Last month, prices fell to their lowest levels almost two years. The June Consumer Price Index (CPI) dropped to 3.0% annually–down from 3.4% the prior month—and is now on the verge of hitting the Federal Reserve’s inflation target of 2%.
Almost immediately after the release of the CPI data, Republicans warned the Federal Reserve not to cut rates prior to the election in November. After Fed Chair Jerome Powell testified before the Senate Banking Committee Senator Kevin Cramer (R-N.D.) argued that “I personally don’t think they should…anything they do before November would be rightfully—would raise the question of their own independence.”
But will the Fed heed the call from Republicans to keep rates at their current level when its Federal Open Markets Committee meets on July 31 and September 18? Based on past history, the answer is a resounding no (assuming economic conditions require action).
As donors and investors gather this week in Berlin for the Ukraine Recovery Conference, all eyes are on helping the besieged nation. In Mykolaiv, near the Black Sea, the Danish government assists by jump-starting local businesses, fighting corruption—and helping Ukraine shake off its Soviet economic legacy.
The damage is evident everywhere in Mykolaiv, once a bustling port and shipbuilding hub near the Black Sea, 85 miles east of Odesa. Russian and Ukrainian forces fought hand to hand in and around the city in March 2022, followed by eight months of relentless shelling by the frustrated invading army. In November, Ukrainian troops pushed the Russians out of range, and the invaders never made it to Odesa.
More than two years later, many of the windows in the working-class city are still covered with plywood. Parking lots are pocked with shell craters. There’s a gaping eight-story hole at the center of the empty regional administration building—a reminder of the missiles meant to assassinate popular Governor Vitalii Kim that killed 37 civil servants in late March 2022.
The city’s economic engine—the port—is idle. Russians still control the mouth of the channel that connects Mykolaiv to the Black Sea, and no cargo has come or gone since February 2022. The nearly 300-year-old town teems with displaced persons from southern Ukraine, but a quarter of the city’s prewar population of 480,000 has yet to return.
Although we at the Progressive Policy Institute (PPI) believe some modest relief from overly burdensome debt is warranted, we are concerned many of this rule’s provisions would provide generous windfalls to relatively affluent borrowers while providing little additional benefit for borrowers most in need. The rule also comes with a high cost to taxpayers — $147 billion by the department’s own estimates — yet has no offsets to pay for it, making it a clear violation of the Fiscal Responsibility Act’s administrative PAYGO provision. Proceeding with this rule as written would only worsen the existing bias that federal policy has towards the minority of young people who attend college, at the expense of the majority who do not yet will be saddled with the bill.
Founded in 1989, PPI – a 501(c)(3) think tank – is a force for radically pragmatic innovation in politics and government. Our mission is to develop a new progressive blueprint for change that can help center-left parties broaden their appeal and build stable governing majorities. PPI has been a prominent voice in fiscal policy through our Center for Funding America’s Future, which works to promote a fiscally responsible public investment agenda that fosters robust and inclusive economic growth. The Center has played a critical role in shaping fiscal policy debates around key legislation over the past five years and has been extremely involved in the national college affordability discussion.
In a previous comment, we applauded the administration’s efforts to expand and improve upon income-driven repayment programs, which we believe are the best mechanisms to help borrowers who are burdened by the debt of pursuing degrees from which they did not ultimately benefit. But we also warned that the Department’s SAVE plan was overly aggressive in scope, leading to the typical college graduate paying back only three fifths of what they initially borrowed — and not a dollar of interest. Providing such a generous subsidy is profoundly unfair to the majority of American taxpayers who didn’t attend college and are being asked to foot the bill for people who did, despite earning lower average incomes than them. Even worse, it is likely to further inflate the already high costs of college by incentivizing universities to hike tuition rather than control costs.
PPI is concerned that the current proposed rule would compound these mistakes. The rule’s most expensive provision, the cancellation of accumulated interest, will mostly benefit wealthy professionals while being redundant for low-income borrowers struggling with high debt burdens. Enrolling the SAVE plan already prevents borrowers with large loan balances and lifetime earnings equal to or below those of the average college graduate from having to pay any interest. But borrowers who enhance their future earnings by taking on large debts, such as lawyers, doctors, and other professional degree holders, will reap a significant windfall that they should not get if this rule is finalized as proposed. Currently, the rule proposes to cancel up to $20,000 of interest for those on standard repayment and an unlimited amount for those enrolled in IDR. We urge the department to set this interest cap as low as possible for all borrowers to limit these regressive impacts.
