issue: Economy

How Do You Define the Internet?

Posted on by The Progressive Policy Institute

One of the more interesting comments filed with the FCC in its recent Further Inquiry into Two Under-Developed Issues in the Open Internet Proceeding came from a group of illustrious computer industry stalwarts such as Apple hardware designer Steve Wozniak, computer spreadsheet pioneer Bob Frankston, Stupid Network advocate David Isenberg, and former protocol designer David Reed.

Their comments are worth noting not only because they come from such a diverse and accomplished group of people, but also because they’re extremely hard to follow (one of the signers told me he almost didn’t sign on because the statement was so unclear.) After reading the comments several times, asking the authors for clarification, comparing them to previous comments by a similar (but larger) group known as “It’s the Internet, Stupid,” and to an even older statement by a similar but larger group called the Dynamic Platform Standards Project (DPSP), I’m comfortable that I understand what they’re trying to say well enough to explain.

A Passion for Definition

The author of these three statements is Seth P. Johnson, a fellow from New York who describes himself as an “information quality expert” (I think that means he’s a database administrator, but it’s not clear.) Johnson jumped in the net neutrality fray in 2008 by writing a proposed law under the name of the DPSP and offering it to Congress.

The gist of the thing was to define Internet service in a particular way, and then to propose prosecution for any ISP that managed its network or its Internet connections in a way that deviated from the definition.  Essentially, Johnson sought authority from the IETF’s Internet Standards, but attempted to reduce the scope of the Internet Standards for purposes of his Act. The proposed Act required that ISPs make their routers “transmit packets to various other routers on a best efforts basis,” for example, which precludes the use of Internet Type of Service, Class of Service, and Quality of Service protocols.

IETF standards include a Type of Service (ToS) option for Internet Protocol (IP) as well as the protocols IntServ, DiffServ, and MPLS that provide mechanisms for network Quality of Service (QoS.) QoS is a technique that matches a network’s packet transport capabilities to the expressed needs of particular applications, ensuring that a diverse group of applications works as well as possible on a network of a given, finite capacity.  ToS is a similar method that communicates application requirements to one of the networks that carries IP datagrams, such as Ethernet or Wi-Fi. Packet-switched networks, from the ARPANET days to the present, have always included QoS and ToS mechanisms, which have been used in some instances and not in others. You’re more likely to see QoS employed on a wireless network than on a wireline network, and you’re also more likely to see QoS on a local network or at a network edge than in the Internet’s optical core; but the Internet’s optical core is an MPLS network that carries a variety of private network traffic at specified service levels, so there’s quite a bit of QoS engineering there too.

The purpose of defining the Internet as a QoS-free, “Best-Efforts” network was to prevent network operators from making deals with content providers that would significantly privilege some forms of sources of content over others. This approach originated right after Bill Smith, the former CTO of Bell South, speculated that ISPs might increase revenues by offering exceptional performance to select application providers for a fee. While the service that Smith proposed has a long history in Internet standards (RFC 2475, approved in 1998, discusses “service differentiation to accommodate    heterogeneous application requirements”), it’s not part of the conventional understanding of the way the Internet works.

Defining One Obscurity in Terms of Another

“Best-efforts” (BE) is a term of art in engineering, so defining the Internet in this way simply shifts the discussion from one obscurity to another. BE has at least three different meanings to engineers, and another one to policy experts. In the broadest sense, a BE network is defined not by what it does as much as by what it doesn’t do: a BE network makes no guarantee that any given unit of information (“packet” or “frame” ) transmitted across the network will arrive successfully. IP doesn’t provide a delivery guarantee, so the TCP code running in network endpoints such as the computer on your desk or the mobile phone in your hand has to take care of checking for lost packets and retransmitting when necessary. BE networks are appealing because they’re cheap to build, easy to maintain, and very flexible. Not all applications need for every packet to transmit successfully; a Skype packet that doesn’t arrive within 200 milliseconds can be dropped, for example. BE networks permit that sort of decision to be made by the application.  So one meaning of BE is “a network controlled by its endpoints.”

Another meaning of BE comes from the QoS literature, where it is typically one of many service options in a QoS system. In the Internet’s DiffServ standard and most other QoS systems, BE is the default or standard treatment of all packets, the one the network router employs unless told otherwise.

Yet another definition comes from the IEEE 802 standards, in which BE is the sixth of seven levels of service for Ethernet, better than Background and worse than all others; or the third of four levels for Wi-Fi, again better than Background. When policy people talk about BE, they tend to use it in the second of these senses, as “the standard treatment,” with the additional assumption that such treatment will be pretty darn good most of the time.

Johnson’s FCC filing insists that the Internet, properly defined, must be a best-efforts-only system; all other QoS levels should be considered “managed services” rather than “Internet.” The filing touts a number of social benefits that can come about from a BE-only Internet, such as “openness, free expression, competition, innovation and private investment” but doesn’t explain the connection.

Constraining Applications

One of the implications of this view is that both network operators and application developers must adapt to generic treatment and refrain from relying on differentiated services or offering differentiated services for sale as part of an Internet service.

Unfortunately, the advocates of this viewpoint don’t tell us why they believe that the Internet must refrain from offering packet transport and delivery services that are either better or worse than generic best-efforts, or why such services would harm “openness, free expression, competition, innovation and private investment” if they were provided end-to-end across the Internet as a whole, or where the authority comes from to support this definition. We’re supposed to simply trust them that this is the right way to do things, relying on their group authority as people who have been associated with the Internet in various capacities for a long time. This isn’t engineering, it’s religion.

There is nothing in the Internet design specifications (Internet RFCs) to suggest that providers of Internet services must confine themselves to BE-only, and there is nothing in the architecture the Internet to suggest that all packets must be treated the same. These issues have been covered time and again, and the FCC knows by now exactly where to look in the RFCs for the evidence that this view of the Internet is faulty. The Internet is not a packet delivery system, it’s a virtual network that only works because of the underlying physical networks that transport and deliver packets. This virtual network defines an interface between applications of various types and networks of various types, and as is the case in all abstract interfaces, it may provide least common factor services, highest common factor, or anything in between, all according to the needs of the people and organizations who pay for it, use it, and operate it. As Doc Searls said many years back, nobody owns the Internet, anyone can use it, and anyone can improve it. The capacity for constant improvement is the magic of the Internet.

Myth of the General Purpose Network

If we insist that the Internet must only provide applications with one service option, we doom application developers to innovate within narrow confines.  A generic Internet is effectively optimized for file-transfer oriented applications such as web browsing, email, and media streaming; it’s fundamentally hostile to real-time applications such as immersive video conferencing, telepresence, and gaming. Some of the best minds in the Internet engineering community have labored for past 20 years to devise systems that would allow real-time and file transfer applications to co-exist happily on a common infrastructure, and these efforts are perfectly consistent with the nature of the Internet properly understood.

The central myth underlying the view of the Johnson and his co-signers is the “general purpose network” formulation. This terminology is part of telecom law, where it refers to networks that can support a variety of uses. When adapted to engineering, it becomes part of an argument to the effect that best efforts is the “most general purpose” method of supporting diverse applications and therefore the “best way to run a network.” I think it’s wrong to frame the challenges and opportunities of network and internetwork engineering in this way. I’d rather that people think of the Internet as a “multi-purpose network” that can offer diverse packet transport services suitable for diverse applications.  We want network operators to build networks that serve all applications appropriately at a price that ordinary people can afford to pay. We don’t want consumers to pay higher prices for inefficient networks, and we don’t want to foreclose application innovation to the narrow bounds of legacy systems.

Segregated Systems are Harmful

Systems that allow applications to express their requirements to the network and for the network to provide applications with differentiated treatment and feedback about current conditions are apparently the best way to do this; that’s the general concept of Internet QoS. This has been the thinking of network and internetwork engineers since the 1970s, and the capability to build such systems is embedded in the Internet architecture. The technical people at the FCC who are reading the comments in this inquiry know this.

These arguments seem to endorse a disturbing trend that the so-called “public interest” advocates are now advancing, to the effect that advanced network services must be segregated from generic Internet service on separate (but equal?) physical or logical facilities. This is not good, because it robs us of the benefits of converged networks.  Rather than dividing a coax or fiber into two frequencies and using one for IPTV and the other for Generic Internetting, it’s better to build a fat pipe that provides IPTV and Generic Internetting access to the same pool of bandwidth. The notion of sharing a common pool of bandwidth among multiple users and applications was the thing that started us down the road of packet switching in the first place, and it’s very important to continue developing that notion; packet switching is the Internet’s enabler. Segregated facilities are undesirable.

