issue: Economy

Making Haiti the World’s First Wireless Country

Posted on by The Progressive Policy Institute

Channeling my inner Rahm: never waste a good crisis. The earthquake in Haiti was, and continues to be, tragic. However, at least one entrepreneur sees an opportunity to rebuild a critical part of Haiti’s infrastructure and probably make a few bucks in the meantime:

John Stanton, founder of Voice Stream and former chief executive of T-Mobile USA, wants the Haitian government to forget about rebuilding its copper wire communications network. Instead, he thinks Haiti should go mobile. … Stanton called for the Haitian government to create an all-wireless nation with more robust networks for the population of nearly 10 million and to build an economy centered on mobile technology.

Should Haiti choose to open up some wireless bandwidth, Stanton claims that he’ll put up $100 million of his company’s money. While the idea has merit, implementation involves a few caveats, one of which comes from PPI-alum Rob Atkinson, now president of the Information Technology & Innovation Foundation. He notes, “This could be a good strategy for as long as 20 years even, but I just don’t see it as an ultimate strategy because at a certain point you need fixed wire for services that require more bandwidth.”

Furthermore, there’s a question about competition — Stanton is angling for the first-mover advantage and trying to seize the initiative where he sees opportunity. But as with any government contract (even Haitian ones after a massive natural disaster), there’s the worry that a single-source supplier will distort the upside while dragging its heels on the outputs.

But on the whole, the idea tracks closely with what Mike Derham and I advocated in a PPI Policy Memo on Haitian reconstruction. We said that Haiti should embrace cell phone technology as a vital tool in facilitating capital flow:

Sub-Saharan Africa has adopted programs like M-PESA to allow people to use their cell phones as checking accounts. The time and effort necessary to establish a similar system in Haiti would be worthwhile. Credit can be transferred to individual phone numbers — including from overseas — and that credit can then be used for purchases from other phone owners who have a similar plan (including prepaid) from their provider. Cell coverage is one of the few institutions that covers all of Haiti. It is also an institution that has worked through the crisis, and that the American military is working to make sure stays running.

Wireless technology should a vital institution in Haiti, and Stanton’s offer should be evaluated seriously with that in mind.

Photo credit: https://www.flickr.com/photos/ifrc/ / CC BY-NC-ND 2.0

Trading Up

Posted on by The Progressive Policy Institute

For the past year, U.S. Trade Representative Ron Kirk has been the Obama administration’s equivalent of the Maytag repairman—a capable official with nothing to do. That is about to change.

As part of a broader push for job creation, the president yesterday unveiled an ambitious strategy for doubling U.S. exports over the next five years. Key elements include $2 billion more in export financing, an easing of export technology controls and a new Cabinet office to promote sales of U.S. products abroad. Obama also picked W. James McNerney, CEO of Boeing—one of America’s export champions—to chair the President’s Export Council.

The flurry of activity around trade is belated but welcome, since surging exports have been one of the few sources of job growth lately. It may also put to rest lingering doubts about Obama’s commitment to expanding trade.

During the 2008 campaign, candidate Obama sounded economic nationalist themes and indulged in ritual NAFTA-bashing. He even vowed to reopen that treat to get a better deal for U.S. workers, deeply alarming Canada and other trading partners worried about mounting protectionist sentiment in the United States.

But if Obama’s new push is reassuring to pragmatic progressives, anti-trade activists are donning their battle gear. Lori Wallach, president of Global Trade Watch, recently told Bloomberg News that the Obama administration must deal with the import side of trade to create U.S. jobs and increase innovation.

Obama yesterday invoked America’s economic travails to short-circuit a family squabble among progressives over trade. “We are at a moment where it is absolutely necessary for us to get beyond those old debates…Those who once would oppose any trade agreement now understand that there are new markets and new sectors out there that we need to break into if we want our workers to get ahead.”

In another positive development, House New Democrats this week released a trade agenda of their own. It emphasizes support for small business exports, the need to crack down on intellectual property theft, and, echoing a key PPI theme, the strategic benefits of expanding trade and economic opportunity across the Middle East.

Both the president and the New Dems call for efforts to rekindle progress on the stalled Doha round of global trade talks, and perhaps most controversially, for closing the deal on pending bilateral trade agreements with South Korea, Colombia and Panama. This is bound to provoke a reaction from anti-trade Democrats who see trade as a threat to U.S. jobs and wages. They have a powerful ally in the new House Ways and Means Chairman, Rep. Sandy Levin, a longtime trade skeptic.

Trade is not a panacea for America’s job woes. But as Obama and the New Dems understand, lowering foreign barriers to trade is integral to any credible strategy for U.S. economic growth and innovation. It’s also essential for the United States to resume leadership in forging a rules-based global trading system to keep everyone honest and prevent countries from adopting mercantilist strategies.