We are similarly concerned about the provision to forgive all loans after 20-25 years. Those enrolled in IDR plans even before the SAVE plan was enacted were on track to have their balances forgiven after 20-25 years of making the required payments. If someone is paying back student loans for more than 25 years, they are likely a professional degree holder with a large debt balance who has chosen to structure their repayment plans over a longer period of time. Giving forgiveness to a relatively affluent group in the last few years of their repayment is unnecessary and arbitrary, especially when the most vulnerable borrowers already benefit from a similar policy.
We are more sympathetic towards the provision providing relief to borrowers who attended low-value educational institutions. These students are most likely to be burdened by the debt of pursuing a degree from which they did not financially benefit. We applaud previous rulemaking from the department targeting these often fraudulent institutions, forcing them to transparently disclose the financial value they provide for students, cutting off future federal aid, and closing them if necessary. But we encourage the Department to work with Congress to ensure the costs of canceling this debt are borne by these predatory institutions as much as possible rather than asking taxpayers to foot the bill.
The administration has already spent more than $600 billion of American taxpayer money on executive actions to cancel student loan debt, most of which belonged to individuals with above-average lifetime earnings, without explicit approval from Congress. We urge the Department to work with lawmakers on developing progressive reforms to the SAVE plan, greater accountability for educational institutions, and other common-sense reforms to control the cost of higher education rather than pursuing more unilateral debt cancellation schemes.
Even in the absence of congressional action, we also encourage the Department to keep the above concerns in mind when developing their proposed regulations on “waivers for hardship,” as is mentioned to be forthcoming in the proposed rule.
Richard Kahlenberg, director of the American Identity Project at the Progressive Policy Institute, said the shift away from race could help the MBDA focus more on socioeconomic status. But, he said, using a form to establish applicants’ disadvantage probably will not help the agency accomplish its goals, and he suggested the agency adopt an essay-writing process similar to universities and the SBA to help it focus on an individual’s need.
Kahlenberg, who testified for the plaintiffs in the Harvard case, has long criticized race-based affirmative action, arguing instead for a class-based approach.
“If you care about racial diversity, as I do, you want to find fairer ways to get to the same result,” he said.
“And it’s precisely because of the nation’s history of discrimination and the ongoing realities of discrimination by race that communities of color will disproportionately benefit from a needs-based approach to affirmative action,” he added. “And there’s no constitutional problem with that.”
During the inflationary surge of 2021-2022, PPI demonstrated that the inflation rate for digital goods and services was lower than the inflation rate for “physical-economy” goods and services such as food, energy, and housing. In the digital sector, price increases were moderated by faster productivity growth and higher investment rates. In particular, key digital sectors such as broadband and ecommerce did not experience the sort of capacity squeeze which drove up prices in other parts of the economy.
The Federal Trade Commission, however, takes the direct opposite position. In its antitrust complaint against Amazon, the FTC argues that Amazon is behaving in a way that drives up online prices — not just for Amazon, but for other online sellers. The FTC writes:
Amazon’s conduct causes online shoppers to face artificially higher prices even when shopping somewhere other than Amazon.
Amazon deploys a series of anticompetitive practices that suppress price competition and push prices higher across much of the internet by creating an artificial price floor and penalizing sellers that offer lower prices off Amazon.
In order to justify its claim of Amazon monopoly power, the FTC paints an odd picture of high and rising online prices relative to brick-and-mortar prices. In particular, the FTC’s complaint would imply that online inflation is higher than brick-and-mortar inflation.
What does the data show? To answer this question, we analyze private sector and government data from Adobe, the Bureau of Labor Statistics, and from the Census Bureau. Each of these have shortcomings, but together they tell a consistent story of online prices rising slower than offline prices.
We start with the Adobe Digital Price Index (ADPI), which tracks online prices for 18 different categories of goods, including books, groceries, electronics, pet products, and apparel. This index goes back to 2014, but we focused on the period since 2019, when the FTC’s argument would suggest that any potential Amazon effect on prices would be larger.