Integrating Applications and Networks

What we need in the Internet space is a different kind of vertical integration than the kind that was traditional in the single application networks of the past. QoS, along with modular network and internetwork design, permits applications and end users to essentially assemble networks as applications are run that provide them with the level of service they need at the price they can afford. We get to that by allowing applications to explicitly state their requirements to the internetwork, and for the internetwork to respond with its capabilities. Application choice meets the needs of innovators better than by a rigid “one size fits all” formulation.

The Internet is, by design, a platform for both generic and differentiated services. That’s its true legacy and its promise. We don’t need to run into historical blind alleys of myth and prejudice when the opportunity faces us to build this platform out to the next level. As more Internet use shifts to mobile networks, it will become more critical than ever to offer reasonable specialization to applications in a standards-compliant manner. The Internet of the Future will be multipurpose, not generic.

Photo credit: Pixelsior

These Just May Be The Lunatics We’re (Not) Looking For: Conservatives on Conservatives

Posted on by The Progressive Policy Institute

Here’s how Bill Kristol, Fox News contributor and editor of the conservative Weekly Standard, summed up a panel discussion I attended at the conservative American Enterprise Institute:

This is a truly distinguished panel, and one I’m happy to say that’s fair and balanced.  We have (former Republican Senator from Missouri) Jim Talent, a responsible, respectable hawk.  We have a slightly crazed militarist in Tom Donnelly, and a really insane hegemonic imperialist… me.  It’s the correct spectrum of opinion.

The crowd chuckled its DC chuckle, and Wild Bill began. As it turned out, he was ironically prophetic – these people are batshit crazy. That tens of newly-elected Tea Partiers – folks who have never had much to say on national security and foreign policy issues – are now taking their cues from these jokers is downright terrifying.

But before diving into the political angles, here’s what makes these nutcases tick:

My suspicions were first aroused when former Senator Jim Talent (MO) blamed Bill Clinton for Iraq.  Would that I were joking! Indeed, Talent bemoaned Clinton’s decision to scale down the size of the military in the immediate aftermath of the Cold War. He correctly claimed that we were “fully deployed” during Iraq and Afghanistan, meaning that we simply didn’t have the numbers of troops necessary to properly resource both conflicts.  It’s painfully and unfortunately obvious that Talent learned exactly the wrong lesson from Iraq and Afghanistan:

How much money and how many lives would it have saved if we’d have had 14 divisions instead of 10 and had been able to do in Afghanistan at the same time as we were (doing) in Iraq? … The blood, the lives, the people who were dying… we could have been years ahead of that schedule!

In other words, not only was invading Iraq the right call, we should have gone bigger and harder. It’s just too bad that all those people had to die and we had to waste all that money there because Bill Clinton decided to cut the size of the military after the Cold War.

Is Jim Talent a co-author on Decision Points or something?  And here I was thinking that the decision to go to war without fully understanding what we were getting ourselves into caused all the slow progress.

Then there was Kristol’s fundamentally misguided view of defense spending. And that’s odd because he starts out with a correct general premise: “We should cut what should be cut and shouldn’t cut what shouldn’t.”  That’s all well and good, provided you think that there are things to be cut.  So over to you, Bill:

The best possible spending you can have is defense spending! We got out of the Great Depression by having a big defense build up…. The Pentagon has plenty of shovel ready projects!

F-22? No way! Foreign aid? Why not? It was deliciously ironic that while Kristol supported the idea of foreign assistance, he was open to restructuring its $45 billion budget; at the same time, Kristol lauded Rep. Paul Ryan (R-WI), incoming House Appropriations chairman, saying Ryan “knows how little can be saved in the defense budget — maybe $20 billion.”  Pssst: Bill, that’s almost half of the foreign aid budget you think is big enough to reexamine. It’s also half of State’s.

It all seems so obvious to Talent: The defense budget “is affordable. To argue that it’s not affordable just isn’t right.” It’s especially affordable if we keep cutting taxes, right Jim?

Talent wrapped it all up in a nice big Fox News bow by tying alleged American declinism to Obama’s nefarious plan to nominate Joseph Stalin’s ghost as Tim Geithner’s replacement: “A socialized economy will not let America remain a great power.”  But hold on there –- does a socialist want to “position our nation for success in the global marketplace” via a “strong, innovative, and growing U.S. economy in an open international economic system that promotes opportunity and prosperity”?  Then Talent has some explaining to do, because that’s what the president says in this year’s National Security Strategy.

Thankfully, there was one area these mental dwarfs didn’t completely screw up: New START.  Let’s be clear: Their partisan glasses won’t let them whole-heartedly endorse a very sensible treaty.  Instead, they’re holding it hostage to more missile defense spending.  But they’ll vote for it… hopefully.

Now, this all gets incredibly fascinating when you put it in a political context. The major take-away from this session is that the conservative establishment is pissing down their collective leg at the Tea Party’s soon-to-be dominant position on the Hill.  Their plan is to co-opt the Tea Party by supplying it with mainstream conservative positions in an area the Tea Party doesn’t spend much time thinking about.

Kristol liquored up new Tea Partiers in hopes of bringing her home after the prom:

I think the Tea Party gets a bum wrap. They don’t believe we should lose wars, they don’t believe we should weaken the military, they do believe the world would be safer if Iran didn’t have nuclear weapons.

Jim Talent poured a few shots into Kristol’s punchbowl by hitting the “DC Republican establishment” (note to Talent: you’re a member.)

People who sat around and didn’t do what had to be done in 2001-2004 (specifically: Don Rumsfeld)… it’s a little much for them to be all up in arms because one Tea Party candidate said something that sounded vaguely not quite correct from the point of view of a strong U.S. foreign policy.

They’re pandering, and hard.  Rand Paul doesn’t know it yet, but the Tea Party’s biggest spending hawk is about to vote for an ever-increasing defense budgets soon enough.

It was a mind-blowing Friday morning for yours truly, but was very reassuring in a way: The conservative establishment is as out of touch and irresponsible as always on national security, and they’re trying to take advantage of the strongest but most impressionable subset of their caucus.  That’s why now more than ever, progressives have to offer strong, smart, rational approaches to U.S. national security, military, and foreign policy challenges.

Explaining the Most Puzzling Exit Poll Result

Posted on by The Progressive Policy Institute

Yesterday, the New York Times Week in Review section devoted a whole page to time series exit polls, all of which showed how Democrats lost ground in almost every single possible demographic cross-slice this election: women, whites, Protestants, Catholics, old people, even young people.

But one demographic slice was especially telling. It was the 41 percent of the population who said that their family’s financial situation was worse today than it was two years ago. They voted for Republicans by a 65-to-35 percent margin. What’s remarkable is that in 2008, this group of voters (then 42 percent of the total) broke 71-to-28 percent for Obama. And in 2004, it broke 79-to-20 percent for Kerry! But in 1996 and 2000, this category broke solidly for Bush! These are remarkable swings – what can explain them?

Likewise, the shifts have been the same for the smaller slice of the electorate saying their financial situation has gotten better. These folks broke 60-to-37 percent for McCain in 2008 (and 80-to-19 percent for Bush in 2004), only to break 60-to-40  percent for Democrats in 2008.  Again: remarkable!

A number of possibilities seem implausible. One is that Democrats started doing much better financially with Barack Obama as President, and Republicans started doing much worse, leading a massive shift in the make-up of the “financial situation worse” category. This seems highly unlikely. A second possibility is that the demographic basis of this category is consistent, but just strongly, strongly anti-incumbent. This also seems highly unlikely, given what a large percentage of the electorate this makes up, and how much voting usually breaks down along partisan lines.

Rather, the most likely explanation, and one that is consistent with a good deal of political science research, is that voters’ perception of the how well they are doing depends largely on whether their party is in power. As one study notes: “a robust finding in the literature is that partisans evaluate the economy and its prospects more positively when the president is of their own party, and more negatively when the office is held by someone of the opposing party”

In many ways, this is remarkable. It is not particularly difficult to objectively compare one’s finances from two years ago to today. Yet, somehow having your party in power seems to change your evaluation.

In 2008, 24 percent of voters said their family financial situation was better today, 34 percent the same, and 42 percent worse; In 2010, just 14 percent of voters said their financial situation was better, 43 percent about the same, and 42 percent worse.

