issue: Economy

Spur Job Growth By Making Business Registration Easier

Posted on by The Progressive Policy Institute

Americans love small businesses and admire the job-creating doggedness and independence of entrepreneurs and dreamers.  Then why aren’t we making it easier to start a business?  Aspiring business owners face a daunting amount of red tape and hassle.  With job creation at the top of the national agenda, the time has come to do better in making it easier to start a business

The OECD, which measures barriers to entrepreneurship (including administrative burdens to open a business, legal barriers to entry, bankruptcy laws, property rights protection, investor protection, and labor market regulations), ranks the U.S just 14th of 29 OECD countries.

We know that small businesses are the engine of job growth in the United States, accounting for 2/3 of new jobs over the past 15 years, according to the Small Business Administration. That’s why one way to spur desperately needed job creation in the United States would be to make the business registration process faster, more comprehensive and thoughtful about the needs of small businesses, and thoroughly integrated with the state business registration process.

We propose the Administration task the Federal CIO, Vivek Kundra, with redesigning business.gov and undertaking a strategic design review of the federal and state small business registration process, redesigning it to create an integrated business registration website encompassing both federal and state requirements and contemplating the entire lifecycle of needs for small business start-ups, thus creating a one-stop shop for business registration in the United States.

The portal would incorporate all states’ business registration requirements into an integrated one-stop system. The registrant would need to only visit a single website to register his or her business both with the Federal government and the relevant state government. (This would have to be done with federal leadership, with the federal government providing a framework and platform to let states add their requirements to it.)

The website would have interactive components, modeled along the lines of TurboTax, with wizards/dialogue boxes, and with the registration process asking questions, demonstrating intelligence, and providing constructive guidance and advice. It should be smart enough to recognize, “You’re registering an electricians business in Arkansas with 10 employees. We recommend a sole proprietorship as the corporate form of governance.” That is, it wouldn’t have just a bunch of links where one can learn more about different corporate forms. It could give advice based upon the information the registrant is entering—in part by tapping into a database with insights on how other similar businesses are structured.

The redesigned business registration process would also contemplate the entire lifecycle of needs and concerns for the small businesses. For example, it would bring information forward to the registrant about whether there are loan programs the business is eligible for, such as relevant Small Business Administration (SBA) or Economic Development Agency (EDA) loans, or information about lines of credit from local commercial lenders. (And the system should actually go in and automatically use the already-entered data to populate the information on that loan form – almost getting to the point where all the registrant needs to do is click “Submit.” Indeed, the system architecture would have a principle that the registrant never needs to enter the same information more than once.)

If the entrepreneur signals the company will be in the business of making products, the website should proactively present any export promotion programs the company might engage with through the Department of Commerce. Again, not just providing links to the Department of Commerce website, but recognizing, “You’re producing custom machine tools and the Department of Commerce has Program X to support it.” Thus, the business registration process would directly support the Administration’s goal to double U.S. exports in five years.

Also, the system should tie directly into the country’s statistical agencies so they can recognize, “We have a small business that just registered,” and that data should go directly and immediately to Bureau of Economic Analysis and the Census Bureau so that we get a much more real-time view of the state of the economy. Of course, implicit in this vision is the need to connect disparate and siloed federal and state databases and information technology systems so that they communicate with one another and bring to bear information in real time to support the small business.

Finally, the small business registration process should be made on an open application platform, in such a way that it could allow competition in the marketplace. So a Citibank or Bank of America, for example, could co-brand it as a “Small Business Starter Kit.” Thus, if an entrepreneur goes into a BofA location to apply for a line of credit, BofA could say, “We’ve got everything you need to start your business right here. Get set up online here now.” The point is the government should make the web interfaces to the registration process open and accessible, so other companies can integrate them with other value-added services they provide to small businesses.

One model is Portugal, where the new “Firm Online” program has completely digitalized the process of registering a business, streamlining the process from it taking 20 different forms and roughly 80 days to launch a business to creating a single website through which new businesses can register in as little as 45 minutes. Within months of launching the new service, more than 70,000 new businesses registered. Portugal’s system uses electronic (digital) signatures (which the U.S. system does not) when authentication is required. It is also responsive to the life cycle needs of a start-up business, providing suggestions for sources of capital, talent, etc. Portugal now ranks 2nd of the 30 OECD countries in online business sophistication. Other countries like South Korea enable entrepreneurs to create firms through their mobile devices.

The modern economy is marked by incredibly intense competition, both globally and domestically. American businesses need every single advantage they can get—and making the process of new business registration in the United States the very best in the world would be an excellent place to start.

Photo Credit: Muffet’s Photostream

Do Americans Think Their Kids Will Do Better?

Posted on by The Progressive Policy Institute

Kevin Drum notes my last post and then wonders, “What I’m more curious about is what this looked like in the 50s, 60s, and 70s. Was optimism about our kids’ futures substantially higher then?”

The results I showed were mostly from a fantastic database of polling questions called “Polling the Nations”, which I recommend to everyone (though it’s not free, it’s not that expensive relative to other resources).  That’s why they only start in the mid-80s, and there’s a gap between the mid-00s and the two or three polls I cite from this year and last (my look at this question was a few years ago).

Anyway, Kevin’s query reminded me that there’s another compilation of polling questions that is also amazing—the book, What’s Wrong, by public opinion giants Everett Carll Ladd and Karlyn Bowman.  And it’s a free pdf.

So, let me add some results to those I posted before.  I’m focusing, to the extent possible, on questions that ask parents about their own children.  When people are asked about “kids today” instead of their own kids, they are much more likely to be Debbie Downers—a phenomenon that journalist David Whitman dubbed the “I’m OK, They’re Not” syndrome, which is much more general than questions about children’s future living standards.  Also, let’s be careful to distinguish between levels and trends.

First, let’s look at the confidence parents have that life for their children will be better.

Percentage of parent confidence that life for their children will be better
Year Very confident Fairly confident Not at all confident
1973 26% 36% 30%
1974 25 41 28
1975 23 39 32
1976 31 39 25
1979 25 41 29
1982 20 44 32
1983 24 38 33
1988 20 45 28
1992 17 46 31
1995 17 44 34
2000 46* N/A 48*
Source: Roper Starch Worldwide; *Washington Post/Kaiser Family Foundation/Harvard

That last one shouldn’t be directly compared with the others—not only did it only offer a yes-or-no response, it was also asked of all adults.  More on that in a sec.  What we see from the Roper surveys is a fairly steady decline in solid confidence, but not much of a trend in pessimism.

The main dynamic is that parents have moved from being “very” confident to “only fairly” confident.  It looks like there may have been a small decline in optimism from the late 1980s through the mid-1990s.  But it’s interesting that from 1973 to 1995, between 61percent and 70%percent were at least fairly confident that their kids would be better off.

The Washington Post polling result provides a nice opportunity to look at the “I’m OK, They’re Not” pattern, since all adults were asked the question, even though fewer than half had children under 18 in their household.  In a poll my employer* commissioned from Greenberg Quinlan Rosner Research and Public Opinion Strategies, we asked parents about their expectations for their children’s living standards.  We asked people who had no children under 18 at home about “kids today.”

Pooling everyone together, 47 percent of adults said kids would have higher living standards. But the parents were much more optimistic about their own children, with 62 percent saying their kids’ living standards would improve.  So the Washington Post result might have been right in the range of the Roper results had the question been asked only of parents.
Other polls have asked whether parents think their children will be better off when they are the same age:

Percentage of parents that think their children will be better off when they are the same age
Year Better off financially Not better off
1981 47 43
1982 43 41
1983 44 45
1985 62 29
1986 74 19
1991 66 25
1994 47* 39*
1995 54 39
1996 52 39
1996 51‡ N/A
1997 51‡ N/A
1999 67‡ N/A
Sources: ABC News/Washington Post;  *Newsweek; ‡Pew Research Center

So optimism declined between the mid-1980s and early-1990s, recovered starting in the mid-1990s, and generally remained above early 1980s levels (when the economy was in recession).  Except for 1983 majorities or pluralities hold the optimistic position.

Another series of polls asked parents whether their children will have a better life than they have had.  They also indicate a decline in optimism from the late 1980s to the early 1990s and a subsequent rebound:

Parents outlook on their children’s life
Year Better life About as good
1989 59% 25%
1992 34 33
1995 46 27
1996 50 26
2002 41* 29*
Sources: BusinessWeek; *Harris Poll

Strong majorities thought the children would have as good a life as them or better, and while more people thought their kids would have a better life than thought they would have a worse life, optimism failed to win a majority of parents in a number of years.  The trends appear to reveal a decline in optimism from the mid- or late-1990s to the early 2000s.  Considering all of these trends thus far, a fairly clear cyclical pattern is emerging, as Kevin observed in his post.