Finally, and most important for the long-run, boosting U.S. exports is also critical to re-balancing the global economy. Just as we export more and import less, Asian export powerhouses, especially China, need to import more and spur domestic consumption. Obama’s trade initiative is a small but vital first step toward moving world flows of trade and finance toward a sustainable equilibrium.

FCC Can Win a Supporting Role Nod on Broadcast TV Fees

Posted on by The Progressive Policy Institute

So I wasn’t the only one who thought the FCC dropped the ball in its dealing with the carriage fee kerfuffle over the weekend—some of the nation’s largest cable and broadcast companies have sent a letter to the FCC to that effect.

In a petition filed with the FCC, Time Warner Cable, Verizon Communications, Cablevision and advocacy group Public Knowledge said that regulations governing transmissions from broadcasters to subscription-television providers are outdated and warned that last weekend’s standoff between Cablevision and Walt Disney Co. will be repeated unless the FCC issues new rules. They also called on regulators to assign an arbitrator during stalled negotiations and to require broadcasters to maintain their signals if talks break down.

Updating technology and media legislation is a perennial issue in an era where rules are oftentimes obsolete as soon as they’re spelled out. But it’s rare that you see industry players go to the government and ask to be regulated further. In this case, the FCC should take them up on the offer.

The most immediate benefits will come from the willingness of both broadcasters and cable companies to submit to arbitration, and the signal maintenance requirement. The debate between broadcasters and cable companies is broadly not one of principle, but of money. This negotiation lends itself readily to arbitration, as both sides are not facing an all-or-nothing choice, but seeking a middle ground is reached on fee pricing. Arbitration means that they will find that middle ground faster.

In the off chance that they can’t find that middle ground in time for a “major television event” (whether it be the Oscars, a bowl game, or the 24 season finale), the signal maintenance requirement means that consumers wouldn’t be the loser if talks broke down. Agreeing to extend exiting contracts an additional couple of days is much less costly to either party than the damage done by angering customers in a fiasco like last Sunday’s Oscar-fest.

The FCC should take this opportunity to work with industry—and not impose a solution on them—on a negotiation framework that will be as big a hit with consumers than Sandra Bullock’s role in The Blind Side was with the Academy of Motion Picture Arts & Sciences.

Financial Regulation Is Good — But Consumer Financial Protection Is Better

Posted on by The Progressive Policy Institute

Paul Volcker, vanquisher of inflation in the early ’80s as chairman of the Federal Reserve System and now the chairman of President Obama’s Economic Recovery Advisory Board, said, “[T]he most important financial innovation that I have seen the past 20 years is the automatic teller machine.” While he qualified the comment as a “wiseacre remark,” he stood by it, going on to say, “Indeed, it was quite good in the 1980s without credit-default swaps and without securitization and without CDOs.”

Our friend Bob Litan has a new report out from the Brookings Institution on the benefits from financial innovation over the past thirty years. The report is worth reading in full, but a quick summary of his findings is found in a chart at the beginning of the paper (condensed into one image by Kevin Drum):

Given attitudes like Volcker’s, it might be surprising to see so many “+”s, connoting relative benefits, relative to “-“s, connoting developments that did not improve that part of the economy. (“0” indicates the innovation was a wash.) But that is the reality of innovative financial instruments — they are, by and large, designed to be beneficial, but unmonitored can cause more harm than good. Innovations like credit scoring, collateralized debt obligations (CDOs), and inflation-protected Treasury bonds (TIPS) — all were developed since Volcker was Fed chair. But the benefits from these innovations (increased access to credit, which allows for consumption smoothing) can also lead to abuses of the system (crushing credit card debt, NINA mortgages, balloon payment mortgages) and asset bubbles. These abuses can be swept under the rug if the underlying assets in a CDO are not transparent, and that CDO is sold to an unsuspecting client by an investment bank trading desk.

The status quo is unsustainable, but attempts to ban some of these activities are problematic as well. Proclamations like the Volcker rule — limiting the scope of bank activity — are either too tightly defined to be effective or are so broad they throw out the above benefits with the bathwater. What would be better is to provide transparency in these activities — through clearing credit default swaps (CDS) and other derivatives on exchanges, providing credit terms in an easily understood manner upfront, and eliminating hidden fees — so that all involved know what they are getting into.

Litan also points out one key fact at the end of his paper: we’re not done with financial innovation. He argues that despite the headlines, not all innovation is bad, and there is more to come. He cites the work of Robert Schiller, the Yale professor who has pioneered work in housing price markets — designed to give homeowners protection they currently don’t have against a fall in the value of their home — and counter-cyclical tax policy, as an obvious source of financial innovation that is for the good.

But Litan concludes by noting that the market — not government — will continue to drive innovation, but “policymakers must be better prepared in the future than they were before the financial crisis to step in — first with disclosure standards and possibly later with more prescriptive rules” to prevent crises like the most recent one from happening again. The one area where he sees a more active government role is in consumer finance, an area in which a robust Consumer Financial Protection Agency will be key.