(Voters who say their family situation is about the same tend to be split much more evenly between the two parties: In 2008, they went 53-45 percent against the Republicans; In 2010 they actually voted 51-to-46 percent for Democrats)

So the declining economy has reduced the share of the electorate thinking their financial situation has gotten better from 24 percent to 14 percent, and this has hurt the Democrats. This may not be an entirely objective measure, but in a down economy, even partisan subjectivity is only so powerful. This has obviously hurt Obama and the Democrats.

But the larger issue here is that it’s very hard for partisan voters to assess the economy and even their own financial conditions objectively. There are real partisan filters at work here.

Which means that even if things are objectively getting better, there are still a large number of Republican voters who are going to think – in opposition to actual empirical evidence – that their own finances are getting worse, perhaps because they can’t conceive of an economy getting better with a Democratic president in charge.  (Though partisan Democrats would be equally guilty in thinking their finances were getting better when they actually weren’t.)

This poses obvious challenges for Obama. If the economy does pick up (as most predict it will), improving objective conditions should help Obama’s approval rating and 2012 prospects to some degree. But even objective improvement will not be enough to convince many voters. Maybe more rhetorical attention to this will help (I don’t know the literature on this in great detail). But even that will probably have limited impact, since most voters hear only what they want to hear (confirmation bias).

A maddening challenge indeed. Good luck, President Obama.

The Geography – and Demography – of Defeat

Posted on by The Progressive Policy Institute

To fully appreciate the scope of the Republicans’ midterm victory – and the nature of the Democrats’ political predicament – look at the map.

In Congressional contests, Democrats flipped just three House seats across the whole, wide country, and they were in the traditionally blue bastions of Delaware, Hawaii, and New Orleans. They won two open Senate seats (in Delaware and Connecticut) but those have been held by Democrats for decades.

Republicans advanced everywhere except the West Coast, where they picked up just one House seat in Washington state. Their gains were mostly concentrated in the Midwest rustbelt and the upper South. With the exception of black belt regions of the South, Latino-dominated south Texas, a smattering of blue in Iowa, Wisconsin and Minnesota, and a few Rocky Mountain districts, America’s vast interior is solidly red.

The West Coast (including Hawaii) and New York/New England (excepting New Hampshire) are the only remaining Democratic strongholds. The geography of defeat lends credence to GOP claims to represent the American heartland against bicoastal elites.

Republicans also won a passel of governorships and state legislatures across the Midwest. Democrats, in short, got slaughtered in working class America.

Republicans won working-class whites by a crushing, 63 to 34 percent margin. “They have taken the brunt of this recession, particularly the men, but Obama looked as if he was not engaged with it,” pollster Stan Greenberg told the National Journal. “Health care created a sense that he was not focused on the jobs issues and economic issues, and they were very angry.”

The Journal’s Ron Brownstein notes that, “In all, 47 House Democratic losses so far have come in districts in which the level of white college attainment lags the national average; just 16 came in districts that exceed that average. Talk about blue-collar blues.”

But in fact Democrats badly underperformed with white voters in general. College-educated whites also backed GOP candidates, by 58 to 40 percent. Where Democrats held onto their seats, they ran closer to even among college-educated white women while rolling up huge margins among minorities.

Nonetheless, the political map sends Democrats an unmistakable message: you are not connecting with ordinary working Americans. This is only in part a reflection of the current economic crisis, and the evident failure of President Obama’s policies to spur recovery. After all, blue collar whites have been alienated from Democrats for a generation. That should be a source of constant embarrassment to the party of the people.

Many liberal commentators, echoing Thomas Frank, have argued that blue collar voters’ antipathy to Democrats reflects their cultural conservatism.  GOP demagoguery on “values” has blinded these voters to the reality that Democrats are on their side on economic issues. But the conspicuous absence of “God, guns, and gays” from the 2010 elections actually make them a pretty good test of this proposition.  This time, there’s no question that blue collar voters rejected Democrats on economics rather than values.

All this underscores President Obama’s core challenge: crafting a credible plan for rebuilding America’s productive base. This isn’t a cyclical challenge; it’s not a matter of more public spending to boost demand. It’s a structural challenge which requires modernizing U.S. infrastructure, removing obstacles to entrepreneurship and innovation, seizing leadership in clean energy, and revamping tax and regulatory policies to promote economic growth.

Incredibly, however, some liberals are contemplating a blizzard of new federal regulations with the purported aim of putting Democrats on the side of the middle class by demonizing Wall Street banks and big business. The last thing blue collar Americans need is an economic morality play in which they are cast as victims. What they need, and what progressives owe them, is not a condescending populism, but a practical plan for economic success.

The Obama “Theory of Change”, the 50-50 Nation, and the “It’s-the-economy-stupid” Dodge

Posted on by The Progressive Policy Institute

On the eve of the Iowa caucus in late 2007, Mark Schmitt, editor of The American Prospect, wrote an influential essay titled, “The ‘Theory of Change’ Primary”.  The thesis of the piece was that Barack Obama’s frequent paeans to bipartisanship were not to be understood as the naivety of a political Pollyanna who would be rudely awakened upon taking the reins of power.  Rather, Schmitt argued, appeals to bipartisanship were a tactic that President Obama would use to make Republicans an offer they couldn’t refuse: join with your colleagues across the aisle to enact the progressive policies the country demands, or reject bipartisanship and bear the wrath of voters in 2010.

Obama’s theory of change—as interpreted by Schmitt—has not worked out so well.  Half the country supports repealing the healthcare reform bill, half say Democrats are too liberal, and half think that “the government is trying to do too many things that should be left to individuals and businesses”. While the lackluster economy clearly played a major role in ushering in the sweeping gains made by the GOP on Tuesday, progressives need to recognize that Democratic losses were not simply due to bad luck.  Progressives overreached, which may or may not have been worth yesterday’s shellacking but which certainly calls for a change in strategy over the next two years.  By taking seriously the theory-of-change strategy and recognizing that the 50-50 Nation continues to govern national politics, progressives can come back in 2012.

There are limits to blaming the economy for Democratic losses.  Most strikingly, the exit polls last night revealed that Republicans won a majority of the national House vote even among the one in three voters who said something other than the economy was the most important issue facing the country.  No, the theory-of-change strategy failed because the priorities Democrats pursued and the specific solutions they offered were not popular enough that Republicans felt any pressure to go along.

Nowhere was this truer than for health care reform, where controversies over government intervention into medical decisions, deficits, Medicare cuts, illegal immigration, and abortion gradually eroded the fragile support for reform among moderates.  Democrats, oversimplifying polling that showed support for “health care reform”, convinced themselves that the time, budgetary resources, and energy spent on pushing through their particular vision of reform would trump the anemic jobs picture in the midterm elections.  (And simmer down, public option advocates—there is absolutely no evidence that the purer original reform proposals would have produced a better outcome politically.)

Abandoning the “it’s-the-economy-stupid dodge” will be crucial for progressives moving forward, because in the most important respect the Administration finds itself right where it was in January of 2009.  The country is mired in an economic downturn, with few positive signs on the horizon.  Progressives can passively wait and see and allow the 2012 election to depend on what happens to the economy between now and then.  Alternatively, by taking seriously the theory-of-change strategy, the President and Congressional Democrats can improve their chances of success next time and minimize the damage should the economy remain lousy.

Taking the theory-of-change strategy seriously means discarding the naively hopeful view that the 2008 election was a mandate for progressivism.  As I wrote the night of that election, that view profoundly ignored the evidence from 2008 and political history since the Clinton years.  The 50-50 Nation lives, and the Administration will have to stake out positions that are both popular and on which Republican-led gridlock will be met with disapproval from moderate voters.  Such positions will often be met with howls of protest from the left, but if Democrats are smart, they will look to President Clinton’s success after 1994 as a model for how to get another bite at the apple in two years.

For instance, the easiest way to continue providing some stimulus to the economy is going to be via tax cuts.  Rather than continuing to push for the expiration of the Bush tax cuts for upper-income taxpayers, Democrats should instead advocate for ex-budget director Peter Orszag’s proposed two-year extension of tax cuts for everyone.  Such a stance would be both pro-stimulus and anti-deficit.  Both positions are important, for while the economy is the overwhelming priority of voters, the broad question of the size, scope, and effectiveness of government is second, and this is where Democrats’ weakness really lies.