The early 2000s dip also shows up in Harris Poll questions asking whether parents feel good about their children’s future:

Percentage of parents that feel good about their children’s future
Year Feel good
1997 48%
1998 65
1999 60
2000 63
2001 56
2002 59
2003 59
2004 63
Source: Harris Poll

The dip is revealed to be related to the 2001 recession, as optimism rebounded thereafter, again following the business cycle. Again, solid majorities generally take the optimistic position.

The longest time series available asks parents whether their children’s standard of living will be higher than theirs.  Unfortunately, it appears that most of these polls ask the question of adults without children too:

Percentage of parents that believe their children will achieve a higher standard of living
Year Higher standard of living Lower standard of living
1989 52% 12%
1992 47 15
1993 49 17
1994 43 22
1994 45* 20*
1995 46 17
1996 47* N/A
1998 55* N/A
2000 59* N/A
2002 61* N/A
2004 53* N/A
2006 57* N/A
2008 53* N/A
2009 47/62† N/A
2010 45‡ 26‡
Sources: Cambridge Reports/Research International; *General Social Survey; †Economic Mobility Project; ‡Pew Research Center

Once again the cyclical pattern emerges, though it is not quite as clear in the mid-2000s.  Optimism is far more prevalent than pessimism in every year, reaching majorities from the late 1990s until the current recession.  Even today, optimism is no lower than in the mid-1990s, and the EMP poll implies that when looking just at parents with children under 18 living at home, solid majorities continue to believe their kids will have a higher living standard.

Taken together, there is very little evidence that a supposed stagnation in living standards is reflected in Americans’ concerns about how their children will do.  The survey patterns show that parental optimism follows a cyclical pattern, generally is more prevalent than pessimism, and did not decline over time.  In fact, we can compare beliefs in 1946 to 1997 for one question—whether “opportunities to succeed” (1946) or the “chance of succeeding” (1997) will be higher or lower than a same-sex parent’s has been:

·       Roper Starch Worldwide (1946)—64 percent of men said their sons’ opportunities to succeed will be better than theirs (vs. 13 percent worse); 61 percent of women said their daughters’ opportunities to succeed will be better than theirs (vs. 20 percent worse)
·       Princeton Religion Research Center (1997)—62 percent of men said their sons will have a better chance of succeeding than they did (vs. 21 percent worse); 85 percent of women said their daughters will have a better chance (vs. 7 percent worse)

As one would expect, mothers in 1946 believed their daughters would have more opportunity, but surprisingly that view was even more prominent in 1997.  And among men, there was very little change.  Notably, unemployment was slightly lower in 1946 than in 1997, so this isn’t a matter of apples to oranges.

Or even more strikingly, consider two polls asking the following question: Do you think your children’s opportunities to succeed will be better than, or not as good as, those you have? (If no children:) Assume that you did have children.
·       Roper Starch Worldwide (1939)—61 percent better vs. 20 percent not as good vs. 10 percent same (question asked about opportunities of sons compared with fathers)
·       Roper Starch Worldwide (1990)—61 percent better vs. 21 percent not as good vs. 12 percent same

While the 1939 question only refers to males, given the relatively low labor force participation of women at the time, it is perhaps still comparable to the 1990 question.  However, the unemployment rate was 17.2 percent in 1939 compared with 5.6 percent in 1990.  Still, the two are remarkably close.

OK, can we put this question to bed?  Americans believe their children will do as well or better than they have done, and this belief hasn’t weakened over time.  Now let’s get back to arguing about objective living standards rather than subjective fears about them.

* For the love of God, nothing you’ll ever read on my blog has anything to do with my job—there are people at Pew whose ulcers flare at employees’ side hustles like mine.

This item is cross-posted at ScottWinshipWeb.

Photo Credit: fiskfisk’s Photostream

The Fed Can Not Only Lead A Horse To Water, It Can Also Turn On The Hose

Posted on by The Progressive Policy Institute

The Federal Reserve’s outlook on the economic recovery continues to get gloomier.  In its statement released following the FOMC meeting today, the Federal Reserve acknowledged that “the pace of recovery in output and employment has slowed in recent months,” and “economic recovery is likely to be more modest in the near term than had been anticipated.”  Not good news, especially when interest rates are already about as low as they can go.  With today’s announcement that it is committed to keeping rates at rock-bottom levels ”for an extended period” going forward, the Fed also signaled that it is ready to go beyond rate setting to strengthen the economy.

After keeping the federal funds at historic lows for so long, with only disappointment to show for it, the Fed has decided that it’s no longer enough to lead the U.S. economy to water and wait for it to drink.  So as part of its announcement today, the Fed signaled that it will once more resort to quantitative easing to pump money directly into the economy.  Because there are risks to this strategy (see Krugman), the Fed couched this move in modest terms, explaining that it will be buying long-term Treasury notes to “keep constant” the level of assets on its balance sheet, which currently includes a large portfolio of mortgage securities it purchased to stabilize markets during the financial crisis.

The Fed will simply be rolling over its portfolio into Treasuries as the mortgage securities retire, which is actually not putting new money into the economy, as much as it is preventing the money supply from shrinking if the Fed’s portfolio were allowed to get smaller.  But there are signals here for those who have been anticipating a new push for quantitative easing from the Fed.

The First Signal: The Fed is clearly ready to buy market securities to inject money into the economy as needed.  This baby step toward quantitative easing is likely a preview of more dramatic asset purchases if the Fed sees real evidence of deflation or a double-dip recession.  Be prepared for more.

The Second Signal: The Fed is not necessarily interested in using mortgage securities as an asset vehicle for expanding the money supply.  Doing so would keep mortgage rates low, which would help prop up an ailing housing market.  But mortgage rates are already the lowest on record, and that hasn’t helped sales much, so the Fed doesn’t need to waste time trying to lead another horse to water in housing markets.

The overall signal from today’s FOMC statement is not good news for the economy.  The Fed is becoming less optimistic and less certain about the future.  Bernanke and company are apparently convinced that stronger actions may still be needed for sustained stimulus.  The fact that they are coming around to that view may do some good for restoring confidence in Fed policy.  And the Fed needs all the help it can get these days, because it’s running out of useful monetary tools to boost the economy.

Hopefully the signals from today’s statement will be heard in Congress, where lawmakers still have a lot of steps they can take before the end of the year to bring better stimulus and more confidence to the economy.

Photo Credit: Ken_Mayer’s Photostream

Stop Playing Favorites in the Biofuels Market!

Posted on by The Progressive Policy Institute

In discussions of the energy bill this summer, talk focused on a price for carbon. This is a vital component in any legislation that would force companies to reduce emissions, either by becoming more efficient or substituting cleaner fuels. But that’s only realistic if cleaner alternatives, like biofuels, are available to replace dirty fossil fuels. Whether or not cap-and-trade passes this year, biofuels should play a key role in our new energy economy, but we need to reassess federal support to allow for more diverse and higher performing biofuels.

The biofuels industry today continues to rely on significant federal assistance to encourage investment and innovation. In the recent past, federal support has focused on pre-approved types of fuel, most prominently corn ethanol. This policy has aided the boom and bust cycle in today’s biofuels market. The government paid all its subsidies and tax credits to corn ethanol, causing the industry to expand at a faster rate than the market could accommodate. Choosing corn as the favorite resulted in a crash in ethanol prices once it became clear that supply had been propped up by federal support (rather than realistic market demand). These government policies that focus solely on corn ethanol have created both a bias in the market and a situation where investors are not willing to support alternative fuels because of federal support in favor of corn ethanol.

The biofuels market began with alternative fuel mandates in the Energy Policy Act of 1992, but these were mostly filled by conventional biofuels (ethanol derived from cornstarch). Since they were the most developed form of biofuel at the time, they received the bulk of individual tax credits (like the Volumetric Ethanol Excise Tax). Since then, Congress has adopted mandates for advanced biofuels (fuels other than cornstarch ethanol, derived from renewable biomass) and tax credits for cellulosic biofuels (a type of advanced biofuel derived from grasses, woodchips and other non-food sources). But other potential advanced biofuels (such as algae biofuel) still receive no support beyond general R&D funding. Corn ethanol’s stranglehold of the market through congressional subsidies can be seen in what would happen if current tax credits were extended through 2014: ethanol would receive more than 75 percent of the credits, while cellulosic biofuels would get less than 11 percent.

Corn ethanol production in the United States has more than tripled in the last five years, a boom that has caused other problems: diversion of corn away from food production, increased erosion, higher inputs of chemicals and water, and changes in cropping patterns and land use. Worse, these have serious repercussions, including the exhaustion of groundwater supplies, the destruction of native prairies, and the expansion of the Dead Zone in the Gulf of Mexico.