The Bipartisan Jobs Bill

Posted on by The Progressive Policy Institute

The big political news of the day was the Senate’s passage of a $15 billion jobs bill with not one, not two, but five Republicans on board. The five Republicans who voted for it were the three Northeasterners (Sens. Susan Collins and Olympia Snowe, both of Maine, and Massachusetts’ Scott Brown) and two retiring members (Sens. Kit Bond of Missouri and George Voinovich of Ohio). In other words, considering the bill was largely made up of tax cuts that the GOP would normally vote for, it was still an astoundingly weak show of Republican support.

But it’s undeniable that the appearance of Republican Senate votes is a change from the dismal pattern of recent months. Does the vote herald a new day for the Senate? Too early to tell, of course — but it does give a hint of how Senate Democrats’ plan to break up their job-creation initiatives into smaller pieces and forcing Republicans to vote against them could work.

Brown, in a statement following his vote, said, “I came to Washington to be an independent voice, to put politics aside and to do everything in my power to help create jobs for Massachusetts families.” How did Brown’s vote go over with conservatives? Take a guess. In the months to come, the breakup between Brown and the Tea Partiers — because, let’s face it, Brown is a moderate Republican — will make for compelling political theater.

More important than Brown’s vote is what effect it might have on the Maine senators. You may recall that Collins and Snowe were two of three GOP votes for the stimulus bill. Snowe also gave a vote to the Senate Finance Committee’s health bill. Will the appearance of another Northeastern moderate Republican embolden them to break off more often from their party’s obstructionist game plan? If so, then bipartisanship actually comes back into play for Democrats in the Senate.

While the jobs bill is too small to have much of an effect, it is, in the words of economist Mark Zandi, a “good first step.” Reid’s idea was to have votes on a succession of job-creation measures that would force Republicans to either keep saying “no” on bills that should be popular with the public or join Democrats in getting something done. The question now is whether the Democrats can follow through. To be continued.

Creating American Jobs, Generating American Energy

Posted on by The Progressive Policy Institute

A new policy memo from Third Way offers 23 ways to create clean energy jobs and lay down the foundation for a green economy. The memo breaks down its proposals into short-, medium-, and long-term ideas for generating new jobs. Among the proposals include a small-business energy efficiency loan program; advanced energy manufacturing tax credits; transitioning diesel heavy vehicles to natural gas; nuclear workforce training; and the creation of a National Infrastructure Bank.

The Beginning of the End?

Posted on by The Progressive Policy Institute

The news yesterday that the U.S. Federal Reserve raised the discount rate 25 basis points (to 0.75 percent from 0.50 percent) is being interpreted as an indication of a fundamental change in how the Fed views our economic crisis. The hike in the discount rate could signal the beginning of the end of our economic crisis.

The discount rate is not to be confused with the more prominent Fed funds rate. The Fed funds rate is the rate at which banks lend money to each other in overnight loans for regulatory and liquidity requirements. The discount rate is the rate at which the Fed lends money to private retail banks — traditionally at a percent above the Fed funds rate — in short-term loans aimed at easing liquidity constraints. But in recent decades borrowing from the so-called discount window had been seen by large banks as the financial equivalent of pulling over to ask for directions — you can do it, but it’s seen as a sign of weakness. The aftermath of 9/11 was the last time the discount window had seen serious activity prior to the 2008 economic crisis.

The Fed met the current crisis in part by making the discount window more available to banks. The terms of loans through the discount window went from being overnight to ultimately 90 days. The discount rate was cut from being 100 basis points (one percent) above the Fed funds rate to 50 basis points. And in a move that underscored the gravity of the October 2008 liquidity crisis, Goldman Sachs and Morgan Stanley turned themselves into bank holding companies — a technical change in their operating structure that required much more oversight — in part to be able to access the discount window in case they faced a liquidity crunch.

This opening of the discount window was part of a larger project by the Fed — which involved pumping liquidity into the economy by buying up almost two trillion dollars in assets — to prevent the crisis of fall 2008 from leading to a global depression. But now that the worst seems to be over from a monetary perspective, the Fed is beginning to step away from the crash position it assumed almost two years ago.

Newly reappointed Fed Chairman Ben Bernanke laid out a plan for unwinding the Fed’s position in the economy last week, testifying to Congress that “when the times comes,” the Fed will move to sell that two trillion in assets (in an orderly fashion) to a stronger market. This would give the Fed more room to manage the economy to bring us out of recession. The raising of the discount rate would be the first step in that process.

The phrase “when the time comes,” however, makes all the difference in the world, and many wiser people than I are expecting the Fed to go easy on its plan to shrink it’s balance sheet and raise rates. With unemployment hovering at 10 percent, this recession isn’t over for a lot of Americans. And, despite last quarter’s strong headline number, there is no obvious driver of GDP growth (like exports) on the horizon, so it may not be over for the rest of us, either. So it may be too soon to call the recession over and begin raising rates. The fear is that this may not be the beginning of the end, but the end of the beginning.