Democrats could also take a moderate position on foreclosures and the barrier to growth that underwater mortgages present.  Rather than bailing out distressed homeowners—which polls show commands only weak support, due to perceptions of irresponsibility on the part of homeowners who took out mortgages they could not afford—Democrats could propose incentives for lenders and loan servicers to refinance the mortgages of distressed borrowers.  For instance, Ben Bernanke has suggested allowing the Federal Housing Administration (FHA) to insure “shared equity” mortgages, whereby lenders would offer lower interest rates in return for an agreed-upon stake in the home’s equity upon purchase or refinancing.  Democrats could also offer tax breaks or loans to make up the difference between the selling price of a home and a (bigger) mortgage payoff.  This would help homeowners seeking to move for better economic opportunities who are not in danger of foreclosure or delinquency.

Welfare reform is up for reauthorization, and President Obama is in a strong position to preemptively lay out proposals that promote individual responsibility but that also fund the block grant more generously in response to data showing that the program’s growth has not nearly kept pace with the rise in joblessness.  Furthermore, he could advocate responsible fatherhood provisions and other family-oriented policies, consistent with his past championing of such initiatives.

On immigration, Democrats should abandon their proposals advocating a general pathway to citizenship—a hopeless cause that will always be seen as rewarding law-breaking—and embrace the DREAM Act, coupled with tougher enforcement.  The DREAM Act gives undocumented immigrants who arrived in the U.S. as minors the chance to earn residency if they serve in the military or complete some college.  It addresses a fairly sympathetic group—the sons and daughters brought over the border by their parents, who never chose to break the law but who now face severe restrictions on their ability to get ahead through higher education because of their lack of documentation.

Finally, on deficit reduction, Democrats should use the housing crisis as an opportunity to begin a conversation around the distortions introduced into the economy by tax subsidies (such as the mortgage interest deduction’s complicity in the mortgage and financial crisis).  Larry Summers has suggested that a global cap could be placed on the amount of itemized deductions a taxpayer could take, which would be progressive while avoiding fights over this tax provision or that one.  The President can ask whether the federal government should really be subsidizing the purchase of second homes and vacation homes.

Democrats used the first two years of Obama’s first term to take advantage of a once-in-a-lifetime opportunity to make big changes in domestic policy.  Progressives may differ in their evaluation of whether the cost has been and will be worth it, but what is clear is that if 2012 is to turn out differently than 2010, they will have to scale back their ambitions in the next two years.

Economy is the Problem, Not Obama

Posted on by The Progressive Policy Institute

The punditocracy apparently cannot resist the tendency to personalize political trends and developments.  It has turned the midterm election into a political melodrama starring Barack Obama as the redeemer-President who inspired such soaring hopes in 2008, yet unaccountably failed to transform America in his first two years.

The saga of Obama agonistes may be more interesting, but public angst about the economy is what is really driving today’s election.

Sure, the president’s approval ratings are down (though not as low as Ronald Reagan’s or Bill Clinton’s at the same juncture). The public believes that the administration’s policies have failed to revive the economy, even while plunging the nation deeper in debt and, in the case of health care, expanding government’s reach.

But if unemployment were, at say, seven percent and trending downward, voters probably would see things in a more optimistic light. What’s oppressing the electorate is not the specter of big government, it’s the hangover from the 2007-2009 economic crisis, the worst to hit America since the Great Depression.

It’s not just lingering unemployment (9.6 percent). Americans lost roughly $11 trillion in net worth in those years, including about $4 trillion in home equity.  Though stock prices rebounded somewhat, foreclosures continue apace and sales of new homes are at a 50-year low. Hammered by this “negative wealth effect,” U.S. households are shedding debt instead of spending, which depresses economic demand.

Our big banks still carry hundreds of billions of troubled loans on their books, and small businesses still have difficulty getting loans. U.S. businesses are keeping payrolls lean to cut costs, while sitting on nearly $2 trillion in retained earnings.

The federal government, meanwhile, seems to have exhausted the usual countercyclical remedies. With the national debt swelling rapidly, there’s little appetite in Washington for another dollop of stimulative spending (and will be even less if Republicans take over the House). The Federal Reserve says it’s ready for another round of “quantitative easing” – aka, printing money – but interest rates are already near zero.

The truth is, an economic downturn triggered by a financial crisis is much deeper and prolonged than an ordinary recession. No wonder voters are in a sour mood. They are lashing out at the party in power because the real culprits – the Republicans who were asleep at the switch as the housing and financial bubbles formed – aren’t around anymore to catch the blame. That’s not fair, but politics seldom is.

And while conventional wisdom pillories Obama for pushing health care or financial regulatory reform rather than spending every waking hour focusing obsessively on jobs, it’s not clear that would have made much of a difference.

The supposedly awesome powers of the presidency don’t include any magic levers for creating private sector jobs or dramatically speeding up recovery.  In 1982, unemployment was even higher – 10.4 percent – on Election Day. Rather than promise instant relief, Reagan said the pain was necessary to wring inflation out of the economy and lay a stronger foundation for future growth.  He urged Americans to “stay the course” and ride out the downturn.  Republicans lost 26 House seats that year, but the economy eventually sprang back to life and propelled Reagan to a thumping reelection.

So Obama is right to stay calm, rather than running around the country trying to do something that doesn’t come naturally to him – emoting and feeling peoples’ pain. Instead, he should be crafting a new and more compelling economic narrative focused on unleashing American entrepreneurship and innovation.  Forget Paul Krugman; Obama’s challenge is not to press for more stimulus or whine about economic inequality or posture as an anti-business populist, it’s to propose structural changes that will assure a broader, more robust economic recovery. These include an infrastructure bank, a new clean energy roadmap, pro-growth regulatory and tax reform (including corporate taxes), and a credible plan to restore fiscal stability once the economy regains strength.

Such a plan also is the best way to assure Democrats’ political recovery from the drubbing they will take today.

Iran Buckles Under Sanctions Pressure

Posted on by The Progressive Policy Institute

The Obama administration won an important foreign policy victory yesterday as Iran skulked back to the negotiating table.  In other words, the latest rounds of sanctions imposed by the UN, United States, and European Union have worked.

To be clear, sanctions’ aim was never to “bring Iran to its knees,” as Supreme Leader Khamenei claimed in 2008.  Further, it’s easy to doubt their effectiveness when we we hear accounts that Tehran is skirting sanctions with fake bank accounts and false flags on ships’ registries. This narrative essentially implies that because Iran is evading sanctions, then they must not be working.

It’s exactly the opposite: Sanctions are imposed to make life difficult for Tehran, and stories about evasion are actually clear indications of their effectiveness.  Every second an Iranian official has had to spend time figuring out a way around a sanction is time he should be doing his regular job.

Sanctions have coincided with a significant economic reforms inside Iran, aimed at ending over $100b in government subsidies on everything from bread to energy.  Opaque attempts at economic reform appear to have been painful for average Iranians.  And while I am not enough of Iran expert to steadfastly link sanctions, a weakening domestic macro-economic situation, and Iran’s inclination to head back to the negotiating table, I’m happy to point out the not-so-odd coincidence.

Before we get too excited, it should be obvious that the outcome of new negotiations is far from certain.  Iran will likely play its tired game of engaging diplomatically while attempting to refuse meaningful compromise.  That’s why it’s crucial that the Obama administration, European Union, and UN not reward Iran just for talking.  To keep Iran from getting the bomb, the international community has to keep its boot on Tehran’s neck until the day it agrees to unfettered access to all of Iran’s nuclear facilities.

photo credit: Daniella Zalcman

Lessons From the New NSF Innovation Survey

Posted on by The Progressive Policy Institute

Last week the National Science Foundation released its 2008 Business R&D and Innovation Survey, which surveys over 1.5 million for-profit organizations and benchmarks the number of “new or significantly improved products and processes” U.S. firms developed between 2006 and 2008.  The data reveals much about the state of innovation in the U.S. economy.

First, the survey reveals while nine percent of all firms developed at least one new good or service and nine percent developed at least on new business process, there are significant discrepancies among industries.

Far and away the most innovative industry was software publishing: 77 percent of software firms innovated a new product or service and 19 percent innovated a process.  Following software designers are navigational and electromedical instruments, computer equipment, communications equipment, and pharmaceuticals. In other words, four of the top five innovative industries between 2006 and 2008 were IT-related industries.