We matched inflation in 16 of the 18 ADPI categories with comparable categories in the BLS Consumer Price Index, which is mostly weighted towards brick-and-mortar sales. We found that the median online price increase was 3.1% for the four years ending December 2023. Over the same period, the median price increase across the comparable 16 BLS categories, including mainly brick-and-mortar sales, was 10.4%.
For example, in the category of appliances, the ADPI showed a price increase of 1.6% from December 2019 to December 2023, while the CPI showed a price increase of 9.3%. In the category of personal care products, the ADPI showed a price increase of 7.2%, compared to a 10.8% price increase for the CPI. And in the category of sporting goods, the ADPI showed a price increase of 4.4%, compared to a 9.9% increase for the CPI.
True, there are some categories where online prices have risen faster than the comparable BLS CPI index. For example, online apparel prices rose by 8.7% according to the ADPI, compared to 5.6% in the CPI. But overall, online prices rose slower in 10 of the 16 categories.
We now look at a different data set from the BLS, the producer price indexes for retail trade. These price indexes measure trade margins—that is, the difference between the acquisition price of a good and the sale price to consumers. If margins are expanding faster in a particular retail industry, that is a sign that prices to consumers are increasing faster than the acquisition price of good.
Through December 2022, the BLS published a margin price index for “electronic and mail order shopping.” That margin only rose by 3.2% from December 2019 to December 2022. Over the same period, the margin price index for general merchandise stories — including department stores and big box retailers such as Walmart and Target — rose by 24.2%. This sort of disparity is not consistent with the FTC’s story of online prices increasing faster.
Finally, we look at the Census Bureau’s data on e-commerce spending as a share of total retail sales. Before the pandemic, the ecommerce share was rising at just under 1% per year. It obviously jumped during the pandemic, but then levelled off to 15.4% in 2023 (figure).
Based on pre-pandemic trends, we would have projected the ecommerce share to be 14.2% in 2023 and 15.0% in 2024 (the dashed line in the figure). To put it a slightly different way, the Census Bureau data suggests that the pandemic ended up moving the shift to ecommerce by only 1 year, or 1 percentage point.
This behavior is inconsistent with the FTC’s argument that online price inflation is higher than offline inflation. Higher online inflation, as the FTC claims, would have driven up the ecommerce share higher rather than lower, because consumers would have been spending more for the benefits of buying online. (To be a bit technical here, this conclusion also requires a low cross-price elasticity of demand between online and offline markets, which the FTC has already implicitly assumed in its complaint).
Indeed, the stagnation of the ecommerce share since the pandemic is more consistent with online inflation being slower than brick-and-mortar inflation, thus holding down ecommerce spending.
Let’s be clear: The data analyzed here are not perfect. Our analysis does not rule out the possibility that online prices basically track offline prices. Consumers are not dumb, and there’s nothing holding them back from buying at their local Target or Walmart rather than Amazon if particular online prices veer higher, or shift back to online purchases if offline prices go up. But the weight of the evidence suggests that online inflation has been lower than offline inflation across this period.
With the creation of a new ESG Oversight Committee, Arkansas has made a substantial shift in the state’s changing investment and sustainability landscape. The committee was fully formed last month when Governor Sarah Huckabee Sanders appointed Tom Lundstrom as the committee’s fifth and final member. This committee is charged with identifying financial service providers who are thought to discriminate against certain traditional value industries (fossil fuels, ammunition, etc.) based on ESG-related considerations under last year’s House Bill 1307, which is now Act 411.
The committee’s judgments will have a significant impact on Arkansas’s investment climate and economy as it advances, with noteworthy deadlines for delivering its preliminary and final lists of these financial providers. The recently released report, “The Potential Economic and Tax Revenue Impact of Texas’ Fair Access Laws”, conducted by the Texas Association of Business Chambers of Commerce Fund (TABCCF), is an important source the Arkansas committee should review in order to understand the possible harm that comparable anti-ESG legislation has caused states who have chosen to inject politics into their decision making.
According to the TABCCF study, during 2022-2023, the Texas anti-ESG legislation resulted in an estimated:
$668.7 million lost in economic activity.
$180.7 million in decreased annual earnings.
3,034 fewer full-time, permanent jobs.
$37.1 million in losses to State and local tax revenue.