Photo credit: https://www.flickr.com/photos/laurapadgett/ / CC BY-ND 2.0

Champion Enterprise, Not Paternalism

Posted on by The Progressive Policy Institute

The following piece was written for a conference on progressive governance being held this week in London by the Policy Network, an international think tank dedicated to promoting progressive policies:

For many on the left, the near-collapse of America’s financial system during the winter of 2008-2009 was irrefutable proof of the failure of free market ideas. The new consensus — let’s call it the anti-Washington consensus — was solemnized by business and political elites in Davos last month. Fittingly enough, French President Nicolas Sarkozy delivered the eulogy for neoliberalism.

The Anglo-American model is dead. Long live state capitalism!

Not so fast. In America at least, popular attitudes have not lurched in a more interventionist or social democratic direction. If anything, there’s been a backlash against the emergency measures the Obama administration has undertaken to unlock credit, bail out big banks holding worthless securities, reduce home foreclosures, and keep big U.S. auto companies afloat.

That has perplexed and frustrated Democrats, who believe the government should get more credit for again saving capitalism from the capitalists, just as it did in Franklin Roosevelt’s day. But Wall Street’s fall from grace doesn’t automatically translate into rising public receptivity to a more active state. Anti-business and anti-government attitudes can and do co-exist easily in the American mind.

President Obama maintains, quite plausibly, that Washington’s decisive intervention kept the economy from tumbling into the abyss. But unprecedented public deficits, the government’s effective takeover of large finance and auto companies, and, yes, Obama’s push for comprehensive health care reform, also seem to have resurrected old fears about “big government.”

One likely reason is the sheer, pharaonic scale of government spending to rescue the economy: nearly $4 trillion when you add the Federal Reserve’s efforts to pump liquidity into financial markets, aid for failing banks, last year’s $787 billion “stimulus” plan, and another $100 billion jobs bill for this year. And many in middle America are barking mad that political elites have used tax dollars to shield economic elites from the consequences of their own greed and ineptitude. This is especially true of the independent voters who helped Obama to win a solid majority in 2008, but whose defection over the past year has fueled Republican victories in elections in Virginia, New Jersey, and, most shockingly, the liberal bastion of Massachusetts.

Meanwhile, the U.S. economy is growing again, by a gaudy 5.7 percent of GDP in the last quarter of 2009. There’s been little crowing at the White House, however, not when many small businesses still can’t get credit, people continue to lose their homes, and unemployment remains stuck in double digits.

For Obama and the Democrats, the central economic challenge is not to sell some new model of state-managed capitalism to a public already worried about government spending and overreach. It’s to rebuild the American economy’s capacities for brisk innovation and job creation. That will require striking a careful balance between new regulation and entrepreneurial risk-taking.

With Wall Street again reaping huge profits (and dishing out fat bonuses), some sort of financial regulation likely will pass soon. The key tasks here are reducing moral hazard by ensuring that no financial institution becomes too big or interconnected to fail, raising capital requirements to curb excessively leveraged speculation, and creating transparency in the trading of exotic financial products like derivatives.

But what the country needs even more is a progressive opportunity agenda that emphasizes technological innovation, small business creation, American competitiveness, fiscal discipline, better schools, and middle-class jobs. Such an agenda would include the following elements:

An aggressive infrastructure initiative. Washington must reverse decades of neglect and double or triple spending aimed at modernizing America’s aging and inadequate public infrastructure. Even that, however, won’t be nearly enough, which is why progressives are calling for a National Infrastructure Bank to leverage private investment in high-speed rail, intelligent transportation systems, a smart electricity grid, and next-generation broadband.

A big boost for clean and efficient energy. The United States needs to put a price on carbon, which would raise billions to invest in developing clean fuels and technologies. Unfortunately, Obama’s “cap and trade” proposal is languishing in Congress, a victim of Republican obscurantism on climate change.

More exports. Obama wants to double U.S. exports, but the White House has not pushed Congress hard to pass the U.S.-Korea trade pact. Nor has it confronted China and other Asian nations whose currency manipulations keep U.S. (and European) goods at a competitive disadvantaged.

Fiscal restraint. America’s heavy borrowing from abroad weakens the dollar and deepens our reliance on foreign creditors. To maintain the nation’s fiscal integrity and independence, Obama must walk a fine line between winding down our enormous public deficits and debts and continuing to pump up domestic demand. The key is to reduce the unsustainable growth of public health care costs, which is why Obama is right not to give up on health care reform this year.

An entrepreneurial climate. Over the last three decades, firms less than five years old have accounted for nearly all net job creation in the United States. U.S. progressives should embrace policies that foster innovation and entrepreneurship: more public spending on research, a light-handed approach to regulating and taxing new enterprises, fiscal discipline to keep capital costs low, dramatic improvements in education and preferences for skilled immigrants.