Some advocates for clean energy have pointed to these problems as reasons to stop supporting biofuel development. However, these negative consequences and the recent public backlash against ethanol mean we need a second generation of biofuels that is more diverse and market-based. Business Insights found that biofuels are estimated to account for 5-10 percent of global fuel production by 2017. It is unrealistic to think that our reliance on fuels for combustion engines will decrease anytime soon. Even if electric cars become economically feasible in the near future, it will take time to phase out existing cars. Concerns about energy security, rising oil prices and climate change will increasingly force us to change the energy mix to rely on cleaner fuels. For biofuels, this translates into a very real and growing market demand for at least the next several decades.

That’s why instead of continuing to use biofuel credits to help political constituencies like corn farmers, Congress needs to focus on forms of support that will increase performance and long-term viability for all types of biofuels. A good step toward diversifying the biofuels market is the Advanced Biofuel Investment Act of 2010, proposed by Representative Stephanie Herseth Sandlin (D-SD), which would create a new 30 percent Investment Tax Credit for investing in advanced biorefineries. This would build on existing tax credits, continuing America’s commitment to the biofuels industry.

Futhermore, if we really want to move beyond a market dominated by ethanol, Congress should approve a tax credit like the Biofuels Performance Tax Credit proposed by the Union of Concerned Scientists. All types of biofuels would be eligible for this tax credit and would receive support in proportion to their emissions reduction, rewarding performance, and fostering competition and innovation. The maximum tax credit would be $1.15 for every gallon of gasoline replaced, but to qualify for the full credit, the biofuel must have zero emissions over its lifetime. Thus, the tax credit incentivizes performance both for replacing oil and reducing global warming pollution. It would build on the current Renewable Fuel Standard by supporting producers that go beyond the Standard’s requirement of emissions reductions of at least 20 percent. This would keep incentives technology and feedstock neutral, so we wouldn’t fall into the same trap of placing overwhelming support on one fuel. It is also critical that any tax credit encourage innovation by setting a high standard for emissions reductions and allowing all companies to compete. This should lead to greater innovation and ultimately cleaner fuels.

Adopting the tax credit would be an important step towards a more even distribution of federal subsidies in the biofuels market. This would allow advanced biofuels to receive significantly more than the paltry 11 percent of tax credits that they are currently getting, which would be crucial in building a new energy economy.

The federal government has played a role in creating the ethanol market and it now it must play a stronger role in convincing investors of the potential of the biofuels market. Considerable federal support is needed to get the biofuels industry off the ground. It is essential to create policies that do not limit the market but instead allow for new developments and innovations.

Photo Credit: Kiwi Shooter’s Photostream

A More Productive Path than Self-Immolation

Posted on by The Progressive Policy Institute

Everyone’s approvingly linking to this Edward Luce piece on “the crisis of middle-class America.” I want to set myself on fire.

Seriously, it’s discouraging to see so many people who should know better (because they’ve argued these points with me before) promoting this article.  I can’t think of another piece in the doomsday genre—and there are many—that gets it so consistently wrong. I’ll stipulate that none of the criticisms below are intended to minimize the struggles that many people are facing.  But it’s important to get this stuff right. Let me dive in, with Luce’s words in italics and my responses following:

Yet somehow things don’t feel so good any more. Last year the bank tried to repossess the Freemans’ home even though they were only three months in arrears.

The share of mortgages either in foreclosure or 3 or more months delinquent is 11.4 percent, which, because 30 percent of homeowners have paid off their mortgage, translates into 8 percent of homes. So the Freemans’ situation is typical of about one in twelve homeowners, or not quite 3 percent of households (since one-third rent).

Their son, Andy, was recently knocked off his mother’s health insurance and only painfully reinstated for a large fee.

Luce is arguing that there’s a new crisis facing the current generation. About 30 percent of those age 18 to 24 were uninsured in 2008 when the National Health Interview Survey contacted them.  I don’t have trends for that age group, but the share of Americans under age 65 without health insurance coverage was 14.7 percent in 2008, up from…14.5 percent in 1984.

And, much like the boarded-up houses that signal America’s epidemic of foreclosures, the drug dealings and shootings that were once remote from their neighbourhood are edging ever closer, a block at a time.

Well, the violent crime rate in 2008 was 19.3 per 1,000 people age 12 and up, down from 27.4 in 2000 and 45.2 in 1985.

Once upon a time this was called the American Dream. Nowadays it might be called America’s Fitful Reverie. Indeed, Mark spends large monthly sums renting a machine to treat his sleep apnea, which gives him insomnia. “If we lost our jobs, we would have about three weeks of savings to draw on before we hit the bone,” says Mark, who is sitting on his patio keeping an eye on the street and swigging from a bottle of Miller Lite. “We work day and night and try to save for our retirement. But we are never more than a pay check or two from the streets.”

The key question is, again, Is this worse than in the past? The risk of a large drop in household income has risen modestly, but people experiencing a drop end up much better off than in the past. For example, the risk of a 25 percent drop in income over 2 years has risen from 7 percent among married couples in the late 1960s to 14 percent in the mid-2000s (based on my computations from Panel Study of Income Dynamics data). But if you look at the average income of married-couple families after their 25 percent drop, it rose from $40,000 to $63,000 (in constant 2009 dollars).

Solid Democratic voters, the Freemans are evidently phlegmatic in their outlook. The visitor’s gaze is drawn to their fridge door, which is festooned with humorous magnets. One says: “I am sorry I missed Church, I was busy practicing witchcraft and becoming a lesbian.” Another says: “I would tell you to go to Hell but I work there and I don’t want to see you every day.” A third, “Jesus loves you but I think you’re an asshole.” Mark chuckles: “Laughter is the best medicine.”

Hmmm…just a typical American household…

The slow economic strangulation of the Freemans and millions of other middle-class Americans started long before the Great Recession, which merely exacerbated the “personal recession” that ordinary Americans had been suffering for years. Dubbed “median wage stagnation” by economists, the annual incomes of the bottom 90 per cent of US families have been essentially flat since 1973 – having risen by only 10 per cent in real terms over the past 37 years. That means most Americans have been treading water for more than a generation. Over the same period the incomes of the top 1 per cent have tripled. In 1973, chief executives were on average paid 26 times the median income. Now the multiple is above 300.

Adjusting for household size and using the PCE deflator to adjust for inflation, median household income in the Current Population Survey rose from $29,800 in 1973 to $40,500 in 2008 (in 2009 dollars, again based on my compuatations).  Factoring in employer and government noncash benefits would show even more impressive growth.

 

In the last expansion, which started in January 2002 and ended in December 2007, the median US household income dropped by $2,000 – the first ever instance where most Americans were worse off at the end of a cycle than at the start.

This is entirely a function of changes in the population composition (more Latinos) and in the share of employee compensation going to health insurance and retirement plans.

Worse is that the long era of stagnating incomes has been accompanied by something profoundly un-American: declining income mobility.

Nope. The evidence is ambiguous, but the best studies imply that intergenerational economic mobility hasn’t changed that much in the past few decades. Intra-generational earnings mobility has increased since the 1950s, though it has declined among men.

Alexis de Tocqueville, the great French chronicler of early America, was once misquoted as having said: “America is the best country in the world to be poor.” That is no longer the case. Nowadays in America, you have a smaller chance of swapping your lower income bracket for a higher one than in almost any other developed economy – even Britain on some measures. To invert the classic Horatio Alger stories, in today’s America if you are born in rags, you are likelier to stay in rags than in almost any corner of old Europe.

Tim Smeeding’s research based on the Luxembourg Income Study shows that in general Americans have higher incomes than their European counterparts as long as they are in the top 80 to 90 percent of the income distribution.  Below that, incomes are more comparable across countries, and the living standards of Americans look less impressive.  The US has comparable intergenerational earnings mobility to Europe, according to Markus Jantti’s research, except among men (but not women) who start out at the bottom.  In terms of occupational mobility, David Grusky’s research shows we’re as good or better as anywhere else, but this doesn’t translate into earnings mobility because we let people get rich or poor to a greater extent than other countries do. Jantti and Anders Bjorklund have estimated that Sweden would have the same mobility as the U.S. if the return to skill was as high there as it is here.  Finally, employer benefits further complicate how “bad” we look.

Combine those two deep-seated trends with a third – steeply rising inequality – and you get the slow-burning crisis of American capitalism. It is one thing to suffer grinding income stagnation. It is another to realise that you have a diminishing likelihood of escaping it – particularly when the fortunate few living across the proverbial tracks seem more pampered each time you catch a glimpse. “Who killed the ­American Dream?” say the banners at leftwing protest marches. “Take America back,” shout the rightwing Tea Party demonstrators.

The rise in income inequality is mostly about the top 5 percent of the top 1 percent pulling away from everyone else, and existing estimates overstate inequality and its growth by ignoring employer and government noncash benefits and possibly by ignoring different rates of inflation in different parts of the income distribution.