The study asserts: “These findings illustrate that when government attempts to mandate values, no matter what kind to businesses, the market loses.”
The report is built on earlier work included in a 2023 study titled “Gas, Guns, and Governments: Financial Costs of Anti-ESG Policies,” by Drs. Ivan Ivanov of the Federal Reserve Bank of Chicago and Dan Garrett of the University of Pennsylvania. The study looked at certain organizations that were thought to be boycotting due to their affiliations or fiduciary decisions that have been expelled or removed from the municipal bond market.
Their resulting analysis: this legislation did, in fact, limit competition in the public finance sector, raising interest rates by 0.144 percent.
Thanks to its pro-business environment, Texas now has the eighth-largest economy in the world. Less competition in the municipal bond market, however, is driving up interest rates, which puts more strain on local governments’ finances and adds to the costs borne by Texas taxpayers.
If that wasn’t enough, the underlying political effects of these politically driven policies continue to rear their head. Just this week, Aaron Kinsey, the Chair of the Texas State Board of Education (SBOE) announced the Texas Permanent School Fund Corporation divest approximately $8.5 billion of assets BlackRock currently manages for them – a move that will undoubtedly further increase costs while reducing returns for Texas schools.
This action, which allegedly came without a formal board vote, quickly upset Kinsey’s fellow SBOE board members. “We just can’t divest from them overnight. They’re very good moneymakers for us,” Republican SBOE board member Pat Hardy said of BlackRock, concluding, “They’ve been really good. They’ve been one of our main investment people for, gosh, 15 years.”
Given this context, Arkansas is presented with a cautionary tale that highlights the necessity for thoughtful assessment to prevent deterring business investments in the state and jeopardizing fund performance for political theater.
The position taken on this matter by the Arkansas Teachers Retirement System (ATRS) highlights the financial implications and practical difficulties associated with enacting a narrow boycott list. ATRS has emphasized that three BlackRock-managed funds, which have over $1.2 billion invested in them, do not exhibit bias against the energy, fossil fuel, weapons, or ammunition businesses. This disclosure is crucial because it demonstrates the system’s all-encompassing approach to guarantee that its investment managers respect Arkansas’s ESG standards while also being in line with the members’ financial interests.
Given the possibility of major financial ramifications, the Arkansas ESG Oversight Committee’s next judgments should be approached with prudence. The ATRS warning highlights the conflict between political goals and practical economic considerations on the potential costs of divesting from financial services companies—should they end up on the boycott list. Divestment of this kind might cost retired teachers in Arkansas alone at least $6 million.
The larger lesson is evident as Arkansas proceeds: establishing an ESG-related boycott list in a transition economy has complicated ramifications for retirees and private investors alike, in addition to the state’s budget and broader economy. The combination of ATRS’s proactive actions and Texas’ experience serves as a crucial reminder of the necessity for a nuanced, balanced approach that protects the interests of all parties involved. It will take careful thought and, most importantly, a clear understanding of the lessons gained from other jurisdictions to ensure that Arkansas maintains its inviting status for businesses.
Despite a strong economy and higher wages, many Americans continue to feel worse off than before the COVID-19 pandemic. One reason is that though the consumer price index has dropped from 9.1% in June 2022 to 3.1% in February 2024, consumer purchasing power has declined by one-fifth over that same period.
To help Americans make ends meet, the Biden administration has launched a Junk Fee Initiative, designed in large part to illustrate that government is working on the citizenry’s behalf to combat hidden charges — all the little line items that aren’t mentioned when a company tries to hook a consumer — but that consumers are compelled to cover when the final bill comes due.
Broadly overlooked in the initiative, however, is the reality that private businesses aren’t exclusively responsible for these annoying fees Americans pay — nonprofits, in particular colleges and universities, are often just as guilty. And if the Consumer Financial Protection Bureau, charged by the White House with running the initiative, wants to burnish the government’s reputation with its Junk Fee Initiative, it should take a hard look at what America’s institutions of higher learning charge students and families beyond the rising cost of tuition.
A MINORITY POINT OF VIEW: One of the big questions about the big tax negotiation of 2025, perhaps somewhat counterintuitively, is how narrow it might be.