In the ideological hothouse of Washington, it’s natural for Democrats to argue that the financial crisis has discredited market fundamentalism. But the antidote isn’t more government, it’s a progressive model for innovation-led growth that champions individual enterprise and middle class aspiration.

In China, High-Speed Rail Cuts into Air Travel

Posted on by The Progressive Policy Institute

As our recent policy paper on high-speed rail (HSR) noted, China has emerged as one of the global leaders in HSR, recently unveiling the world’s fastest train — with top speeds of 245 piles per hour — and proceeding apace on a plan to build 8,000 miles of ultraspeed lines by 2020.

A story from Bloomberg (h/t Infrastructurist) puts Chinese HSR’s success into perspective:

China Southern Airlines Co., the nation’s largest carrier, and Air China Ltd. are slashing prices to compete with the country’s new high-speed trains in a battle that Europe’s airlines have largely already ceded.

Competition from trains that can travel at 350 kilometers per hour (217 miles per hour) is forcing the carriers to cut prices as much as 80 percent at a time when they are already in a round of mergers to lower costs. Passengers choosing railways over airlines will also erode a market that Boeing Co. and Airbus SAS are banking on to provide about 13 percent of plane sales over the next 20 years.

“There’s no doubt that high-speed rail will defeat airlines on all the routes of less than 800 kilometers,” said Citigroup Inc. analyst Ally Ma. “The airlines must get themselves in shape, increase their profitability and improve the network.”

As the lede states, HSR has had a similar effect in Europe. A few years ago, Air France dropped its five daily trips between Paris and Brussels as a result of the growing popularity of high-speed rail among travelers. The same thing happened with the routes between Paris and Stuttgart.

Not that the airline industry in China is necessarily hurting. The country’s explosive growth has led to an urgent need to expand all sorts of transportation infrastructure. This year, some 25 airports will begin construction, including a second one in Beijing. China ordered 160 Airbus airplanes in November 2007.

China’s experience offers an instructive model as we embark on our own push to revitalize our aging rail infrastructure. As travel demand has increased, HSR has offered greater choice, reliability, and price competition for Chinese consumers. Is there any reason why China can provide that kind of infrastructure upgrade for its travelers and we can’t?

Photo credit: https://www.flickr.com/photos/peoplezchronicles/ / CC BY-NC-ND 2.0

Euro-zoned Out

Posted on by The Progressive Policy Institute

Things in Europe are looking grimmer than my chances of getting a taxi in blizzard-slammed New York City.

Today’s announcement that Germany and France are going to provide financial aid to Greece — with stringent IMF oversight — caps off weeks of speculation that the EU would have to bail out the Hellenic Republic. The newly elected left-wing government in Greece has come clean with what the previous conservative government had been hiding — Greece’s budget deficit for last year was a whopping almost 14 percent of GDP, and this year’s is looking not better. The new government, in a bid to reassure the markets — and the other members of the Eurozone that have all sworn to adhere to the deficit limits of the founding Maastricht Treaty — has promised to get government deficits down to three percent of GDP by 2012. Seeing the coming of severe austerity measures in the wake of what wags have been desperately trying to tag the “ouzo crisis,” Greek civil servants have unsurprisingly gone on strike.

The news is no better outside the Eurozone, where, to take the most latest example, Latvia is putting up numbers that are even grimmer. The Latvian economy shrank by 18 percent the past year, and it’s not likely to rebound anytime soon. (To put that in perspective, U.S. GDP fell by 30 percent over four years at the start of the Great Depression.) Latvia has pegged its currency, the Lat, to the Euro through the Exchange Rate Mechanism (ERM), in hopes of joining the Eurozone like Slovakia did last year, and like its neighbor to the north, Estonia, might do as soon as this July. The Baltic countries want to join the Euro, as adopting a strong currency is a surefire way to control inflation and make it easier for the government to borrow on the international markets (this is why several small economies have unilaterally adopted the Euro or the U.S. Dollar as their currency).

These two cases are emblematic of the issues facing several European countries. Greece has been lumped in with Portugal, Italy, and Spain to form the “PIGS,” southern Europe’s sluggish economies (Ireland is occasionally added to the group as a second “I”: “PIIGS”). Latvia’s problems are similar to those seen all over Eastern Europe, with Lithuania, Poland, the Czech Republic, and Hungary all facing similar — if less dire — straits. But while it looks difficult all over the EU, if I were a small business owner (or finance minister), I’d rather be in Latvia than in Greece.