These industries are big winners across the board for the U.S. economy: They pay more, have higher labor productivity, and have weathered the economic recession far greater than most.  Indeed, the average annual wage in 2008 within these industries equaled $74,000—170 percent above the average U.S. wage.  And between 2002 and 2008, labor productivity increased on average by 70 percent.

On the other end of the spectrum, the five industries producing the least innovation are: real estate, finance/insurance, nonmanufacturing industries, wood products, and health care services.  These industries generally pay lower and grow more slowly.

Another key finding from the survey is that firms are pursuing just as much process as product innovation.  According to the survey, process innovation—the creation of new business practices or methods of production—represents half of the innovation done by U.S. firms.

This is good news. Several studies find that process R&D may have a greater economy-wide impact because the spillover effect from process innovation to the overall economy may be larger.  This is because it is harder to protect the intellectual property generated by process innovation than new products and is new processes are less rivalrous (many firms can use a better process, but it is harder for many firms to produce the same new product, giv­en finite market demand).  One study finds that firms also invest more in product R&D when they invest more in process R&D, which makes incentivizing process R&D good policy.

Yet, despite the benefits of process innovation, few firms take advantage of the R&D tax credit for it.  One of the main reasons for this is while process R&D is technically eligible under the definition of qualified R&D, in prac­tice it is extremely difficult for companies to take the credit, in part because the Treasury and IRS interpret the statute very narrowly.  If Congress made it clear that the intent of the credit was to allow a broad range of process R&D to qualify, it would make it easier for firms to qualify for the credit, which in turn would not only encourage firms to conduct more R&D. It would also reduce the cost differential between R&D facilities located in the United States and other nations.

Finally, the survey shows that manufacturing firms exhibited a considerably higher overall incidence of innovation than firms as a whole. About 22 percent of all the companies in manufacturing industries reported one or more product innovations between 2006 and 2008, and about 22 percent reported process innovations (compared to nine percent in overall firms).

While manufactures are often characterized as part of the “old, dirty economy,” successful manufacturing firms are often highly technical, innovative, and capital intensive.  However, throughout the last decade the manufacturing sector has lost more than million jobs and has gone from representing over 13 percent of total employment to 9 percent in 2009.  The service sector, on the other hand has grown by 4.5 million in the same time period.  Because of the growing importance of the service sector, it is particularly worrying that the survey found little innovation in many high-wage service industries such as health care and finance.

Innovation is a buzz word in Washington, yet often there is little consensus about the exact policy priorities to promote innovation in the economy.  Data such as NSF’s innovation survey highlights the uneven landscape of innovation in the United States.

Photo credit: Jonathan Jones

Economic Uncertainty and the Challenges of For-Profit College Regulation

Posted on by The Progressive Policy Institute

The so-called “gainful employment” rule currently being proposed by the Department of Education (DOE) has generated extensive controversy. The rule, designed to crack down on widespread recruiting frauds that can lead to huge student loan debts and ultimately put taxpayers on the hook, has drawn 90,000 comments.

DOE announced recently that it would implement the new regulations on July 1, 2011, as planned, though it may make a few changes in finalizing the rules.

Today, PPI is releasing a new memo by PPI senior fellow Michael Mandel on how to understand the new “gainful employment’ rule.  You can read the full memo here.

But here’s the quick summary:

Mandel argues that in an uncertain economic environment like the one we are currently facing, it’s really hard to make specific rules about debt-to-income ratios or to predict in what sectors there is going to be demand for employment even a few years down the line. (Mandel shows how poorly the Bureau of Labor Statistics “hot job” list has predicted the future in recent years.)

Mandel also worries that too much focus on debt-to-income ratios is going to disproportionately hurt those students who most need education – poorer students from hard-hit states who don’t look like a great investment given the formulas drawn up by the DOE guidelines, but need the most help if they are going get the training they need to be part of any economic recovery.

The big point is that given the current economic uncertainty, you want institutions that are capable of reacting quickly to market demand for training and skills-acquisition. And while there are obviously needed reforms to prevent for-profit colleges from taking advantage of students and student loan programs, too many rules and regulations are going to make it difficult if not impossible for for-profit colleges to respond quickly to market needs for skills.

As Mandel writes: “When the economy starts growing again, we want our educational institutions to be able to react quickly, not drag behind. DOE’s proposed approval process is a disaster, hurting the parts of the educational system that are the most flexible.”

Is the Obama Administration Really Serious About Nuclear Power?

Posted on by The Progressive Policy Institute

Constellation Energy announced last weekend that it is pulling out of negotiations with the Obama administration over its pending application for Department of Energy loan guarantees to build a new reactor unit at its existing Calvert Cliffs nuclear plant in Maryland. This means that for now, Constellation has scrapped all plans to expand the plant, which would have brought 1600 megawatts of low-carbon power to the market and thousands of jobs to the local economy.

What drove Constellation to walk away from further negotiations is the position taken by the White House Office of Management and Budget over the cost of the “credit subsidy fee” Constellation must pay for the guarantee. OMB set the fee at  $880 million, or 11.6 percent of the total guarantee. OMB says this fee accurately reflects the risk to taxpayers of default by Constellation, which may or may not be accurate, even presuming that shielding taxpayers from 100% of the default risk is an appropriate goal.  The problem is that no one ever expected the loan guarantee program to be priced so high, most notably the energy companies that have spent years now tied up in the application process. Constellation had argued for a fee closer to 1-2 percent, and DOE had previously made statements that indicated it was basically in agreement with that fee level, before the Obama White House got involved in the program and indicated it needed greater protections against the risk that the company won’t repay its loans. OMB has demanded a price for those protections that is basically what private lenders would charge (which is high considering the regulatory and cost risks associated with a nuclear power plant–hence the need for the loan guarantee program in the first place).

If you are an opponent of expanding nuclear power, this is great news. It means that after years of hard-fought legislative and regulatory battles in which the nuclear industry made significant headway toward getting the federal government to clear the way for a “nuclear renaissance” in the U.S., yet another battleground has been found to effectively scuttle the entire program for nuclear loan guarantees for the time being. Apparently that new battleground is the arcane world of credit scoring within the federal budget bureaucracy, most notably OMB.

By throwing sand in the gears of this final stage of the bureaucratic approval process, the White House has let the Department of Energy’s loan guarantee program grind to a halt after years of promises of support to the industry for badly needed new projects. By all accounts, this controversy appears to be simply a fight between budget bureaucrats that needs to be hashed out publicly and resolved. But a less benign interpretation might suggest a deliberate bias among those in the administration in favor of spending loan guarantee dollars on renewable energy at the expense of nuclear projects. In either case, it is a problem that President Obama could easily fix with leadership from the White House, by making it clear that nuclear power is a national priority that is too important to lose new projects over bureaucratic delays.

Instead of leadership, the White House has responded with unfortunate lack of credible commitment to addressing this issue. According to Bloomberg news, OMB’s spokesperson said administration officials were surprised that Constellation gave up on negotiations.  It’s hard to believe they could really be that clueless. Everyone following the nuclear loan guarantee process knew this was a potential deal-killing problem for Constellation and other applicants, especially anyone who read Constellation’s executives say so specifically in the New York Times almost a year ago. This issue was raised in Jack Lew’s recent confirmation hearing to take over OMB, and Senate Energy Chairman Jeff Bingaman openly criticized the administration in a hearing on September 23 for holding up these loan guarantees. These complaints have been heard coming from several different corners in Washington and the energy industry for months. If I knew enough not to be shocked by Constellation’s move, how did OMB and the White House did not see this coming?

The administration’s handling of the Constellation loan application raises an important question that needs to be answered: just how committed is President Obama and his administration to expanding nuclear power? The president has said nuclear energy is part of his vision of America’s energy future (most notably in a speech ironically delivered in Maryland announcing a nuclear loan guarantee approval), but we have not seen many tangible results that the members of his administration are fully committed to making that vision a reality. After all, the Constellation announcement comes during the same week when the president was stumping for more infrastructure spending and his own economists released a report arguing that now is an ideal time to build large capital projects, both in terms of economic stimulus and low project costs for financing and labor. In the last week, the administration also cleared the way for two new solar energy projects on federal land and, even more notably, announced a $1.3 billion DOE loan guarantee approval for a massive new wind power project. All of these other initiatives this week are important and deserving of the president’s leadership in making them a national priority. But with the news from Constellation coming amidst all this other administration support for new energy and infrastructure projects, the overall picture is too easily misconstrued as the administration coordinating to put a thumb on the scale in favor of everything but nuclear energy.