That’s because Republicans largely want to preserve all of the individual provisions from their 2017 tax law, while President Joe Biden repeatedly has vowed not to raise taxes on any households making less than $400,000 a year.
Other Democrats haven’t really pushed to dissuade the White House from that position, though it’s clearly also quite possible that Donald Trump will be in the Oval Office for those 2025 talks.
In any event, Ben Ritz of the Progressive Policy Institute is out with a new paper arguing that Democrats should get rid of that pledge, even if it means that more middle-income people pay more in taxes.
There are fiscal reasons for that, according to Ritz, who argues that deficits currently at an unsustainable path, with long-term mismatches between spending and revenues that will require higher taxes on more than just the wealthiest.
But it’s not just a numbers issue either, Ritz maintains — a government where the very few end up providing the money to pay for a wide range of services just won’t work over the long haul, because those who aren’t providing the resources won’t care enough about whether those services are needed or well run.
“Pragmatic progressives must pressure the Biden administration to soften the president’s misguided tax pledge heading into a potential second term. They must start making the case to voters why progressive programs are worth paying for,” Ritz writes.
The aftermath of the COVID-19 pandemic and the combination of advancing technology have brought about a major shift in the workplace. Between February 2020 and August 2023, the number of employed Americans with disabilities soared by 33% or 1.9 million. By comparison, the number of employed Americans without disabilities rose by only 1%, or 1.5 million. In other words, workers with disabilities account for 57% of the increase in employment since the beginning of the pandemic.
Today, the Progressive Policy Institute (PPI) released a new report “Disability and Changes in the Workplace,” analyzing available data and discussing how the changing environments from the pandemic allowed workers with disabilities to find job opportunities that are a good match for their needs.
Report author Dr. Michael Mandel, Vice President and Chief Economist of PPI, describes how the rapid adaptation of businesses to “work from home” during the pandemic allowed workers with disabilities to operate from a more congenial or accommodating environment. At the same time, advancing technology has also lowered the barriers for Americans to access forms of independent, flexible work, like gig-economy delivery and ride-sharing platforms, that can be better suited to workers with unpredictable challenges such as those related to fatigue, chronic pain, or mental health issues.
“The United States is experiencing a major change in the workplace — leading to increased opportunities and careers for Americans with disabilities,” said Dr. Michael Mandel. “Policymakers and employers alike have an important role to play to ensure that work can remain flexible and accessible for all Americans, and continue to find novel ways to approach working.”
Read and download the full report here and read more about how remote work has fueled the surge in jobs for workers with disabilities in The Messenger.
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.
After his election as House speaker, Mike Johnson said one of his top priorities was the creation of a bipartisan commission to tackle the national debt. It’s a good idea that nearly 70% of voters in both parties support. In September, Reps. Scott Peters (D., Calif.) and Bill Huizenga (R., Mich.) introduced the Fiscal Commission Act of 2023, and 198 House Republicans voted for it as part of a government funding bill. Here’s why Democratic congressional leaders and the Biden administration should join the push:
Deficits are undermining the Biden economy. In the past year, the real federal budget deficit more than doubled, from $933 billion to $2 trillion. Democrats rightly argued that spending borrowed money was a critical economic support during the Covid pandemic. But the unemployment rate the over past year has been consistently lower than any point since the 1950s.
Economists, even those on the far left who subscribe to “modern monetary theory,” agree that increasing deficits in a tight labor market fuels inflation. Voters’ frustrations with inflation and the interest-rate hikes implemented to bring it under control exceed their appreciation for low unemployment, fueling disapproval of President Biden’s economic record. Deficit reduction is more important than it has been at any other time in the 21st century.
Debt-service costs crowd out progressive priorities. Annual interest payments are already at their highest level as a percentage of gross domestic product since the 1990s. By 2028 the government is projected to spend more than $1 trillion on interest payments each year—more than it spends on Medicaid or national defense. Worse, the U.S. may be entering a vicious circle whereby higher deficits increase debt and fuel inflation, which the Federal Reserve must combat by raising interest rates, causing debt-service costs to balloon further.
This week, the Progressive Policy Institute (PPI) hosted an event celebrating the release of PPI’s annual report “Investment Heroes 2023.”New Democrat Coalition Chair, Representative Annie Kuster (NH-02) provided closing remarks on the importance of investing in America’s workforce.