Why? Because it could be a lot easier for Latvia to get out of its situation than Greece’s. Latvia has been facing a choice: aim for the Eurozone or faster recovery. While the benefits of a small country joining the monetary union make sense over the long term, when faced with a recession a currency devaluation might make more sense. This would immediately make domestic products — now cheaper to make — more competitive, stoking exports and, with them, job and GDP growth. Leaving the ERM would postpone joining the Euro for several years, which could make inflation a problem, but other countries, notably the UK, have been forced to leave the ERM before, and in the UK’s case it helped fuel a strong decade of growth in the 1990s.

The alternative to devaluation is deflation, a painful process where you ratchet down the prices of everything in your economy, from raw materials to salaries, to the point where they become competitive. This is the prospect that Greece is facing. In the Eurozone, Greece cannot lower it’s exchange rate against the markets it exports to — they all use the Euro. Devaluation also makes local currency-denominated debt much easier to pay. And this is where Greece is also getting hammered. As it looks increasingly unlikely to be able to pay its obligations, the yield on Greek debt has jumped. Greek debt is trading for less in the secondary market because investors are less sure that the government will be able to meet it’s obligations. As Greek banks hold significant amounts of Greek government debt, they are teetering on the edge of bankruptcy.

In the end, why should these issues in Europe be a concern to the U.S.? Surely problems in Athens will have limited impact on the largest economy in the world. Well, it’s worth remembering that the bankrupcty of Creditanstalt in Austria following the crash of 1929 was one of the sparks that turned a recession into the Great Depression.

Blueprint America: Beyond the Motor City

Posted on by The Progressive Policy Institute

A viewing tip for this evening: Filmmaker Aaron Woolf, director of the acclaimed King Corn (2007), turns his camera on America’s dilapidated infrastructure system. Blueprint America: Beyond the Motor City explores how the plight of Detroit, long the emblem of American manufacturing might, now its most damning symbol of urban and infrastructure disrepair, is actually a microcosm of a larger national failure.

Perhaps the most compelling takeaway from the film is its gentle suggestion that the country is missing a vision for infrastructure. Harking back to Albert Gallatin in the 19th century and the Interstate Highway System in the 20th, the movie makes the point that the absence of a unifying and coherent vision for binding the nation together with infrastructure lies at the heart of American decline.

Beyond the Motor City also puts the issue of global competitiveness front and center. Some of the film takes place in Spain, home to one of the world’s most advanced high-speed rail networks and to six of the world’s top 10 public works companies.

The movie airs tonight at 8:00 pm on PBS, though check your local listings. Here’s a preview:

Obama Calls a Big Play

Posted on by The Progressive Policy Institute

An onside kick to start the second half may have been the biggest play call of the night, but President Obama’s audacious gambit to jump-start the stalled health care reform effort was not far behind. In an interview with Katie Couric, the president announced that he would like to hold a bipartisan health care summit in front of TV cameras at the end of the month.

Perhaps emboldened by his masterful performance at the televised House GOP caucus retreat — by consensus one of the most compelling pieces of political theater this country has seen — the president goes to the well for the second time in a month.

It’s a brilliant but risky move. The risk comes in putting health care at the forefront of the public agenda when the public would rather fixate on one thing: jobs. That impatience translates into Democratic jitteriness, which could lead to a further decline in legislative support to get something passed. Plus, Obama’s talk of bipartisanship could incense some progressive allies, who at this point are so fed up with Republican obstructionism that they see any attempt to reach out across the aisle as a sign of naivete, even weakness.

But I’m betting that Obama’s play will actually pay off. As Steve Benen notes, it’s a “call-the-bluff moment.” For months now, Republicans have complained that they have been shut out of the process. (False — remember the interminable Senate Finance Committee deliberations? And, let’s be clear, to the extent that they not been included, Republicans themselves closed the door from the outside.) Well, here’s their chance to participate, in as high-profile a setting as they can ask for. Obama’s basically saying, “Fine — you like your ideas so much? Let’s sit down and talk about them for all of the American people to see.”

It has the makings of a no-win situation for the GOP because a) they don’t really have a workable and realistic idea to reform health care and b) it’s much easier to lie about the other side when the other side isn’t there to call you on it. And as Obama demonstrated at the GOP caucus, he has the ability to confront GOP mendacity with equal measures of assuredness, intelligence, and good faith.

You can tell the Republicans are worried — and that they already have the outlines of a strategy. House Minority Leader John Boehner (OH) said in response to the president’s announcement, “The best way to start on real, bipartisan reform would be to scrap those bills and focus on the kind of step-by-step improvements that will lower health care costs and expand access.” But starting over is not an option for Obama. As a White House official said, “We are coming with our plan. They can bring their plan.” And that is how they should continue to frame it.

I wouldn’t put it past the GOP to keep humping the scrap-the-bill note and demand that the only way they can agree to a sit-down with the president is if he starts from scratch. Of course, Obama should call their bluff. Could there be a better image of Republican irresponsibility than a bipartisan summit on health care called by the president, with Democrats and the president exchanging ideas, and all those empty chairs where Republicans should be? Then again, considering how utterly uninterested they are in governing, and how the risk of revealing that fact in a nationally televised forum is too high, not showing up for the game might actually start looking like the less painful option.