Given the energy realities we are facing and the president’s own acknowledgments that nuclear energy needs to be part of a low-carbon response to meeting growing demand, President Obama can not afford to let a bureaucratic bean-counting snafu tie up billions of dollars in new investment and tens of thousands of jobs. Hopefully, this issue is essentially a policy glitch in the administration’s energy agenda, rather than something more problematic. But regardless of the cause, if President Obama is serious about including nuclear in our energy mix, then he needs to use the power of his office to take a hard look at these problems–and fix the glitch.

Photo credit: Let idea Compete

The Military and Innovation

Posted on by The Progressive Policy Institute

This post is the second in a series about the Progressive Military

My buddy Jon Gensler is smart.  Way too smart.  Besides being a West Point grad and serving as an Army battle Captain in Iraq, he has also found the time to take on a joint M.A. from Harvard and MIT.  He’s like a mad scientist that instead of working on killer robot chickens, works on solutions to our energy problems.  I just like to hear him talk about projects that a generation ago would have been on Buck Rogers or Lost In Space.  He didn’t come from some science fiction convention though; he spent the summer at the DoE’s ARPA-E.  The good news is he’s not alone.

ARPA-E, the Advanced Research Projects Agency- Energy, is the Department of Energy’s vehicle for focusing on spurring new, ‘outside-the-box’ energy ideas.  Among them are programs to develop long-life, low cost batteries for electric vehicles, to harness microorganisms to produce liquid fuels without petroleum or biomass, and ‘carbon capture’ technologies that will prevent carbon monoxide from coal plants entering the atmosphere and contributing to global warming.

What makes ARPA-E different is that it is focused on taking large research risks that may have big payoffs while keeping an eye on real prospects of success.  ARPA-E just received its first $400 million budget as part of the Recovery Act in 2009.  It isn’t the only such agency and the model isn’t actually a new one.

ARPA-E is based on DARPA, the Defense Advanced Research Projects Agency, which was created 52 years ago in response to the Russian launch of Sputnik.  What began as a space and nuclear technology research agency later turned to counterinsurgency technologies in Vietnam is now an organization dedicated to the research and development of innovations that give the U.S. military an edge on the battlefield today.  DARPA research led to guided missiles, stealth technology, and the unmanned aerial drones now in use worldwide.

DARPA and ARPA-E are praised as models that are ‘lean’ on bureaucracy and focus on high-risk, high-reward ideas within a relatively small budget.  What is also interesting about them is that they highlight the fact that the military and the government can drive innovation.  This pays dividends not only for our energy needs and national security, but for our economy as a whole, since the private sector tends to build on these innovations

Many claim to have invented the internet, but ARPAnet was the true beginning of today’s World Wide Web.  DARPA also invented GPS and speech translation technology, among others innovations the use of which have generated billions of dollars in profits for private firms in America and worldwide.  Imagine a day at the office without the internet or shipping and logistics without GPS. The ideas that ARPA-E is currently working on have as much potential to make just as large an impact.

Today many private firms are not willing to take research and development risks, especially in our current economic state.  While others cut, DARPA has continued to innovate no matter the political or economic climate using the same model since my father was born.  The breakthroughs expected at ARPA-E are coming at a time when many companies are drastically cutting their R&D budgets.  Through fat and lean years for America, the DARPA model has been a successful example of the military and the government driving innovation, and all on a ‘shoestring’ budget of less than $500 million annually.

‘Thinking outside the box’ has become a motto in American business.  No matter how much out-of-box thinking the private sector does, it is still limited by the ‘box’ of profit.  DARPA and ARPA-E are able to think outside of even this box. Their motto is more akin to the British Commandos: ‘Who Dares, Wins’.  It is important for the government to continue to fund such programs because it can do so independent of the economic climate. DARPA and ARPA-E show that government can spur innovation in a lean, streamlined, and cost-efficient manner, can think ‘outside the box’, and can spur economic growth in the private sector while giving our troops an edge in the fight.

Photo credit: US Army Africa

Internet Wars: A Who’s Who Guide

Posted on by The Progressive Policy Institute

Back in the day, there were no protesters outside corporate headquarters in Silicon Valley, no one had a position on net neutrality because no one knew what is was, and technology journalists were breathlessly trying to keep pace with new technologies and companies instead of holding forth on civil rights and liberties or network engineering protocols.

But ten or 15 years in the life of the Internet is a long time.  The Internet is the transformative phenomenon of our time and its role in our lives raises serious questions about who the Internet “belongs” to, whether it is used for good or ill, what are its technological limits, and what role government has as arbiter of its future.  The debates on these and other questions has become passionate and shrill, generating more heat than light at times.  A person trying to follow the debate might need a field guide to sort through the wide array of groups and their philosophical or economic orientation.  Allow me to offer up this breakdown, the details of which are spelled out in “Who’s Who in Internet Politics: A Taxonomy of Information Technology Policy,” a new report from the Information Technology and Innovation Foundation.

In the report, ITIF lays out the following eight categories:

Cyber-Libertarians – Think of them as the original “netizens” and purists who believe the Internet should be governed solely  by its users that and “information wants to be free.”  Privacy and piracy will take care of themselves by the individuals who make up the organic and living Internet and not by government. Groups include the Free Software Foundation and the Electronic Frontier Foundation

Social Engineers – Mostly liberal, they see a lot of good in the Internet as an education and communications tool but they worry about the “digital divide,” privacy, net neutrality, and a concentration of power by both government and major corporations.  These issues could erode the Internet’s capacity to be a tool for good for all.  Among groups are the Benton Foundation, Center for Democracy and Technology, Center for Digital Democracy, Civil Rights Forum on Communication Policy, Consumer Project on Technology, Electronic Privacy Information Center, Free Press, Media Access Project, and Public Knowledge, and scholars such as Columbia’s Tim Wu, MIT Media Laboratory’s David Reed, academics at Harvard’s Berkman Center (among them Larry Lessig and Yochai Benkler).

Free Marketers – Unleash the entrepreneurs! This group views the digital revolution as the great third wave of economic innovation in human history and a dynamic and liberating force that the government should mostly keep out of it. Groups include the Cato Institute, the Mercatus Center, the Pacific Research Institute, the Phoenix Center, the Progress & Freedom Foundation, and the Technology Policy Institute.

Moderates – Unabashedly pro-IT, they see the Internet as this era’s driving force for both economic growth and social progress and they believe a light touch from government is useful in helping the Internet reach its potential.  “Do no harm” to limit to IT innovations but also “actively do good” is their mantra. Examples of moderates include the Center for Advanced Studies in Science and Technology Policy, the Center for Strategic and International Studies, ITIF, and the Stilwell Center.

Moral Conservatives – These groups see the Internet as an often smutty and dangerous place teeming with pornographers, gamblers, child molesters, terrorists that only government can keep at bay. They pushed for passage of the Communications Decency Act and Child Online Protection Act, Internet filtering in libraries, and worked to push legislation to ban online gambling.  Examples are groups like the Christian Coalition and Focus on the Family, and around the world with countries like Indonesia, Thailand, Saudi Arabia and other religiously conservative nations that seek to limit activity on the Internet.

Old Economy Regulators – This group believes the Internet should be regulated in the same way that government regulates everything else. Otherwise, you have chaos and inequities.  Examples of this group include law enforcement officials seeking to limit use of encryption and other innovative technologies, veterans of the telecom regulatory wars that preceded the breakup of Ma Bell, legal analysts working for social engineering think tanks, as well as government officials seeking to impose restrictive regulatory frameworks on broadband.

Tech Companies & Trade Associations – Software and communications giants, Internet start-ups, and the groups that represent them, these tech interests tend to believe that regulation can be both advantageous and detrimental, depending on their particular business model.  They also advocate policies that are good for the technology industry or the economy in general. Examples include IBM, AT&T, and Hewlett Packard, Cisco Systems and Microsoft, and recent phenomena in the market such as Google and Facebook, as well as trade associations like the Information Technology Industry Council and the Association for Competitive Technology. They delve into trade, tax, regulatory, and other public policy issues from a bottom-line perspective rather than a philosophical basis.

Bricks-and-Mortars – This group includes the companies, professional groups, and unions that use the Internet but also see it eroding the old-economy and face-to-face business transactions and they struggle to hold back the tide. These include both producers and distributors and middlemen (such as retailers, car dealers, wine wholesalers, pharmacies, optometrists, real estate agents, or unions representing workers in these industries). The long running battle over taxing Internet sales illustrates their struggle.