Unsurprisingly, a growing majority of Americans have been telling pollsters that they expect their children to be worse off than they are.

Totally wrong.  The key here is to only look at polling questions that ask people about their own kids, not kids in general.  Here are the relevant survey results I could find:

General Social Survey (1994)—45 percent said their children’s standard of living will be better (vs. 20 percent worse)
General Social Survey (1996)—47 percent
General Social Survey (1998)—55 percent
General Social Survey (2000)—59 percent
General Social Survey (2002)—61 percent said their children’s standard of living will be better (vs. 10% worse)
General Social Survey (2004)—53 percent
General Social Survey (2006)—57 percent
General Social Survey (2008)—53 percent
Economic Mobility Project (2009)—62 percent said their children’s standard of living will be better (vs. 10 percent worse)    (unlike GSS and PRC, asked only of those with kids under 18)
Pew Research Center (2010)—45 percent said their children’s standard of living will be better (vs. 26 percent worse)

BusinessWeek (1989)—59 percent said their children will have a better life than they had (and 25 percent said about as good)
BusinessWeek (1992)—34 percent said their children will have a better life than they had (and 33 percent said about as good)
BusinessWeek (1995)—46 percent said their children will have a better life than they have had (and 27 percent said about as good)
BusinessWeek (1996)—50 percent expected their children would have a better life than they have had (and 26 percent said about as good)
Harris Poll (2002)—41 percent expected children will have a better life than they have had (and 29 percent said about as good)

Harris Poll (1997)—48 percent felt good about their children’s future
Harris Poll (1998)—65 percent felt good about their children’s future (17 percent N.A.)
Harris Poll (1999)—60 percent felt good about their children’s future (15 percent N.A.)
Harris Poll (2000)—63 percent felt good about their children’s future (17 percent N.A.)
Harris Poll (2001)—56 percent felt good about their children’s future
Harris Poll (2002)—59 percent felt good about their children’s future
Harris Poll (2003)—59 percent felt good about their children’s future
Harris Poll (2004)—63 percent felt good about their children’s future

Pew Research Center (1997)—51 percent said their children will be better off than them when they grow up
Pew Research Center (1999)—67 percent said their children will be better off than them when they grow up

Bendixen & Schroth (1989)—68 percent said their children will be better off than they are
Princeton Religion Research Center (1997)—62 percent of men said their sons will have a better chance of succeeding than they did; 85 percent of women said their daughters will have a better chance
Angus Reid Group (1998)—78 percent said children will be better off than them
Washington Post/Kaiser Family Foundation/Harvard (2000)—46 percent said they were confident that life for their children will be better than it has been for them
Economic Mobility Project (2009)—43 percent said it would be easier for their children to move up the income ladder
Economic Mobility Project (2009)—45 percent said it would be easier for their children to attain the American Dream

Also, polls consistently show that Americans say they have higher living standards than their parents.

And although the golden years were driven by the rise of mass higher education, you did not need to have graduated from high school to make ends meet. Like her husband, Connie Freeman was raised in a “working-class” home in the Iron Range of northern Minnesota near the Canadian border. Her father, who left school aged 14 following the Great Depression of the 1930s, worked in the iron mines all his life. Towards the end of his working life he was earning $15 an hour – more than $40 in today’s prices.

Thirty years later, Connie, who is far better qualified than her father, having graduated from high school and done one year of further education, makes $17 an hour.

It’s not valid to compare her pay mid-career to her father’s at the end of his career—and also, how much work experience does she have relative to him?  Did she take time off to raise kids?

The pace of life has also changed: “We used to sit around the dinner table every evening when I was growing up,” says Connie, who speaks with prolonged vowels of the Midwest. “Nowadays that’s sooooo rare.”

Time-use surveys show that while parents spend more time working (because of mothers) than in the past, they do not spend less time with children.  They spend less time doing things by themselves.

Then there are those, such as Paul Krugman, The New York Times columnist and Nobel prize winner, who blame it on politics, notably the conservative backlash which began when Ronald Reagan came to power in 1980, and which sped up the decline of unions and reversed the most progressive features of the US tax system.

Fewer than a tenth of American private sector workers now belong to a union. People in Europe and Canada are subjected to the same forces of globalization and technology. But they belong to unions in larger numbers and their health care is publicly funded.

Though unionization has declined markedly in most of these countries, and their health care policies are increasingly becoming too costly.  Also, most of the decline in unionization in the U.S. occurred before Reagan took office.

More than half of household bankruptcies in the US are caused by a serious illness or accident.

This is bad Elizabeth Warren research—she counts a bankruptcy as being “caused” by illness or accident if one was reported, but the household could have been in serious debt before these occurred.  At any rate, bankruptcies are exceedingly rare (under 1 percent of households—see Figure 13).

Pride of place in Shareen Miller’s home goes to a grainy photograph of her chatting with Barack Obama at a White House ceremony last year to inaugurate a new law that mandates equal pay for women.

As an organizer for Virginia’s 8,000 personal care assistants – people who look after the old and disabled in their own homes – Shareen, 42, was invited along with several dozen others to witness the signing.

Ah…another representative household…

More and more young Americans are put off by the thought of long-term debt.

Evidence?

Had enough?  I have speculated that to the extent economic insecurity has increased, it reflects the impact of a negativistic media (amplified by gloom-and-doom liberalism).

Picture
Pieces like Luce’s—and the blog posts it generates—affect consumer sentiment. Ben Bernanke and Tim Geithner aren’t the only people who can inadvertently talk down the economy.

This item is cross-posted at ScottWinshipWeb.

Private Affluence, Public Squalor

Posted on by The Progressive Policy Institute

Just the other day I was wondering if it was a sign of hard times that movies and television shows seem to be featuring obscenely wealthy people, even more than is usually the case. Similarly, it seems like there are an awful lot of people running for office this year who have personal money to burn, having clearly done very well financially even as their fellow-citizens suffered.

I still can’t prove my theory about movies and television, but according to a well-researched Jeanne Cummings article in Politico, this is indeed a very big year for self-funding candidates:

About 11 percent of the combined $657 million raised by all 2010 candidates has come in the way of self-financing — nearly double the 6 percent measured at the same juncture in the 2006 midterm, according to the Campaign Finance Institute.Of the $134 million raised by all Republican House challengers as of June 30, a whopping 35 percent of the cash came from the candidates’ own bank accounts, the analysis found. Among Democrats, the percentage of self-made donations was just 18 percent.

If such spending stays on course, the Institute’s Executive Director Michael Malbin expects the GOP challengers’ field to eclipse the 38 percent self-financing high-water mark set by Democrats in 2002. “This is or is near a record,” he said.

Much of Cummings’ article focuses on the relatively low success rate of self-funded candidates in prior elections, and explores different reasons for that phenomenon, from lack of self-discipline to specific issues over how the candidate got rich to begin with. Several well-known candidates this year could have some of those issues:

Ohio businessman Jim Renacci, who is challenging freshman Democratic Rep. John Boccieri, for example, is expected to be attacked for going to court to avoid paying taxes on $13.7 million in income.In the California Senate race, Republican Carly Fiorina, former head of Hewlett-Packard, is being criticized for laying off thousands of workers and taking a $42 million golden parachute.

[Florida Senate candidate Jeff] Greene is coming under fire for the way he made millions off the subprime mortgage meltdown. Those criticisms could be especially powerful in a state hit hard by foreclosures. And his relatively thin connections to Florida and prior celebrity lifestyle in Los Angeles — Mike Tyson was the best man at his wedding — are also expected to be used to paint him as an unsuitable senator for the Sunshine State.

And in Connecticut, [Senate candidate Linda] McMahon is trying to finesse using the wealth from her WWE enterprise while still distancing herself from the scandals — from steroids to sexual harassment — that have plagued the professional wrestling industry.

But as Cummings makes plain, rich candidates invariably claim they’ll be independent because they aren’t spending anybody else’s money, and a lot of voters buy it. It’s another good argument for public financing of campaigns, but until such time as that reform is enacted, there will be plenty of people who look in the mirror one fine morning, see a future governor, congressman, senator or president, and decide to share their resplendence with the rest of us.

This item is cross-posted at The Democratic Strategist.

Photo Credit: HikingArtist’s Photostream

Behind the Big Paywall

Posted on by The Progressive Policy Institute

Anyone who has been active in politics since the prediluvian era of the 1990s can probably remember a time when a central event of every weekday was the arrival on the fax machine of The Hotline, once the Daily Bread of the chattering classes.