A Fiscal Dr. Strangelove

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Paul Krugman wants Americans to stop worrying and learn how to love the bomb – the fiscal bomb that is.

Just as Dr. Strangelove in the eponymous film classic assures the president that America can survive thermonuclear war, Krugman professes blithe disregard for the impact of massive government borrowing on U.S. fiscal stability.

The public and a good many economists may beg to differ, but what do they know? Voter concern about deficits has grown salient over the past year, as Washington has spent trillions to prop up the economy. Last March, a slight majority approved of President Obama’s handling of the federal budget deficit; in January, a CNN/Opinion Research poll found that 62 percent disapprove.

Krugman dismisses such concerns as “hysteria” and puts them down to a combination of economic ignorance and Republican propaganda.

On one point, the intensely partisan Krugman is dead right: GOP credibility on fiscal discipline is shot to pieces. The Bush Republicans squandered the budget surplus President Clinton bequeathed them on tax cuts and profligate spending. In 2003, they rammed through Congress a trillion-dollar prescription drug benefit for Medicare recipients but somehow forgot to pay for it. Quite a contrast to President Obama, who took pains to insist that Congress fully offset the costs of his health reform plan – with Republicans all the while hooting inanely about “socialism” from the peanut gallery.

But on the fundamental question – whether progressives should ignore America’s huge and growing fiscal imbalances – Krugman is flat wrong. GOP hypocrisy aside, plenty of progressive economists are sounding the fiscal alarm.

Jeff Garten, for example, believes America’s ballooning national debt will lead to “the slow but inexorable decline of the U.S. dollar,” undermining a key source of U.S. prosperity and influence in the world.

In a compelling Time essay, Jeffrey Sachs argues that the mounting public debt is symptomatic of a breakdown in political responsibility in Washington that stymies the nation’s progress. Republicans won’t abandon their anti-tax fetish, Democrats won’t rein in spending, especially on fast-growing entitlements, and the result is paralysis. “Until both political parties make a serious effort to improve the performance of government while shrinking its swelling deficits, Americans will watch both their quality of life and their country’s standing in the world erode,” he maintains.

Liberals, says Sachs, are wrong to cite deficit spending during the New Deal as proof that Americans shouldn’t worry about government borrowing today. During the height of the Depression, he notes, the federal government was running deficits of around about 5 percent of GDP as opposed to 10 percent today. Back then, he notes, we financed our debts domestically. Today about half of our national debt is held by foreign creditors, especially China and Japan.

Now, Sachs is neither an economic ignoramus nor a Republican stooge. He believes, as Krugman does, that public investment is an imperative to create jobs, rebuild U.S. infrastructure, and restore shared prosperity. But unlike Krugman, he recognizes that Washington’s unwillingness to defuse the public debt bomb is relentlessly squeezing out fiscal space for such investment.

President Obama gets it too. He is trying to strike a balance between massive, short-term spending (although not massive enough for Krugman) to stimulate the economy, and the need to restore fiscal discipline over the long haul by freezing domestic spending and creating a bipartisan commission to tackle entitlement reform.

That’s not easy, and he deserves more help than he is getting from liberals like Krugman who pose a false choice between progressive reform and fiscal responsibility.

Why It’s Too Soon to Worry About Wireless Net Neutrality

Posted on by The Progressive Policy Institute

Last week’s Verizon/Google joint FCC filing on net neutrality contained a substantive idea that was worth discussing – a proposal for “Technical Advisory Groups.” But there’s an item that’s also worth discussing because of its incompleteness: net neutrality in the wireless space. Google and Verizon apparently consider it an important enough issue to include, even though they couldn’t agree on anything more specific than to encourage the FCC to “examine specific market and technical factors before applying any general oversight or specific rules to wireless broadband networks.”

But while the issue of wireless network neutrality is important, it’s the wrong one to fixate on at the moment. Wireless is, in fact, different from wired, and the issue of neutrality does not transplant as cleanly from one to the other. Neutrality opponents have, in general, greatly overstated the technical case against regulation. But in the wireless arena as it exists today, their dire warnings are far more plausible.

As with the points of agreement in the Verizon/Google brief, this comes down to the participants’ market positions. Verizon is the country’s most powerful wireless operator, while Google is at the center of the Open Handset Alliance, the organization behind the Android platform and the effort to diminish carrier control that it represents.

Getting a Handle on Wireless Net Neutrality

But what does network neutrality mean in the wireless context? As with the larger debate, people have varyingly expansive ideas about where to draw the line. A good place to start is Tim Wu’s 2007 Wireless Carterfone paper. Wu, at least, is quite specific about what network neutrality involves, basing his criteria off of then-FCC chairman Michael Powell’s “four network freedoms”: choice of applications, choice of devices, choice of content and service plan transparency.

