMoney/E*Trade survey, a majority graded the economy as a “C” — or worse. In Gallup’s weekly survey, 60% of Americans said the economy was “getting worse,” the poorest rating given this year, and the worse since last August.

“The nation seems to be wallowing in a degree of economic pessimism,” said Will Marshall, president of the Progressive Policy Institute, a Democratic think tank.”

Continue the article at CNNMoney.

The Daily Beast – Clinton’s Key: Never Mind the Bernie Bros, Here Come the Swing Voters

Posted on by The Progressive Policy Institute

The nominating contest grinds on, but the Acela primary set the stage for a general election faceoff between Hillary Clinton and Donald Trump.

Trump’s solid majorities mean that GOP voters, in their inscrutable wisdom, have spoken, choosing a political neophyte who’s never held any public office, has no discernable governing philosophy, and whose campaign consists mainly of bigoted outbursts and vicious personal attacks on anyone who gets in his way.

In contrast, the Democratic center seems to have held. Bernie Sanders’ call for an anti-capitalist “revolution” enthralled millenials, but his dream of turning America into a European-style welfare state—a colossal Denmark—struck out with black and Latino voters, and with women, who preferred the pragmatic Clinton.

What’s more, Clinton now has a cause that can galvanize a campaign that’s been criticized for lacking passion and inspiration—saving America from Donald Trump. Although some diehard Bernie Bros may decide to sit out the November election, she should have little difficulty uniting her party around the goal of keeping the billionaire bully out of the White House.

Continue reading at the Daily Beast.

Brexit, Fintech, and the App Economy

Posted on by The Progressive Policy Institute

It is not our place to offer UK voters any suggestions for their Brexit vote, scheduled for June 23. Moreover, we see no reason to duplicate George Osborne’s widely-discussed analysis of the economic impacts of a vote for leaving the European Union.

Rather, we simply want to give our assessment of the United Kingdom’s current economic situation and prospects, assuming that the country stays in the EU. Start with the bad news. The UK is suffering from a severe productivity slowdown, which is dragging down growth and real incomes. But it’s not purely a UK problem—the same slowdown is hitting the U.S. as well continental Europe.

But the good news is that the UK is about to take advantage of its key position in the global economy.

The UK is the country best poised to take advantage of the reforms in the global tax system. The country is in the midst of lowering its corporate tax rate to 17% as of 2020, and has put into place a “patent box” that will attract research and development activity from higher-tax countries such as the U.S. and Germany. What’s more, the BEPS reforms from the OECD make it more difficult for multinationals to seek out tax havens without actually moving workers into those countries. As a result, the low-tax UK—with its network of connections to the rest of the world and attractiveness to skilled workers—will be increasingly appealing to global companies.

At the same time, the UK is establishing itself as a tech powerhouse. The information and communications sector now in the UK accounts for 4% of total jobs. That’s higher than the comparable 3.2% figure in the US.

Moreover, the UK has 321,000 App Economy jobs, first in the EU by a wide margin, according to PPI research. The UK also has  178,000 jobs in the Fintech Economy (these figures include a conservative estimate of spillover effects). London leads all EU cities with 136,000 App Economy jobs, way ahead of second place Paris. The city also has 109,000 Fintech Economy jobs, somewhat ahead of New York City and way ahead of Silicon Valley (based on our update of 2014 research).*

Currently the UK is benefiting from its dual status. On the one hand it is part of the European Union, giving it access to the continent’s markets and skilled workers. On the other hand, its historical ties to the US makes it the logical landing place for US multinationals. These economic advantages are not to be given up lightly.

As the world becomes more connected and our shared economic prosperity is related to global scale, investment from the US, Asia and other strong economic players need a friendly home inside the EU.  The UK is winning that race by a long mile–why would they quit now?

*This figure includes spillover jobs, making it not directly comparable to our 2014 figure for fintech jobs in London).

St. Louis Post-Dispatch: Need for high-tech workers is critical

Posted on by The Progressive Policy Institute

A PPI report on the growth of the tech economy was referenced in this piece from the St. Louis Post-Dispatch.

Thanks to growing companies like Citi, Enterprise, NISC, ESRI, Curas, BoardPaq and many others, St. Charles County is a strong part of the ‘Silicon Prairie’ in metro St. Louis and the Midwest,” Ehlmann said. “There are tremendous opportunities right now and for the foreseeable future for our residents to pursue lucrative careers in information technology or to pursue an entrepreneurial dream in IT.”