Of course, individual groups defy rigid characterization.  For example, Moral Conservatives might find themselves on the same side of an issue as Social Engineers.  Also, consensus is often elusive in trade associations as member companies often have complicated interrelationships or niches in the market.  However, whether you lean more toward advancing the interests of the individual or society as whole, see government regulation as generally useful or harmful, or are wary of the Internet’s influence or enthusiastic about it is useful to understanding where various groups stand.  You might need Venn diagrams to fully understand the Internet policy landscape when surveying issues such as piracy, net neutrality, intellectual property rights, and Internet sales taxes.  (An unusual pursuit, to be sure.)

One common theme in all these groups is that they almost certainly believe they are advocating sound policies and doing the right thing for individuals and for society – as incomprehensible as that might seem to those from an opposing organization.  In some cases, their passion for their beliefs makes for a good sound bite in a news story.  The societal destruction by a government that is scheming to implant chips in our heads is an easier story to sell than an explanation of how packets are sorted on broadband networks. And this is dangerous.

Internet and technology debate is being politicized and degraded.  And misguided and ill-informed debates lead to misguided and ill-informed policies. We have enough of people vehemently opposing bills they haven’t read or crafting policy from bumper stickers and making caricatures of opponents.   The Internet’s transformation is really just beginning so people in government, the media, and the public at large need to refine and update their understanding of the philosophical issues, the players, the economic realities, and societal issues as stake.  Wherever you come down on a range of tech policies – whether you carry placards outside of Facebook’s offices or decide to get an engineering degree to figure out net neutrality – it is essential to understand the political and policy landscape that didn’t exist just 20 years ago.  And now you have a map.

Photo credit: Stefan

Retooling the American Economy for Jobs, Innovation, and Competitiveness

Posted on by The Progressive Policy Institute

America is adrift and needs leadership to modernize and build a foundation for 21st century competitiveness. And while it’s a long hard to travel, there are at least a few signs of optimism.

Such were the key takeaway points from Friday morning’s panel on the question of “Retooling the American Economy,” which was part of the Progressive Policy Institute’s Second Annual North American Strategic Leadership Infrastructure Leadership Forum in Washington, DC.

The panelists were : Tom Friedman, New York Times Columnist, Pulitzer-Prize Winning Author; Jason Furman, Deputy Director, National Economic Council, White House; Roderick Bennett, Advisor to the General President of the Laborers’ International Union of North America; and John Woolard, CEO, Brightsource Energy. David Wessel, economics editor of the Wall Street Journal moderated.

In general, the panelists agreed that we’re in a difficult spot. We’re falling behind China on infrastructure, on energy, on basic research and development –  just about every measure of investing in a 21st century economy. As Friedman put it, “We can only go so long with a philosophy of dumb as we want to be.”

Part of that dumb-as-we-want-to-be philosophy is an unwillingness on the part of many to admit that government has a key role to play in creating an environment where innovation can thrive, both by making big investments and putting the right incentives in place. The solution to this, of course, is leadership.

“We have an epic lack of faith in government with a capital G, but we have an unchanging love for government at the local level when it means bridge projects and energy projects and broadband projects,” said Furman. “And that’s something you see at the bipartisan level. Some of this means we have a messaging problem, and some of that is bottom-up, pointing out what it all tangibly means.”

“But how you get the snake through the python is a big challenge,” Furman added. “You have to pass the thing through Congress, and the debate will be framed in big government terms.”

Friedman, who was openly critical of the administration’s salesmanship efforts, argued that what was needed was big-picture leadership.

“We need to make it aspirational,” said Friedman.  “That’s what the moon shot was all about. People want nation-building at home. You fly from Shanghai to JFK, and you go from the Jetsons to the Flinstones. People sense that. And the President has never made that the lodestar. He’s never leveraged all that energy.”

Woolard, who heads a large solar energy company, offered a dose of optimism. “We have a lot more projects here in the U.S. than abroad,” he said. “There are good projects, and there’s a lot moving forward.”

“But,” he added, “The thing that scares me most is the longer-term issue. Not enough students are going into engineering. We need to encourage people to go into those disciplines.”

Woolard also described the challenge at hand: In order to stabilize carbon emissions at 450 parts per million by 2050 (a commonly-agreed on target to stem global warming), “we’ve gotta build between 12,000 and 20,000 gigawatts of carbon-free power. That’s a power plant per day. We’ve built gigawatts a week before, but we don’t have the rules yet to get to this objective. We need policy.”

The consensus was that there would need to be a price on carbon. “Capital works itself out with the right rules,” Woolard said. But given the politics of energy, would the political will ever exist?

Here Friedman was an optimist: “We’re absolutely going to have a gas tax and a carbon tax,” he told the audience. “Because we’re going to run out of money, and we will need revenue and when we run into that wall, people will look around and say, what’s the best source? The sad thing is there are 535 members of Congress, and not one will propose this when it is so manifestly in the strategic and economic interest of the country.”

Bennett, whose union represents construction workers, also registered support for a gasoline tax, which he called “the elephant in the room.”

Friedman also offered a “killer app” for economic competitiveness: “An ecosystem of a national renewable standard, a price on carbon, a gasoline tax, higher building efficiency standards,” he said. “Put that ecoystem in place and you get 10,000 green garages trying 10,000 different things. Two of those will be the next green Google and Microsoft. The killer app is the enabling system.”

Let the Wine Flow

Posted on by The Progressive Policy Institute

PPI just released a new policy memo by Jeff Siegel: “Let the Wine Flow: Why Congress Shouldn’t Restrict Free Markets in Beer, Wine, and Spirits.”  It’s about an issue that will be the subject of a House Judiciary Committee hearing today—and one that is also very close to my own heart: booze.  After reading Jeff’s piece and seeing the witness lineup for this hearing, I had to take a break from our big week of infrastructure events to say a few words about this piece on H.R. 5034 and today’s hearing.

This booze war is good stuff.  Any issue that mixes alcohol with economics, congressional politics, and constitutional law is right up my alley.  Even putting aside my personal bias as an enthusiastic consumer, the political history of the alcohol industry in America is incredibly fascinating, and the newest chapter being written this week is no exception.

Regulation of alcohol in this country has provided some of the most interesting stories in our history about the role of government in regulating economic activities by private industry and individual consumers.  After all, what other consumer product has ever been important enough to us as a nation that we amended our Constitution to ban it from the market, and then amended it a second time to legalize its sale again?  Although most of us probably think of prohibition as a one-time quirk of American culture that is well behind us, the regulatory legacy of prohibition is strong and still shapes the industry today.

Because of our national fascination with controlling alcohol in commerce, the three-tier structure of our alcohol industry today is more an accident of history than a system shaped by economic forces.  With the repeal of prohibition, the 21st Amendment implicitly endorsed the three-tier approach imposed by the states by explicitly giving states the power to regulate the alcohol industry.  At the time, giving distributors a legally-protected role in the market was seen as a safeguard against past corruption and abuses by large alcohol producers that had in large part inspired prohibition in the first place.  Since that time, a lot has changed in the industry, but the distributors have continued to enjoy protected status as state-sanctioned middlemen.  It’s pretty nice work if you can get it.

Apparently, those same distributors now feel that their place in the market is being threatened to the point that they have asked Congress to step in and help them by making it nearly impossible for anyone to challenge state alcohol laws on constitutional grounds.  The distributors claim that the three-tier system enforced by the states is under attack by the growth of direct shipping from small wineries and microbreweries, along with the direct buying power of large wholesale outlets like Costco and Walmart.  Producers, consumer groups, free-market think tanks, and an outraged community of wine bloggers have tried to debunk that argument, countering that this is a pure political power play by the distributors to further entrench their position as rent collectors in state alcohol markets.

This bill is an odd thing if you actually read the text of it (which I’m not sure many staffers did), because it’s not at all clear what it’s trying to accomplish unless you’re familiar with the background of the Supreme Court’s 2005 Granholm decision that limited the states’ ability to regulate alcohol under the 21st Amendment when the state regulation unfairly restricts interstate commerce.  As a recovering lawyer, I admit that I find the Granholm decision really interesting: a 5-4 decision with an unusual mix of justices in the majority, and hardcore textualist Scalia agreeing that the phantom idea of the dormant commerce clause trumps the clear language of the 21st Amendment.  But for sane people who would rather stab themselves in the eye than read the entire decision, the takeaway was that states can no longer pass laws to protect their local alcohol industry by discriminating against alcohol producers from outside the state.  That’s good for out-of-state wineries and breweries who want to bypass distributors and sell directly to consumers and retailers, and bad for distributors who lose part of their markup business when that happens.