“New Dems believe that American businesses are the key to providing the jobs and opportunities necessary to strengthen our economy and improve hardworking families’ lives,” said New Democrat Coalition Chair Annie Kuster (NH-02). “It’s heartening to see the work U.S. companies are doing to support their workers, create opportunities, and grow the economy. In Congress, New Dems are committed to continuing our work with the private sector to address the challenges facing our nation and to build a better economy for all communities.”
Prior to Representative Kuster’s remarks, Taylor Maag, Director of Workforce Policy and the New Skills for a New Economy Project at PPI, hosted a panel featuring Simone Drakes, Managing Director of Calibrate at United Airlines; Sandy Gordon, VP of People, Experience, and Technology at Amazon, and Ryan Keating, Director of Government Relations at Duke Energy. The panel spoke on the importance of upskilling and investing in the economic advantage of American workers, providing additional training opportunities for current employees, and how to recruit and retain a diverse workforce.
“Employers like Amazon, Duke Energy and United Airlines demonstrate the importance of private sector investment in human capital — especially workforce development. These three companies, all on PPI’s Investment Heroes list, are investing not only in their current workers but in future workers to ensure they are building strong talent pipelines to in-demand jobs. It’s clear these industry leaders are committed to not only maintaining their competitive edge but ensuring more workers share in the economic opportunities their companies have to offer,” said Taylor Maag.
Investment Heroes is an annual report published by PPI since 2012 and analyzes publicly available data to identify the top 25 U.S. companies investing in America, powering job growth, and raising living standards. The theme of this year’s Investment Heroes report is the recovery of the U.S. capital investment from the shock of the COVID-19 pandemic and the benefits these investments provide to workers.
The Progressive Policy Institute (PPI) is a catalyst for policy innovation and political reform based in Washington, D.C., with offices in Brussels, Berlin and the United Kingdom. Its mission is to create radically pragmatic ideas for moving America beyond ideological and partisan deadlock. Learn more about PPI by visiting progressivepolicy.org.
Today, the Progressive Policy Institute (PPI) released its annual report “Investment Heroes 2023.” The report, published annually since 2012, analyzes publicly available data to identify the top 25 U.S. companies investing in America, powering job growth, and raising living standards. The theme of this year’s Investment Heroes report is the recovery of U.S. capital investment from the shock of the COVID-19 pandemic and the benefits these investments provide to workers.
Eight of the top 10 companies on this year’s ranking are in the technology, broadband, or ecommerce industries, with Amazon leading the list, investing $46.5 billion in the United States in 2022. Report authors, Dr. Michael Mandel, Vice President and Chief Economist at PPI, and Jordan Shapiro, Director of the Innovation Frontier Project at PPI, analyzed capital spending in “high-investment” sectors and compared the spending levels for the same companies in 2019. Their analysis found that the great majority of companies on the Investment Heroes list have high and growing levels of domestic capital investment, compared to before the pandemic.
“Since our first Investment Heroes report in 2012, the companies featured on the list have drastically changed. Back then, only one out of the top 10 companies was in the tech/internet sector. Fast forward to 2022, and we’ve seen new companies rise to the top of the list because of innovation and growth,” said Dr. Michael Mandel. “The dramatic evolution of the Investment Heroes list shows the ever-changing competitive nature of the U.S. economy.”
PPI’s analysis found that capital investment is associated with massive job creation. Between 2019-2022, our high-investment sectors added 1.3 million net new jobs, more than the entire rest of the private sector put together. Not only that, but many companies are investing back into training and education for their employees and new workers.
“The 2023 Investment Heroes list and analysis show it is important to recognize not only what companies are investing in America, but also what companies are investing in workers,” said Jordan Shapiro.
The 2023 top nonfinancial companies by estimated U.S. capital expenditure:
The Progressive Policy Institute (PPI) is a catalyst for policy innovation and political reform based in Washington, D.C., with offices in Brussels, Berlin, and the United Kingdom. Its mission is to create radically pragmatic ideas for moving America beyond ideological and partisan deadlock. Learn more about PPI by visiting progressivepolicy.org.