The Progressive Policy Institute ranked St. Charles County “one of America’s top 25 tech counties” in a 2015 report on high-tech job growth.”

Read the entirety of the article at the St. Louis Post-Dispatch.

The EU’s War on Google…and Itself

Posted on by The Progressive Policy Institute

On April 19, the head of the European Commission, Jean-Claude Juncker, admitted that the EU was “wrong to over-regulate and interfere too much.” Ironically, the very next day, the Commission’s office of competition issued a sweeping antitrust cased against Google. The complaint, filed by EU competition chief Margrethe Vestager, accused the search giant, among other items, of

requiring manufacturers to pre-install Google Search and Google’s Chrome browser and requiring them to set Google Search as default search service on their devices,  as a condition to license certain Google proprietary apps

The commission justified its case by saying that

this conduct ultimately harms consumers because they are not given as wide a choice as possible and because it stifles innovation.

I’m not an antitrust lawyer, so I’m not going to judge whether Vestager was right to bring this case under European law, or what her chances of winning are. But as an economist, this case is totally perverse. The likely impact if the EU wins its case: Higher prices for European consumers and small businesses, and slower innovation in areas such as the Internet of Things, where Europe has a potential competitive advantage.

Consider the current situation. Google spends enormous sums of money developing and upgrading its mobile operating system and apps, which are acknowledged as top quality. All of this intangible capital embodied in Android is effectively available, for free, to handset manufacturers, European consumers, app developers and small businesses, to use as they would.

From an economic perspective, it’s hard to beat free. In other words, the European economy, consumers, and workers get the full benefit of Google’s R&D spending on Android, without having to utilize scarce resources.  This has the benefit of spurring competition, app creation and smartphone use within Europe, and allowing the EU to keep up with the United States. Indeed, recent PPI research shows that Europe has 1.64 million App Economy jobs as of January 2016, almost as many as the United States. (PPI link)

Especially helped by Android are low-income consumers across the EU, who get a wide choice of inexpensive phones, if they want, with access to the full variety of Android apps. Indeed, the very market dominance that the complaint cites is the result of the success of Android in opening up the lower end of the smartphone market.  Fragmentation of the market will only have the effect of increasing prices in Europe, as manufacturers lose economies of scale.

Indeed, winning the case against Google is likely to divert Europe’s R&D spending, already lagging the US, away from innovation in the manufacturing/Internet of Things sector, where Europe can potentially take advantage of its strong manufacturing base to set new global standards. In that sense, this antitrust suit is at best a distraction, at worst a hindrance, to European long-term growth and job creation.

PPI Poll: Swing Voters In Swing States Hold Balance In 2016

Posted on by The Progressive Policy Institute

In this era of political polarization, it is tempting to assume the political center no longer exists. If this were true, it would certainly simplify things for political candidates and their strategists. They could stop worrying about how to persuade unaligned voters and concentrate exclusively on mobilizing their core partisans. However, this is not the case. As this new Progressive Policy Institute (PPI) poll by veteran Democratic pollster Peter Brodnitz shows, Swing voters exist, and they hold the balance of power in key 2016 battleground states. For Democrats especially, this survey yields a clear lesson: To hold the White House, recapture the Senate, and reduce the Republican House majority, candidates must craft messages that appeal beyond the party’s base to a substantial body of voters who are not in a fixed ideological camp.

This survey examined the outlook and attitudes of Swing voters in four critical Swing states: Florida, Ohio, Colorado, and Nevada. Constituting about a fifth of the electorate in those states, Swing voters come at today’s major challenges with a perspective different from that of either party. In general, they are less ideological, less partisan, and less angry than base voters. They are pragmatists who are focused mainly on economic growth and competitiveness.

Swing voters give low approval ratings to both parties in Congress, but slightly higher approval ratings to Democrats (32% approve, 59% disapprove), than to Republicans (28% approve, 65% disapprove). While Republicans give their own Members of Congress better marks than Democrats, Republicans in Congress are underwater among their own voters by eleven points (43% approve, 54% disapprove). Democrats, on the other hand, largely approve of the jobs their Members of Congress are doing (73% approve, 24% disapprove).