You can revisit those days–or, if you are younger, discover them–via a long article at Politico by Keach Hagey that examines The Hotline’s past, present and future in some detail. It certainly does bring back memories:

Howard Mortman, a former columnist and editor at The Hotline, remembers the first time he saw the process — a blinking frenzy of subscribers dialing in by modem, one by one, to get their pre-lunch politics fix.

“We would publish at 11:30, and you could go downstairs and see the lights flicker as people downloaded The Hotline from the telephone bulletin board,” he said. “At that time, in 1995, that was cutting-edge technology.”

Today, The Hotline is still putting out its exhaustive aggregation of cleverly titled political tidbits at 11:30 a.m., though subscribers hit a refresh button instead of a fax number to get it. But the sense of cutting-edge technology and unique content is gone, eclipsed by an exponentially expanding universe of political websites, blogs, Twitter feeds, Google alerts and mobile apps that offer much of what a $15,000 annual office membership to The Hotline offers — but faster and for free.

In effect, Hotline was the first “aggregator,” and as a result was an exceptionally efficient and even cost-effective way to obtain political news at a time when clipping services were the main alternative. And for all of Hotline’s gossipy Washington insider attitudes, it did cover campaigns exhaustively, from coast to coast, in a way that was virtually unique at the time.

If you are interested in the process whereby The Hotline has struggled to survive in the online era, or in the cast of media celebrities who got their start there, check out the entire article, with the appropriate grain of salt in recognition of the fact that Politico views itself as a successor institution.

The takeaway for me, though, is the reminder that for all the maddening things about blogs and online political coverage generally, it’s really remarkable how much is now available to anyone, for free, 24-7–material that is shared by the DC commentariat and, well, anybody who cares to use it. In The Hotline’s heyday, its subscribers (concentrated in Washington but scattered around the country) really did represent a separate class with specialized access to information that created and sustained a distinct culture.

If you have money to burn, there are still paywalls you can climb to secure a privileged perch from which to observe American politics, just as you can obviously learn things living and working in Washington or frequenting its real or virtual watering holes that wouldn’t be obvious to others. But we have come a long way. And it’s actually wonderful that the entire hep political world no longer comes to a stop shortly before noon, in some sort of secular Hour of Prayer, in anticipation of The Word rolling off the fax machine.

This item is cross-posted at The Democratic Strategist.

Photo Credit: Grass Compass Church’s Photostream

Comparing Employment Changes During Recessions

Posted on by The Progressive Policy Institute

I keep seeing that chart that shows how employment declines in the current recession are so much worse than in past ones. You know, this one:

On many dimensions, of course, the current recession is much worse, but this chart has always seemed funny to me. And after reading Paul Krugman mock the idea that the recessions of the 1970s and 1980s were at all comparable, I decided to make my own damn chart. Because the above chart looks at employment levels, which are affected by labor force growth, I decided to look at employment rates instead (subtracting the unemployment rate for each month from 100). Because the composition of the labor force has also changed over time (lots more married women, most notably), I decided to confine to white men ages 20 and up. And because it’s unclear to me what “peak” is used in this chart (see the vague note at the bottom of Rampell’s chart) and since the relationship of the NBER business cycle peak to the unemployment rate involves a lag, I decided to measure from the peak employment level. Got all that? Here’s my chart:

I’ve labeled the lines the same way that Rampell’s chart is labeled, by the recessions that followed each employment rate peak. The figures are from BLS and are based on their seasonally adjusted series.

This approach makes clear why people were disappointed by the “jobless” recoveries from the recessions of the early 1990s and 2000s, which were no faster than after the much more severe recession of the early 1970s (though of course, the declines in employment were much smaller to begin with). More to the point, it also shows that while the current recession still looks bad, bad, bad, the decline in employment is comparable to the decline during the double-dip recession, which is apparent from the “1980” line. That’s not the most fantastic news of course, but it’s worth noting. Unfortunately, I doubt this is the chart you’ll see others use and update as things evolve in the next few months.

This item is cross-posted at ScottWinshipWeb.

Keeping the Record Straight on the Midterm Landscape

Posted on by The Progressive Policy Institute

At CQ today, Roll Call columnist and election handicapper Stu Rothenberg has a piece today complaining about Democrats who are arguing that it was inevitable all along that they’d have a bad midterm outcome, regardless of the economy or other objective developments.

I’m not sure which “Democrats” Rothenberg’s talking about, since the only person he cites who believes the economy is irrelevant to the midterms is Joe Scarborough.

But while I don’t personally know anyone who thinks the economy isn’t going to be a drag on Democratic performance, in burning down this straw man, Rothenberg goes too far in dismissing structural factors that were going to make 2010 far more difficult for Democrats than 2008 no matter what Barack Obama did or didn’t do.

Since Rothenberg’s entire argument is framed in terms of House seats Democrats are likely to lose, the obvious structural factor to keep in mind is the historic tendency of the party controlling the White House to lose House seats in midterms. Stu acknowledges that, but points out that the level of losses varies (of course it does) and also points to 1998 and 2002 as years the ancient rule of midterm losses didn’t apply. That’s fine, though anyone citing those two years as relevant should probably note that the former year came in the midst of the first impeachment of a president since 1867, while the latter year came after the first attack on the continental United States since 1814. At any rate, while most Democrats early in the Obama presidency hoped the party would overcome the heavy weight of history, few predicted it as likely.

But the second structural factor is one that Rothenberg does not mention at all: the very different demographic composition of midterm versus presidential electorates, which is especially important this year given the high correlation of the 2008 vote with age (at least among white voters), and the heavy shift towards older voters in midterms. As I like to say, this means that Democrats were in trouble for the midterms the very day after the 2008 elections. That doesn’t mean everything that happened since doesn’t matter, by any means, but it does suggest pessimism about 2010 and a corresponding optimism about 2012, when the 2008 turnout patterns are likely to reemerge or even intensify.

Finally, in this kind of discussion of House “gains” and “losses,” it’s important to remember that the entire U.S. House of Representatives is up for reelection every two years. So the position of the two parties nationally is reflected by the absolute results, not which party “gains” or “loses” seats from the prior election. If Democrats hang onto control of the House, it’s a Democratic victory (albeit a much smaller one than in 2008) because they will have won a majority of seats (and presumably a majority of votes for the House nationally), and it’s not a Republican victory but instead a smaller defeat. House gains or losses are relevant to trends, of course, but shouldn’t dictate characterization of specific election results.

In other words, Rothenberg’s effort to anticipate and preempt Democratic spin about the November elections is all well and good, but there a lot of questionable assumptions about this election that need to be examined–most definitely the idea that any significant Republican gains mean the country has fundamentally changed its mind since 2008. That’s a “spin” that Republicans are already avidly promoting every day.

This item is cross-posted at The Democratic Strategist.

Photo Credit: wallyg’s Photostream

Dems and Spending: There Will be Blood

Posted on by The Progressive Policy Institute

The Congressional Budget Office’s latest fiscal forecasts confirm that America faces a fiscal emergency. The national debt is projected to double as a share of GDP from 32 percent in 2001 to 66 percent next year. Then it could rise to 90 percent by the end of this decade, and reach 146 percent by 2030. At that point, we’d be spending about 36 percent of tax revenue to finance our debts, up from 9 percent today.

The nation’s yawning fiscal gaps, driven largely by entitlement spending, can’t be closed by a combination of economic growth and tax hikes. When it comes to government spending, there will be blood. Only not now: At the federal level at least, unemployment will have to fall dramatically, probably to around 5 or 6 percent, before real discipline can be imposed on public spending. Otherwise a premature turn to austerity could plunge the national economy back into recession.

Let’s stipulate that Republicans are consummate hypocrites when it comes to fiscal discipline. On taking power in 2000, they let budget controls lapse, spent the hard-won surplus they inherited on tax cuts, charged a trillion-dollar prescription drug entitlement to the nation’s credit card, and launched the very Wall Street bailout they now have the temerity to denounce.

And now GOP leaders insist that the Bush 2001 and 2003 tax cuts be extended to the wealthy, not just middle class families as President Obama has proposed. Since they offer no offsetting spending cuts or tax hikes, this would add between $2-$3 trillion to the national debt over the next decade.

Okay, Republicans have no shame, and Democrats are paragons of fiscal rectitude by comparison. Nonetheless, Democrats before long will have to commit what many regard as unnatural acts: make deep cuts in public spending.

For a sobering glimpse of what the future might hold, look at California. Gov. Arnold Schwarzenegger yesterday declared a state of emergency in a bid to force state legislators to pass a budget aimed at closing a $19 billion shortfall.

The Golden States deficit, according to Reuters, “is 22 percent of the $85 billion general fund budget the governor signed last July for the fiscal year that ended in June, highlighting how the steep drop in California’s revenue due to recession, the housing slump, financial market turmoil and high unemployment have slashed its all-important personal income tax collection.”