What the bill actually does, more or less, is to give states free rein to ignore the Granholm decision by making it really, really hard for anyone to challenge state alcohol laws in court for running afoul of Granholm.

That’s a bold step for Congress to take, and for pretty questionable reasons.  Which means that even for a recovering lawyer, the jurisprudence is less important than the political story that’s at work here.  Because as a recovering Hill staffer, this bill turns my stomach.  The language (if you can follow it) is so shamelessly overreaching that when I learned that it has 146 cosponsors in the House, I knew immediately I could name at least 146 legislative staffers who are not very good at their jobs.  It baffles me to think how anyone could advise a member of Congress to add his or her name to legislation that is such an obvious political liability waiting to happen.  And then I remember what good receptions the beer wholesalers used to throw, and how much young legislative aides appreciate free beer.

But now that the Judiciary Committee is taking this bill seriously and giving it a full-blown hearing, it’s worth thinking critically about the serious questions underlying the distributors’ position.  First, is the three-tier system mandated by the states in danger of collapsing?  That is, do the distributors have a valid claim that Congress needs to take action to protect the current system against erosion by market forces in interstate commerce?  And second, is the system of state-by-state government structuring of the industry, which has produced the three-tier system, worth protecting in the first place?

But as Jeff Siegel points out in his memo, the debate surrounding this bill hasn’t been about these questions, and as often happens in Congress, the real-world outcomes are obscured by rhetoric and misdirection:

Ultimately, this is an issue of choice and competitiveness. It’s one thing to have an honest debate about the pros and cons of the three-tier system and whether it still makes sense, almost 80 years since the 21st Amendment put it in place. But that’s not the debate we’re having. Instead, the debate is whether Congress should tie its hands for no good reason, and make it harder for small businesses to compete in the alcohol distribution market. It seems like a debate that’s hard to justify having.

Given the growth and innovation we have seen in the alcohol industry, and the benefits to consumers of a vibrant national market for new products, it’s hard to see how anyone can make a valid case that the Granholm decision needs to be rolled back, or that distributors can’t continue to flourish in a competitive market, even if they no longer get to put their hands on every product moving into and out of state markets.  But apparently someone has made the case successfully to 146 cosponsors in the House, so maybe I need to let them buy me a beer and explain it to me one more time . . .

White House National Economic Council to Join PPI at Infrastructure Forum

Posted on by The Progressive Policy Institute

NEWS RELEASE
FOR IMMEDIATE RELEASE
September 28, 2010

PRESS CONTACT:
Steven Chlapecka—schlapecka@ppionline.org, T: 202.525.3931

Deputy Director Jason Furman Joins Roundtable Discussion on Jobs, Innovation and Competitiveness

 

WASHINGTON, D.C. – Jason Furman, deputy director of the White House National Economic Council, will join the Progressive Policy Institute (PPI) for a roundtable discussion at the Washington Hilton at 9 a.m. on Friday, Oct. 1 as part of the 2nd Annual North American Strategic Infrastructure Forum. The discussion will focus on jobs, innovation and retooling the American economy for growth and global competition.

The roundtable will feature panelists New York Times Columnist Tom Friedman, LIUNA General President Terence M. O’Sullivan and BrightSource Energy CEO John Woolard. It will be moderated by Wall Street Journal Economics Editor David Wessel.

“Furman’s participation underlines the forum as the premier showcase of strategic infrastructure investments needed to speed economic recovery and raise America’s game in global competition,” said Will Marshall, president of PPI. “We hope to challenge the nation’s political leaders to embrace a bolder strategy for retooling the American economy through crucial infrastructure projects like high-speed rail, clean cars and next-generation nuclear energy.”

Throughout the three-day conference, the Progressive Policy Institute and CG/LA Infrastructure will bring together leading thinkers from the public and private sectors in order to move North America’s most important projects forward, creating as many as six million new direct jobs.

Other featured speakers include: U.S. Senator Mark Warner, (D-Va.); U.S. Representative Rosa DeLauro, (D-Conn.); Leo Hindery Jr., Managing Partner, InterMedia Partners VII; Joe Boardman, President and CEO, Amtrak; U.S. Representative Dan Lipinski, (D-Ill.); Mark Reagan, Chairman, Global Construction Practice, Marsh Inc.; Chris Bertram, Assistant Secretary for Budget and Programs and Chief Financial Officer, Department of Transportation;Ev Ehrlich, President, ESC Company; and more.

WHERE: Washington Hilton, Columbia Hall 5 & 7, 1919 Connecticut Ave. NW, Washington, DC

WHEN: 9 – 10:30 a.m., Friday, Oct. 1

Download the entire day’s schedule.

How To Pay For High-Speed Rail

Posted on by The Progressive Policy Institute

President Obama has been quite supportive of building high-speed rail. In January he announced an $8 billion down payment. But that was just a start. Building high-speed rail is a major investment, and the big question is: how will we pay for it, especially in a time of increasing federal deficits?

PPI Fellow Mark Reutter has some ideas, and he writes about them in a new policy memo that PPI is releasing today. The memo is called: “A smart way to finance high-speed rail: Restructuring the Highway Trust Fund into a results-driven transportation fund.”

Reutter argues that the money should come out of a cleaned-up Highway Trust Fund, which is currently larded with strategically aimless and costly programs:

Congress could easily allot $5 billion a year for HSR construction – without an increase in the gas tax – by cutting out earmarks and formula-based grants that now soak up billions of dollars, according to the General Accountability Office (GAO). Such fund reallocations could not only jumpstart HSR projects but serve as seed money to public-private partnerships to get the work done.

Although the Highway Trust Fund was once an elegant solution to funding the construction of the Interstate Highway System with gasoline taxes, it has over the years become more and more just a source of political pork.

Reutter thinks it’s time we use the almost $300 billion authorization (over six years) for building up genuine high-speed-rail routes. To that end, he makes seven specific policy recommendations for the next Highway Trust Fund re-authorization replacing the current authorization due to expire at the end of 2010.

  • Change the name of the Highway Trust Fund to the Surface Transportation Trust Fund to better reflect its new mission for the 21st century.
  • Allocate at least $5 billion in Trust Fund money in 2011 to HSR construction, with special emphasis on getting a demonstration high-speed line between Tampa and Orlando completed by 2015. (The Florida line received $1.25 billion in federal stimulus grants, but is still short of its $2.6 billion budget.)
  • Increase HSR expenditures in years 2012-15 (if a five-year spending bill is enacted) to reflect the increased demand for grants as more states develop passenger rail plans.
  • End the bureaucratic separation of highway and rail programs by establishing a team of planners to develop a HSR network in coordination with future highway building and restoration.
  • Direct the U.S. Department of Transportation and state authorities to examine routes where HSR could use Interstate and other publicly owned highway corridors for rights of way. This approach, already being used in the Tampa-Orlando corridor, would greatly lower land acquisition costs for new rail lines.
  • Base federal transportation decisions on clear analytic measures of performance rather than earmarks – and competition between states instead of preset formulas – to produce the greatest return on taxpayer dollars.
  • Ensure that HSR, which uses about 20 percent less energy per passenger mile than automobiles, gets its fair share of any future revenues generated by carbon pricing.

Reutter also explores ways that policymakers can leverage private capital to augment public spending.

One approach is assembling land around potential HSR terminals for sale to private companies either operating or putting up part of the capital costs of HSR building.

Another is to encourage overseas operators with proven track records to invest in U.S. projects, at least initially, to allow U.S. companies to “learn the ropes” of building these highly sophisticated systems.

Ultimately, though, it’s going to take real political leadership. As Reutter concludes:

The Obama administration has repeatedly talked about its commitment to “green” technology and how fast trains could provide job growth and business opportunities to regions hard-hit by the loss of manufacturing. The administration needs to seize the initiative and make the case for HSR funding during the fall election cycle and in the next transportation reauthorization bill.

Reutter will be discussing high-speed rail Wednesday at a panel on “Keeping America on Track: The Future of High-Speed Rail,” which is part of the 2nd Annual North America Strategic Infrastructure Leadership Forum, co-sponsored by PPI.