The theme of this year’s Investment Heroes report is the recovery of U.S. capital investment from the shock of the pandemic and the benefits for workers. Every year, the Progressive Policy Institute (PPI) analyzes the financial reports of large U.S. companies and ranks them by their capital investment in the United States. Eight of the top 10 companies on this year’s Investment Heroes list are in tech, broadband, or e-commerce industries. Amazon is at the top of the list, investing $46.5 billion in the United States in 2022, according to estimates by PPI. Next comes Meta, Alphabet, AT&T and Verizon, followed by Microsoft, Intel, Walmart, Comcast, and Duke Energy.
All told, the 25 companies in the Investment Heroes list invested $324 billion in the U.S. in 2022 (Table 1).
But it is not simply that the companies on the list invest the most in the U.S. — they also show faster recovery from the pandemic. Since 2019, domestic capital expenditures by the 25 companies on this year’s list has risen 38%, without adjusting for inflation. By comparison, overall nonresidential investment as measured by the Bureau of Economic Analysis rose by only 15% over the same period, also without adjusting for inflation.
And while this report focuses only on U.S.-based companies, the difference was not being made up by money from abroad. New direct investment by foreign companies in the U.S. actually fell by 20% from 2019 to 2022.
The domestic capital investment by the companies on the list is the lifeblood of the economy, producing job and income gains, and setting the country on a path to a greener future. It ranges from e-commerce fulfillment centers employing thousands of workers at good wages, to data centers supporting small businesses across the country, to 5G and broadband networks linking rural areas, to factories building batteries for the next generation of electric vehicles, to new fabs, to new fuel-efficient planes.
It should be noted that the financial data we use for our list focuses mainly on spending on structures and equipment — what’s known as tangible investment. But the government’s definition of investment includes key intangibles such as software and research and development. Very few companies report software spending, and not all companies break out their R&D expenditures. But the ones that do tend to show big gains. For example, Alphabet boosted its spending on R&D by more than 50% from 2019 to 2022, compared to a 32% gain in overall private R&D spending. Apple showed a 62% increase in R&D spending from FY 2019 to FY 2022. General Motors increased its R&D spending by 44%. Such increases fuel new product development and innovation, which shows up as faster growth going forward.
From the perspective of policy, it’s worth comparing the U.S. capital investment performance during the pandemic years with Europe’s. Europe has consistently adopted a more aggressive regulatory stance. Has it paid off in the form of higher investment?
The short answer is no. When the European Investment Bank (EIB) did its comparison of U.S. and European investment spending in a February 2023 report, it focused on a measure called “non-construction investment” — basically machinery, equipment and intellectual property assets such as software and R&D. Using the EIB’s methodology, we calculated that nonconstruction investment in the United States rose by 20% from 2019 to 2022, compared to only 12% in the European Union. Overall, the EIB study finds a widening gap between the US and Europe in terms of productive investment.
Before we dive into the details of this year’s study, it’s worth taking a long-run perspective. Our first Investment Heroes report, released in 2012, tracked 2011 domestic capital spending. Five out of the top ten companies that year were energy companies. The only tech company in the top ten was Intel. Google and Apple were 24 and 25 on the list, respectively, and Amazon was nowhere to be found. Neither was Microsoft or Meta. It was a completely different list.
Figure 1 shows the full history of aggregate capital spending of the Investment Heroes list on a year-by-year basis (right axis), plotted against annual U.S. nonresidential investment (left axis). From 2011 to 2017 the two figures rose by the same amount, 36% without adjusting for inflation.
But after 2017, the situation changed. The companies on the Investment Heroes list began driving national capital expenditures. From 2017 to 2022, domestic capital expenditures by PPI’s Investment Heroes rose by 75%, compared to 29% for the BEA’s nonresidential investment figures.
The key leader was Amazon. In the five years ending with 2022, the company invested the staggering sum of $162 billion in the United States, creating hundreds of thousands of jobs in the process and creating massive gains in consumer welfare.
But it wasn’t simply Amazon. Table 2 sums our 2022 Investment Hero estimates into seven economic sectors: tech/ internet; broadband/ wireless; ecommerce/retail; energy distribution; energy exploration; transportation; and automotive. We call these the “high-investment” sectors. We then compare capital spending in those sectors with our estimates of domestic capital spending for those same companies in 2019.