Democratic lawmakers nonetheless have blocked Schwarzenegger’s proposals for deep spending cuts, leaving the gubernator to threaten another round of unpaid furloughs for state workers. California may also be forced to issue IOUs instead of payments to vendors if the legislature fails to pass a budget soon.  And the state is trying to renegotiate generous pension schemes for state employees.

The California crisis should be a wake up call for Democrats in Washington. A major fiscal retrenchment is coming, and they need to be better prepared for it than their counterparts in Sacramento.

Photo Credit: Anonymous Account’s Photostream

Celebrating Unemployment

Posted on by The Progressive Policy Institute

It’s hardly news that state and local governments around the country are laying off workers and reducing services in the current economic and fiscal climate. But putting aside services for a moment, the sheer impact of public-sector job layoffs is becoming pretty alarming:

Cash-strapped cities and counties have been cutting jobs to cope with massive budget shortfalls — and that tally could edge up to nearly 500,000 if Congress doesn’t step up to help.

Local governments are looking to eliminate 8.6% of their total full-time equivalent positions by 2012, according to a new survey released Tuesday by the National League of Cities, the National Association of Counties and United States Conference of Mayors.

“Local governments across the country are now facing the combined impact of decreased tax revenues, a falloff in state and federal aid and increased demand for social services,” the report said. “In this current climate of fiscal distress, local governments are forced to eliminate both jobs and services.”

That’s just local governments, mind you, not the states who are themselves facing major layoffs.

Now many conservatives would celebrate this news on grounds that eliminating some of the parasites who work for government will somehow, someway, free up resources for the private sector. I’ve never understood exactly how that’s supposed to look, but as Matt Yglesias points out, it’s a really bad time to experiment with efforts to counter-act a recession by increasing unemployment:

Conservatives have largely convinced themselves that public servants are such vile and overpaid monsters that anything that forces layoffs is a good thing and the moderates in Congress seem scared of their own shadows so nothing will be done. But economically speaking, the time for local governments to try to trim the fat is when unemployment is low and your laid-off librarian, ambulance driver, or guy who keeps the park clean can get a new job where his or her skills will plausibly be more optimally allocated. But guess what produces less social welfare than driving a bus? Sitting at home being unemployed. And so it goes down the line. Dumping people into a depressed labor market all-but-guarantees an increase in idleness along with a drop in revenue for local retailers that will lead to more idleness and waste.

Higher unemployment is simply bad. Deliberately promoting it is worse.

Photo Credit: Alfcio’s Photostream

This item is cross-posted at The Democratic Strategist.

Congress and Climate: The Long View

Posted on by The Progressive Policy Institute

As you know by now, no climate bill will emerge from this Congress. Most have picked up Lindsey Graham’s metaphor — “cap and trade is dead” — though I prefer to think of a bill as “mathematically eliminated”. In other words, the right reaction is not permanent loss of hope but “wait til next year.” That hope is faint, however, given the likely makeup of the next Congress.

It has not taken long for the process of taking stock and assigning blame to begin. Will Marshall here at Progressive Fix has written on Congress’ failure (and I agree with everything he writes). The New York Times op-ed page has been dominated by pieces on why the bill failed, and who is to blame. Grist  summarizes reactions. I don’t have much to add to what has already been said. I’m disappointed, but not surprised, and I think there is plenty of blame to go around. That said, I’m still very optimistic about the prospects for action on climate – and by that I mean specifically a national, comprehensive carbon price – in the relatively near future. I think failure in 2010 is a setback, but will be viewed in retrospect as a minor one. This is little different from the way I felt weeks or months ago, but events of last week seem to have suddenly made me a contrarian. Climate pessimism is the new zeitgeist. So why the optimism? Because changes are coming that make climate action inevitable. The world is moving, with or without the Senate.

Some of these changes are structural. Above all, climate policy has to face physical reality, not just social and political preferences. The science of climate change is clear on the big issues, is constantly improving its predictions, and is deepening our understanding of the climate system. The longer we wait, the more we will know — and the warmer the planet will get. Those skeptical of climate science have played almost no role in the failure of climate legislation this year; they were marginal from the beginning. Better knowledge, and tangible evidence of the consequences of climate change, will make the case for action steadily stronger. Physics, as much as politics, will move the “centrist” position on climate towards action. I hope this will be by way of clear but remote physical evidence, such as melting icecaps, rather than by way of weather disasters or droughts. Demographics point in the right direction as well. Young people tend to be more strongly in favor of limiting carbon emissions (though not all polls agree). As today’s youth start to vote and gain power and influence, legislators will have to respond or choose another career.

Another more or less structural change on the way is pressing need for deficit reduction. As both Tyler Cowen and Nate Silver have pointed out in the last couple of days, this, too, will increase the chances of a price on carbon. Higher taxes are almost a certainty given our debt burden and the plausible range of spending cuts. As Cowen puts it, a price on carbon is the “least bad tax” in the sense that it discourages harmful actions (emitting carbon) rather than productive activity.

Other changes come from policies already in the pipeline. Existing state and federal laws provide some authority for regulating carbon emissions, though results will be more modest and costs higher than they would be with a uniform national carbon price. This is my area of expertise, and we’ve written a lot on the issue at Resources for the Future. The summary is this – the EPA can get modest but meaningful carbon reductions with the tools it has, likely at modest cost. EPA regulations on “traditional” pollutants like sulfur dioxide, which are emitted primarily by fossil fuel (and above all coal) plants will also have co-benefits for carbon emissions. These incidental reductions in carbon emissions will make the goals we need to reach with an eventual carbon price more modest. In the past, health benefits from reduction in pollution from coal has been cited as a secondary reason to price carbon. Now, the tables are turned – moves to reduce these pollutants using existing Clean Air Act authority will have climate benefits. Put it this way – in the long or even medium-term, climate action isn’t dead, but coal is, at least unless carbon capture and storage technology becomes available at modest cost. David Roberts at Grist makes this point, with the added irony that coal will likely be begging for cap-and-trade before long, since it would probably give the industry a handout in the form of allowances that could be sold as plants are shut down.

Finally, there’s the economy. Whether out of opportunism or genuine fear, concerns over the economic impact of climate policy fueled opposition this year. If 2010 politics could be matched with the 2007 economy, I have no doubt that a climate bill (of some kind) would have passed the Senate. The politics will get rosier for climate action, for the reasons I explained above. The economy will strengthen as well, and “jobs” will not dominate politics to the extent that they are the only acceptable justification for policy, and the rhetorical foundation of all opposition to policy. Those that agree with Ross Douthat that “sometimes it makes sense to wait, get richer, and then try to muddle through” will be more prepared to muddle through as we get richer. If the economy does not improve, we have bigger problems – though the one small benefit of our economic troubles is that it has likely bought us a little time on climate. Carbon emissions are down sharply over the last few years. In fact it will be an interesting question to look back once we have some perspective and ask whether the economic crisis was beneficial or harmful in climate terms.

These changes are all inevitable or at least very likely. Together, they will make a carbon price ever more politically possible, and eventually politically necessary. As most people who have considered the climate problem seriously have known for a long time, pricing carbon is the only workable solution. Eventually, it will come.

Of course, whether climate action will happen is easier to predict than how long it will take. I don’t have an solid answer for the latter question. Some of the shifts I mention will take longer than others. Structural changes, like global warming itself and demographic shifts, may take a long time to affect politics. Policies in the pipeline are more well-understood, but many are in the planning stage and could be held up, possibly by litigation. Meaningful EPA regulations on carbon could be in place by late 2011, or might not be effective until near the end of the decade. Economic improvement should, I hope, come more quickly – but there are of course no guarantees, and the “joblessness” of the recovery to date may mean the economy will dominate politics for longer than growth figures would indicate. So I don’t  know when we’ll have real climate legislation. My best guess would be 2013 –  another presidential & congressional election, presumably a stronger economy, fossil industries under pressure from the EPA and states, and, plausibly, palpable evidence of climate change could all converge to make a comprehensive climate bill politically possible. But that’s only a guess.

A critical look at last week’s events and, indeed, the last few years of congressional inertia is warranted. Pushing for action on climate – whether at the grassroots or in the Capitol – is still desperately needed. The longer we wait, the greater the risk and the higher the cost. But these events are just minor scenes in a story whose end we already know. Climate action may come sooner, or it may come later, but it will come.

Photo Credit: Casino Jones’ Photostream

Getting Serious About Education: Why Can We Measure Students But Not Teachers?

Posted on by The Progressive Policy Institute

Last week, Michelle Rhee, chancellor of D.C. public schools, made national news by firing 241 — six percent — of the District’s teachers deemed underperformers. Rhee’s move came after negotiations in June with the Washington Teachers’ Union that created a merit-based bonus system that permits well-performing teachers to earn up to a 21 percent pay increase. The agreement also allows the District to fire those who did not meet minimum benchmarks. Teacher assessment scores will be based half on student improvement and half on in-class teacher evaluations.