There is widespread agreement among battleground voters on a number of matters:

  • Most battleground voters rate the economy as fair or poor as opposed to excellent or good. They believe that improving the economy should be the priority, that moving jobs overseas is a key economic problem, and that increasing access to education and job training is essential.
  • Most of them also believe that America’s economy is still strong, and that if people work hard, they can get ahead.
  • Almost all believe it is essential that American companies can compete globally and that workers benefit from that competition and success.
  • While Democrats are the most likely to believe the United States is the strongest economic power in the world (81% agree), most Swing voters (58% agree) and Republicans (61%) hold this view.
  • Despite all the populist rhetoric deployed in both parties’ nominating contests, the voters we interviewed don’t seem particularly angry. Swing voters tend to be worried about the economy and Democrats tend to be optimistic, but few described themselves as angry.

Most believe global competition – more than trade agreements – is the force driving away jobs. There is little support among Swing voters for ending trade agreements, and most believe the benefits of trade agreements outweigh the costs.

  • Almost all believe “most” Americans are not prepared for retirement.
  • Almost all believe increased investments in infrastructure, like roads and bridges, would improve the U.S. economy.

In general, Swing voters are attracted to new ideas for stimulating growth — regulatory improvement, low corporate taxes intended to increase competitiveness and keep jobs from moving overseas, and a robust career pathways system that’s always there to help workers acquire marketable skills.

 

Download “2016.04-PPI-Poll_Swing-Voters-in-Swing-States.pdf”

The Daily Beast: Donald Trump and Bernie Sanders Are Delusional on Trade Policy

Posted on by The Progressive Policy Institute

In this campaign season of populist anger and demagoguery, bad ideas are bubbling to the surface like marsh gas. Among the worst is protectionism, which would wreak havoc on a U.S. economy that’s finally picking up steam.

Both Donald Trump and Bernie Sanders have seized on trade as a convenient scapegoat for the nation’s economic woes. There’s deep irony here. The popular frustrations on which they feed stem mainly from the productivity and wage slump America has experienced since 2000. Yet their proposed fix—shredding international treaties and walling off the U.S. economy—is a textbook formula for economic stagnation.

It’s a perfect negative feedback loop. And it won’t be the “one percent” who suffer if the populists get their way; it will be U.S. companies with global supply chains and millions of middle-class American workers and consumers.

Continue reading at The Daily Beast.

U.S. News & World Report: The Weapon Against Inequality That 2016 Forgot

Posted on by The Progressive Policy Institute

If the democratic candidates are serious about combating inequality, they should start by embracing education reform.

For education reformers, the 2016 presidential primaries have been a wasteland. The Republican circus has produced many memorable moments, but few if any have touched on education.

Even on the Democratic side, education has been virtually invisible. The major issue is rising inequality, and public education has long been our society’s major instrument to combat that problem. Yet neither of the candidates has said anything positive about the one strategy that has made a real difference for low-income children: charter schools.

Reducing inequality without reforming our education system is probably impossible, because the tide is flowing so strongly in the opposite direction. Twenty-five years ago only a third of public school students were low-income (eligible for a free or reduced-price lunch). Today, for the first time since the data has been compiled, a majority are low income.

Read more at U.S. News & World Report.

PRESS RELEASE: PPI Report: Tax Prep Chains Target Low-Income Workers

Posted on by The Progressive Policy Institute

FOR IMMEDIATE RELEASE
April 14, 2016

Contact: Cody Tucker, ctucker@ppionline.org, 202-775-0106,
or Steven Chlapecka, schlapecka@ppionline.org, 202-525-3926

PPI Report: Tax Prep Chains Target Low-Income Workers

Taxpayers eligible for the EITC spend as much as 22 percent of their refund to file

WASHINGTON—National tax preparation chains continue to exploit the working poor, many of whom spend a significant portion of a key federal anti-poverty tax credit—the Earned Income Tax Credit (EITC)—just to pay for filing their taxes, according to a report released today by the Progressive Policy Institute.

The report, coauthored by Paul Weinstein Jr., PPI Senior Fellow and Director of the Public Management Graduate Program at the Johns Hopkins University, and Bethany Patten, a policy and research manager at Excellent Schools Detroit, found that workers eligible for the EITC continue to spend large sums—averaging around $400—at national tax preparation chains.

In a recent survey of storefront operations in Baltimore and Washington, D.C., they found that those eligible for the EITC, who are typically low-income workers with children, would spend between 13 and 22 percent of their refund this year at local tax preparation outlets. In Baltimore, where the average EITC refund is $2,335, the cost to file ranged from $309 at H&R Block to $509 at Liberty Tax Service. In Washington, D.C., where the average EITC refund is $2,351, the cost to file ranged from $315 at H&R Block to $485 at Liberty Tax Service.