For six out of seven economic sectors, we find significant growth in domestic capital spending from 2019 to 2022. In other words, the companies on our Investment Heroes List typically have high and growing levels of domestic capital investment compared to before the pandemic.
In addition, our analysis shows that capital investment creates jobs and raises wages. Between 2019 and 2022, the high-investment sectors on our list added more net new jobs than the entire rest of the private sector put together. We calculate this number by looking at the employment in domestic industries corresponding to the seven sectors in Table 2, as reported by the BLS. (We use industry data because domestic employment data is not available for all companies. The industry-level data also accounts for broader impacts of investment).
By our estimate, the high-investment sectors added 1.3 million net new jobs between 2019 and 2022, accounting for 55% of private sector job creation. Employment in the high-investment sectors grew by almost 5%, compared to a 1% gain in the rest of the private sector.
The leader was the ecommerce/retail sector, which added more than 800,000 jobs between 2019 and 2022, as job gains in ecommerce fulfillment and delivery more than made up for any losses in brick-and-mortar retail. Next was the combined tech/internet/broadband/wireless sector, which added almost 500,000 jobs.
What about pay? Real wages per worker in the ecommerce/retail sector rose by 7% from 2019 to 2022 (using QCEW data from the BLS and the PCE deflator). Overall, real wages per worker in the high-investment sectors rose by about 6%, a slightly larger gain than the rest of the private sector.
We also note the importance of investment in human capital — the training and education of workers. Companies are not required to report spending on training and education, but it’s more essential today than ever before.
Basic economics tells us that when demand goes down, suppliers must reduce costs, cut supply, or lower prices to survive. That is the choice facing many U.S. colleges and universities starting in 2025, when the so-called “enrollment cliff,” begins. Between 2025 to 2029, undergraduate headcount will drop by over 575,000 students (15 percent) and, if recent history is an indicator, many schools will end up closing their doors rather than streamlining their operations.
The reason is that most institutions of higher learning are dependent on tuition revenue for survival. While a handful of elite universities (think Harvard, Stanford, Princeton) have endowments large enough to cover the cost of attendance for any student in need, the rest require undergrads to borrow on average over $30,000 to earn a bachelors.
In the past, when faced with funding shortfalls, colleges and universities attempted to “grow their way” out of the problem by opening up new sources of revenue. Many launched new graduate programs, including terminal master’s degrees (no doctoral option) and certificates. Others increased their online offerings to expand their access to part-time students beyond the gates of their campuses. And almost all opened their doors to international students who could afford to pay full price.
But unlike Purdue University—who used this new source of revenue to hold undergraduate tuition flat for a decade—most schools went on a hiring spree; one that massively expanded the ranks of all types of employees, with one notable exception—full-time faculty.
This week on Facing the Future, we hear from Ben Ritz, Director of the Center for Growing America’s Future at the Progressive Policy Institute, and one of our more frequent show contributors.
Ben has written several interesting pieces including one where he asserts that the Fitch rating agency’s recent downgrade of the federal government’s credit rating should be a wakeup call for all those concerned about the budget and our national debt. So we talk to Ben about that and also, how is the federal government doing about investing in scientific and technological research and innovation a year after Congress passed the Chips and Science Act.
Earlier this year, 31 House Republicans released a proposal to replace virtually all federal taxes with a 30% national sales tax. As other analysts have noted, a sales tax would be easy for companies to dodge and difficult for the government to enforce — meaning that to avoid revenue losses, the proposal would require a significantly higher tax rate, possibly as high as 60%.
The bill has also been criticized for being regressive. In tax terminology, a tax is “regressive” if it takes a higher share of income from the poor than from the rich; “flat” or “proportional” if it takes the same share of income from everybody; and “progressive” if it takes a higher share from the rich than from the poor.
The Republicans’ overall bill is certainly regressive and should be rejected on that account. But its core idea — taxing consumption rather than income — is not inherently regressive if properly designed. Much public commentary has mistakenly concluded that a national sales tax would fall predominantly on low-income Americans. But as this analysis demonstrates, taxes on spending fall on everyone roughly equally, and certain elements of the Fair Tax — such as its universal child payments — are actually progressive. While the Fair Tax ought to be rejected due to its regressive tax cuts and poor enforceability, two elements of it are worth keeping: its flat per-child cash payments and its emphasis on taxing spending rather than saving.