While performance-related pay has been around since the 1700s and affects the pay scale of over 85 percent of private sector employees, the debate over merit pay for teachers is still highly contentious. On one hand, proponents argue merit pay will help cash-strapped schools retain good teachers and shed bad ones. They also argue that this will create a salary scale that is fairer than the system of seniority pay that currently exists in most school systems. On the other hand, opponents contend that merit pay may work for seamstresses, but teaching is too complicated to base quality on student performance on a standardized test.

The argument goes, evaluating teachers based solely on a set of student-achievement benchmarks will incentivize teachers to neglect the essential but non-tested responsibilities of educators.  As George Parker, current president of the Washington Teachers’ Union put it, “It [merit pay] takes the art of teaching and turns it into bean counting.” Yet numerous other professions that require complex skills and responsibilities have adopted merit pay with positive results. For example, the department of Homeland Security has recently implemented performance-related pay for security analysts, and few would equate scrutinizing terrorist threats with “bean counting”.

The real question for education policy makers is to what degree can metrics assess the added value of different teachers? Part of the answer to this question relates to the availability of good data. Teacher performance may vary significantly depending on a number of variables such as student household income or the percentage of students with English as a second language. Without significant aggregate databases recognizing and accounting for such variables when developing performance pay systems may be difficult or even impossible. Yet technological advancements in the longitudinal data systems being put in place in states and districts are increasingly allowing for a more granular understanding of where educators do and do not add value to the learning process. Although it’s probably true that the current level of data may not be enough to predict exactly what makes a good teacher, what’s important is to use the data, along with the ways of assessing teacher performance, we have to make a better incentive system for the nation’s educators.

Yet that hasn’t been the case. In 1950, for example, 97 percent of public school teachers were paid based on seniority and education attainment (because data did not exist to fairly reward teachers based on any other benchmarks). But by 2007, 96 percent were still being paid based on these payment schedules; regardless of the numerous studies that have actually found experience (after the first two years) and teaching certifications are two of the worst indicators of teacher performance.

The blatant disregard of the evidence is not accidental. Several players in education policy—particularly teachers’ unions—have described evidence-based pay as some sort of pedagogical chimera, sucking the lifeblood out of what it takes to be a good teacher. For example, Doug McAvory, general secretary to the National Association of Head Teachers, a teachers’ union in the UK, argues, “The extension of performance-related pay based on pupil progress will further demoralize and demotivate teachers.” Yet given that educators readily embrace handing out grades to seven year olds, the argument that performance metrics might “demoralize” underperforming adult professionals seems unpersuasive. Such arguments do little more than distract educators from the importance of using technology and advanced metrics to create better schools.

ITIF and others have emphasized the importance of an educated workforce to improving the innovative and global competitiveness of the United States, but U.S. students are falling behind when measured against their counterparts in other countries. For example, in 2007, only ten percent of U.S. fourth-graders and six percent of eighth-graders scored at or above the international benchmarks in mathematics. Yet as other nations, such as Finland, South Korea and Sweden, have embraced data-based pay in public schools, United States has resisted.

Educators and policy makers should keep in mind the simple syllogism that there is nothing better than a good teacher and nothing worse than a bad one. As a society, we should do what is necessary to get more of the former and fewer of the latter, whether that requires more money, monitoring or better metrics.

America in 2030: A Fiscal Portrait

Posted on by The Progressive Policy Institute

The Congressional Budget Office’s long-term budget forecasts on the national fiscal health are highly educated guesswork, but guesswork just the same. The 2030s are pretty far off, and the degree of forecasting uncertainty is higher than it once was. As CBO explains “the current degree of economic dislocation exceeds that of any previous period in the past half-century, so the uncertainty inherent in current forecasts probably exceeds the historical average.” But let’s imagine that the 2030s have arrived, and that CBO’s budget projections have come true. What would America look like?

For starters, Social Security would be flat broke. All U.S. Treasury’s IOUs to Social Security will have been cashed in. Since the Social Security trust funds will be completely depleted and, because Social Security is barred by law from borrowing from the federal government, the program will be unable to meet its obligations. Thus, by the end of the 2030s, payable benefits would have to be cut by 20 percent. Is it possible to imagine that the government will suddenly cut 20 percent of the benefits it hands out? That seems unlikely — the law would be changed and borrowing would resume.

In fact, Social Security’s problems would start much earlier. In 2016, according to CBO, its outlays would begin to regularly exceed its revenues, and consequently Social Security would first start to regularly call in its IOUs. Thus, the Treasury Department would need to borrow billions of dollars each year to pay back what it borrowed from Social Security’s trust funds.

If Social Security is expected to be in bad shape by the 2030s, the big public health care programs, Medicare and Medicaid, would be doing even worse. The culprits being an aging population and expanding health care costs, which are scheduled to grow faster than the U.S. economy. By the 2030s the number of people over the age of 65 — the beneficiaries – will have increased by 90 percent while those between 20 and 65 — the contributors — will have grown by a meager 10 percent.

In the 2030s, federal spending on mandatory health care programs accounts for 11 percent of GDP, about twice the level in 2010. Add in Social Security, and the big three entitlements cost about 16 percent of GDP. Keep in mind that primary spending for the 40 year period before 2010 averaged 18.5 percent of GDP. This means that in 2030, the U.S. government will either be unable to direct resources to other priorities (like education,) or will have to increase a tax rate by roughly double that of 2010.

Finally, America in the 2030s will groan under mind-boggling public debt, assuming the country’s fiscal fortunes are calculated by the CBO under what’s called a “current policy” scenario. In this case, the CBO assumes that no major public policy innovations will occur throughout the lifetime of its projection. This scenario reflects the political reality we face today. For example, congress is currently debating whether to extend the Bush tax cuts and “patch” the Alternative Minimum Tax. If political inaction prevails, debt-to-GDP ratio would exceed 200 percent by the 2030s, even with an economic recovery.

It is true that the U.S. holds a privileged position by virtue of the dollar’s role as the world’s reserve currency. But we have no idea how a debt of this magnitude would affect our ability to invest in future growth, and to keep borrowing from abroad. Moreover, in the 2030s, interest payments on the national debt are nine percent of GDP, from just one percent of GDP in 2010. If we continue borrowing at the projected rates beyond 2030, interest spending would exceed total federal revenues 15 years thereafter.

Finally, this grim fiscal portrait of America in the 2030s rests on optimistic assumptions. CBO projections assume that revenue will average around 19 percent of GDP and that long-term interest rates remain low. They also assume away the strong likelihood that America will face another economic crisis or armed conflict between 2010 and 2030.

The key for policy-makers, of course, is to envision a different fiscal future for America – and to act on it just as soon as the economy recovers.

Photo Credit: Alancleaver_2000’s Photostream

Everything Should Not be on the Budget Cutting Table: The Case for Expanding Public Investment

Posted on by The Progressive Policy Institute

The International Monetary Fund recently scolded the U.S. government for running large budget deficits. Leaving aside the absurdity of cutting deficits when unemployment is still extremely high, it’s clear that at some point – as joblessness declines toward 5 percent – deficit reduction will need to begin in earnest. But the real question is how to do that. There’s a risk that the Washington economic class – grounded as they are in 20th century neo-classical economics — will fail to balance the twin imperatives of fiscal discipline and public investment.

Indeed the common refrain that has become the new “group think” in DC is that “everything should be on the table” when it comes to addressing the debt. For example, the Bipartisan Policy Center’s Debt Reduction Task Force says, “everything should be on the table.” Even President Obama, who has at least rhetorically talked about the need for increases in public investment and fought to include public investment in the stimulus, now says that everything should be on the table. Other groups echo this intellectually easy, but intellectually simplistic, position. Pete Peterson’s Concord Coalition likewise calls for “applying budget discipline to all parts of the budget.” The New America Foundation’s Committee for a Responsible Budget supports a budget freeze on all discretionary spending. For these budget hawks, subsidies to farmers to produce crops that aren’t needed fall in the same category as funding for the National Science Foundation to advance science and technology critical to our nation’s future: they both cost money and both should be cut.

The Government’s Role

But there are some things that governments do – on the tax and spending sides – which drive productivity, spur innovation, improve health, clean up the environment and create other benefits that most certainly should not be on the table. The National Commission on Surface Transportation Financing (which I had the honor of chairing) recently highlighted a federal highway and transit funding gap of nearly $400 billion over the next five years. Increased federal support for highways and transit would lead to significantly greater societal benefits (reduced traffic congestion, higher productivity) than the costs in revenues. Yet some groups wave the budget red flag to oppose expanded infrastructure investment, even if increased user fees, such as the gas tax, pay it for. As ITIF has demonstrated, increasing the Research and Experimentation Tax Credit from 14 to 20 percent would return $9 billion more to the Treasury than it would cost. And as ITIF and the Breakthrough Institute have shown, solving climate change requires significant increases in federal support for clean energy innovation, but the benefits (saving the planet) are massive.