Additionally, Weinstein and Patten found that national tax preparation chains continue to target EITC filers by locating in areas where the largest numbers of EITC claims are made. ZIP codes with the highest level of EITC filers have approximately 75 percent more tax preparers per filer than moderate-EITC ZIP codes. The study found “a clear relationship” between the share of EITC filers in a ZIP code and the area’s saturation of tax preparation chains.

Lastly, government studies, as well as those by nonprofit organizations, consistently show a high error rate for returns filed on behalf of EITC beneficiaries by paid tax preparers. Two studies by the Government Accountability Office (GAO) found an error rate of 89 and 94 percent respectively. And last year the head of the GAO stated that in an analysis of IRS data, an estimated “60 percent of returns prepared by preparers contained errors.”

“These realities demand a public response. But proposals to further complicate the tax code in the name of reducing fraud would only make the problem worse,” write Weinstein and Patten. “Instead, U.S. policymakers should establish a national goal of reducing the dependence of low-wage workers on paid tax preparers. Specifically, this would mean taking steps to simplify EITC rules and requirements, by requiring all paid preparers to take competency exams, increasing access to free filing programs, and/or streamlining the federal income tax code in its entirety. A combination of these reforms would allow low-income workers to keep more of their tax credit while also raising standards within the paid tax preparation sector.”

The report follows up on a 2002 study by researchers at PPI and Brookings Institution, which found that tax preparations services, clustered in low-income neighborhoods, cost workers eligible for EITC refunds about $1.75 billion.

The Earned Income Tax Credit was established in 1974 as an anti-poverty measure. It has become the federal government’s largest safety net program, last year providing $66.7 billion to 27.5 million Americans. It is especially valuable to low- and middle-income workers, since it provides a direct credit against taxes owed rather than a deduction from reported income. It is also a refundable credit, meaning an eligible worker can receive a refund even if the credit exceeds what would have been his or her federal income tax liability.

Download, The Price of Paying Taxes II: How paid tax preparer fees are diminishing the Earned Income Tax Credit (EITC)

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The Price of Paying Taxes II: How paid tax preparer fees are diminishing the Earned Income Tax Credit (EITC)

Posted on by The Progressive Policy Institute

In 2002, researchers from the Brookings Institution and the Progressive Policy Institute (PPI) wrote a groundbreaking study entitled “The Price of Paying Taxes: How Tax Preparation and Refund Loan Fees Erode the Benefits of the EITC.” This report was one of the first to highlight the costly dependence of low-wage workers on national tax preparation chains. The study found that tax preparation and other services cost eligible workers an estimated $1.75 billion in Earned Income Tax Credit (EITC) refunds; that paid preparer services tended to cluster in low-income neighborhoods where large numbers of families claim the tax credit; and, that EITC recipients in Washington, D.C. paid, on average, 10 percent of their tax credit refund to paid preparers.

Subsequent studies by the federal government as well as private researchers have reaffirmed several of the findings from the Brookings and PPI research, while also highlighting other problematic aspects of storefront tax preparers. These include significant error rates on filings and a heavy reliance on EITC filings to generate revenue. Since the “Price of Paying Taxes” study appeared, the practice of charging exorbitant extra fees for filing EITC forms with returns has persisted and grown.

As a longtime advocate for making work pay—PPI called for dramatically expanding the EITC in its very first policy report in 1989—the Institute decided to revisit the 2002 study and take a fresh look at what it costs low-income workers to file tax returns. Our 2016 update yields three major conclusions:

  • Workers eligible for the EITC continue to spend large sums—averaging around $400—at national tax preparation chains. In a recent survey of storefront operations in Baltimore and Washington, D.C. we found that low-income taxpayers can expect to spend between 13 and 22 percent of the average EITC refund to file their taxes.
  • National tax preparer chains continue to target EITC filers by locating in areas where the largest numbers of EITC claims are made. Zip codes with the highest level of EITC filers have approximately 75 percent more tax preparers, formally referred to as Electronic Return Originators or EROs, per filer than moderate-EITC zip codes. Large tax preparer chains tend to cluster in high-EITC zip codes.
  • Government studies as well as those by nonprofit organizations consistently show a high error rate for returns filed on behalf of EITC beneficiaries by paid tax preparers. Two studies by the Government Accountability Office (GAO) found an error rate of 89 and 94 percent respectively. And last year the head of the GAO stated that in an analysis of IRS data, an estimated “60 percent of returns prepared by preparers contained errors.”

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Download “2016.04-Weinstein_Patten_The-Price-of-Paying-Takes-II.pdf”