If neo-classical-inspired budget hawks want everything to be on the table, liberal Keynesians want to put practically nothing on the table, except higher taxes on the wealthy and business. For example, economist Jamie Galbraith would take entitlement reform off the table. His solution: pray the Chinese keep lending us money. Likewise, Jeff Faux, founder of the liberal Economic Policy Institute argues that, “The deficit projections no more reflect a crisis of “entitlement” overspending than they reflect a ‘crisis’ in any other category of spending, like military spending or agricultural subsidies. Sensible governance understands that the fact that a program area is expanding does not make it the source of fiscal imbalance. But with entitlements off the table, you can’t solve the government’s fiscal problems simply by raising taxes on the rich.

All Spending Is Not the Same

What’s behind this widespread unwillingness to prioritize investment? Budget hawks fear that sparing one item from the chopping block will only validate the demands of interest groups to exempt their pet programs. In addition, many adhere to a neo-classical economics perspective, which holds that government plays a negligible role in economic growth and should be neutral with regard to private sector activity. In the purest form of this thinking, everything is on the table, because nothing is more important than anything else. To paraphrase Michael Boskin, a neo-classical Bush I economist, a dollar of public investment on computer chips has the same societal value as a dollar spent on potato chips. But government should be anything but neutral. Science and infrastructure funding is more valuable than farm subsidies. Government support for research in computer chips is more valuable than support for potato chips.

For liberals, reducing spending on entitlements will not only harm working Americans, but will also reduce economic growth, since Keynesian doctrine holds that growth comes from increasing aggregate demand – meaning pump more money into the economy, period.

In contrast, an innovation economics approach to the budget distinguishes between spending on consumption and spending on investment. For innovation economics advocates, all spending (either on the tax or expenditure side) should be on the table, and all investment (on the tax and expenditure side) should be off the table.

Tax, Cut and Invest

The last time Washington paid attention to deficits was in the first Clinton term. At that time PPI Vice President Rob Shapiro wrote a series of reports with the title, “Cut and Invest.” The notion was that we should cut unnecessary spending and use a significant share of the savings to invest in the nation’s future, including education, infrastructure and research. That was the right message then and it is the right message now. Although today, such a report might be best titled, “Tax, Cut and Invest.” To solve the budget deficit in a way that enables the significant increases needed in investment, we need to raise some taxes, cut some spending and increase some investment.

The general outline should look like this: On the tax side, we should let the Bush tax cuts on the wealthy expire, including: dividend taxes, estate taxes (above a certain modest size) and top marginal rates. We should increase the gas tax by at least 15 cents a gallon (and index it to inflation) and at the same time institute a carbon tax. We should consider a border-adjustable business activity tax. We should eliminate the home mortgage interest deduction. (Home ownership has many societal benefits, but as we see from other nations without these large tax incentives, nations can get high levels of home ownership without wasteful subsidies.)

On the spending side, we need to deal with entitlements, including: progressive indexing of Social Security benefits and increasing the retirement age, continued health care reform — particularly focused on driving innovation to cut costs and cutting entitlements to farmers — farm subsidies. This should be a gradual process to spread the pain over time.

And most importantly, we should significantly expand investments. We need to expand investments in education and training, science and research, technology (including, but not limited to clean energy) and physical infrastructure. In order to ensure that companies in the U.S. are globally competitive and create jobs here at home, we need to expand corporate tax expenditures. For example, create a new corporate competitiveness tax credit that would include a much more generous credit for research and development, and a credit for business investments in workforce training and new capital equipment, especially software. Making these investments will cost money in the short run. But they will also generate returns to the economy and the government in the long term. In economic downturns, successful corporations don’t cut key investments because they know that these investments are vital to gaining market share and competitive advantage in the moderate term. Governments should think the same way.

So let’s stop talking about putting everything on the table and instead recognize that not only do investments need to be off the table, they need to get more from what’s on the table.

Rob Atkinson is president and founder of ITIF, a Washington-based think tank providing cutting-edge thinking on technology and economic policy issues.

Photo Credit: Gliko’s Photostream

Chinese Workers Flex Muscles

Posted on by The Progressive Policy Institute

PPI Special Report

The following is a guest column from PPI friend and sometime contributor Earl Brown, Labor and Employment Law Counsel for the American Center for International Labor Solidarity.

Over the last few months, thousands of workers, toiling in the Chinese factories of Japanese car manufacturers, have struck for improved wages, hours and working conditions—autonomously, without foreign input and with astonishing tenacity and shrewdness. These strikes have attracted much international media and scholarly commentary ranging from “nothing new” to “a new era dawns.” To adequately understand these strikes, however, we need to heed to the words of the strikers themselves.

Let’s look at the strike that garnered the most international coverage; the roughly two to three week strike at the Honda transmission plant in Foshan City near Guangzhou in the industrial province of Guangdong. Although Honda’s China operations are quite profitable and a key to Honda’s overall success, workers down its supply chain remain locked in a labor regime of low wages, speed-up and long hours. Of the roughly 1900 workers at the Foshan plant, some 800 plus are classified as “interns” and thus get even lower wages.

Facing announcements of a dramatic speed-up, the workers spontaneously struck. The strike at the Foshan transmission plant idled the whole Honda “just-in-time” system — a continuous production with low inventory — as completed transmissions could not be fed into the assembly plants. At first, Honda reacted with firings of strike leaders and threats, accompanied by minimal offers of wage improvements. When this didn’t work, Honda management, local government and the local government union used muscle.

Thick thirty-year-olds, connected to local government and decked in polo shirts and yellow hats, attempted to push and herd the massed, lean twenty-year-old striking men and women back into the factory. It didn’t work. At that point, Honda was desperate to get production back up as market analysts all over the world lasered in on Honda’s inability to crank out cars in China. Having exhausted heavy-handed labor relation’s tactics that weren’t working, upper management reached out to the elected representatives of these young, rights-conscious workers and quickly hammered out an agreement and a return to work.

Direct negotiation with real plant-level worker representatives, in the glare of international and national publicity, is a telling event. China has had many strikes. In the nineties, there were protests, which aimed at recouping unpaid wages from failed factories, or challenged privatization. More recently, strikes have occurred all over China for wage improvements in the logistics sector, in public transportation and, of course, in manufacturing. But this is the first time that workers, acting on their own, have compelled a major multi-national employer to deal directly and formally with their elected grass-roots representatives, on the stage of China and the world.

Many commentators, sensing the significance of this development, have looked to Poland and Detroit in the thirties to parse these events. These young Foshan workers, however, live in the China of now. They are imbued with a new rights consciousness, buttressed by recent advances in Chinese labor law. Operating within the framework of existing Chinese law, they want a decent life, not a wholesale revisiting of China’s history or political arrangements. In their very words:

“…. [our] fundamental demands are…salary raises…for the whole workforce including interns; improvements in the wage structure and job promotion mechanism; and last but not least, restructuring the branch trade union at Honda Auto Parts Manufacturing Co.’ Ltd. Another fundamental demand… [is]…non-retaliation and no dismissal of workers participating in the strike.”

Many outsiders have confused the demand for “restructuring the branch trade union at Honda Auto Parts Manufacturing Company” with insistence on an independent union, apart from the official sanctioned union. It is not. As Chinese law provides, these workers are asking for the opportunity to elect “branch” grass roots representatives, as is their right under Chinese labor law. In short, they have not asked for an independent union but a union that acts independently! A grass-roots union that speaks for them and not the employer or local government. More wages, more and better personal life and more “industrial democracy.”

In every industrial society thus far, underpaid industrial workers, without recourse to mechanisms for negotiating with employers, have struck as a last resort. Many strikes end without gains for workers. But where industrial workers can stop production, even in complex and diffuse supply chains, they are sometimes able to compel recalcitrant employers to recognize them as partners in the production process and make economic concessions. If we listen to the words of the striking Honda and Toyota workers in China, we will discover that this industrial drama is now being played out in China at the peak of its industrial system in auto manufacturing.

There are no outside agitators here, just young, educated and patriotic Chinese workers fashioning “industrial democracy” in China, on uniquely Chinese terms. They are doing so in front of a national and international audience. Because of this international context, these Chinese workers are also affecting the global economy. They could be leading the way towards an end to the global “race to the bottom” in working and living conditions for the world’s majority — at least as far as China is concerned. Our own Justice Brandeis, who at a similar stage in our industrial story put forward the need for industrial democracy and income equity, would welcome these Chinese events and be proud.