As you might imagine, the wireless carriers don’t like some of these ideas — particularly the first two — saying that they’re technically unworkable. And though I’m hardly a cheerleader for America’s wireless carriers, in this instance, they do have a point. Roger Entner makes the case, pointing out that wireless cells are a shared resource with limited capacity. Wu anticipated this criticism:

The problem with this argument is that scarcity is an economic feature of not just wireless networks, but wireline networks as well. Both wireless and the local loop are last-mile networks of limited available bandwidth, and, in fact, the bandwidth available on a copper local loop is considerably less than on some of today’s wireless networks. For both products, it can be claimed that third parties cannot be trusted to make products that respect the shared needs of the network. In the Hush-a-Phone case, for example, AT&T claimed that third parties would bear “no responsibility for the quality of telephone service, but [be] primarily interested in exploiting their products.” Similarly, local carriers for years complained that modems abused the scarce resources of the phone network (by maintaining long connections). But as Judge Robert Bork argued in another context: “All economic goods are scarce… since scarcity is a universal fact, it can hardly explain regulation in one context and not another. The attempt to use a universal fact as a distinguishing principle necessarily leads to analytical confusion.”

But this is an oversimplification. There are spatial constraints on wireless operators that don’t apply to wired networks. Two cables running side-by-side will not typically interfere with one another; two cell towers operating on the same portion of spectrum and space will. And mobile data users are just that — mobile. A bad DSL modem or heavy Bittorrent user with a cable connection might impact the service of those on the same local loop, but the size of that loop can be controlled by the network operator, and the customers on it can be easily tracked and, if necessary, sanctioned. The number of users impacted by a malfunctioning wireless modem or handset-spewing packets is primarily a factor of population density.

And on cellular networks, tracking down network malefactors is harder and sure to be more expensive than the example cited by Wu. In the Hush-a-Phone case, a commercial entity existed that AT&T could sue. If the manufacturers of the Hush-a-Phone device were to lose such a lawsuit, they risked losing their capital investment. It was in their own interest to produce a device that worked well enough with the AT&T network to satisfy consumers and avoid the network operator’s wrath. The incentives for individuals to use wireless networks gently are much weaker: a canceled contract? A stern letter? This wasn’t enough to discourage those who participated in Operation Chokehold, a deliberate effort by iPhone users to cripple the AT&T network in protest of new bandwidth restrictions.

A More Pressing Wireless Issue

Of course, Chokehold proved to be something of a bust — unsurprising, perhaps, given that even its creator was urging people not to participate by the time the event actually rolled around. Still, the capacity of individuals to damage other wireless users’ service shouldn’t be ignored. I’m in no position to judge the legal merits of Judge Bork’s assertion that scarcity is an incoherent rationale for regulation, but surely it makes practical sense to demand that people stop watering their lawns during a drought. The FCC considered Operation Chokehold a real threat; anyone who’s tried to share wifi on a discount bus line with someone watching video — or just tried to use their iPhone during business hours in San Francisco or New York — intuitively understands how cramped the data portion of cellular networks currently is.

One obvious response is that the networks should be expanded. This is undeniably true: the nation’s demand for wireless data is sure to increase dramatically. The carriers must find fairer ways to charge for access, and begin paying more attention to infrastructure and less to marketing gimmicks. But it’s still the case that the operators must prioritize reliable voice service over data service; that spectrum is a scarce resource; and that there is a tension between expanding existing infrastructure and investing in coming generations of technology.

There’s reason for optimism. WiMAX promises to deliver a wireless network designed for data, and is close to widespread deployment. The transition to digital television also promises to deliver useful spectrum for wireless data (though much of it is currently being used to broadcast reruns of Magnum P.I. and redundant weather channels, thanks to an indefensible giveaway to incumbent broadcasters). Once new wireless networks and technologies remove the tight constraints currently facing mobile data users, protecting and enhancing users’ network freedoms should become a priority for the FCC. Until then, ensuring those networks’ viability must unfortunately remain their focus.

Obama’s Budget: Recognizing the Link Between Food Systems and Jobs

Posted on by The Progressive Policy Institute

President Obama’s 2011 budget contains a few notable things for progressives to cheer. One of the items that jumped out at us was its support for an intertwined effort to boost healthy foods and food jobs – an idea that we championed in a December policy paper.

The budget includes $400 million for the Departments of Agriculture, Health and Human Services, and Treasury to finance community development institutions, nonprofits, public agencies, and businesses with strategies for tackling the healthy food needs of communities. Funds will also be available for expanding retail outlets and increasing availability of local foods.

But even more impressive is the language that the administration uses to describe its food initiatives. In summary after summary, the link between food and jobs keeps popping up.

From the “Spur Job Creation and Revitalize Rural America” fact sheet:

The Budget helps lay the foundation for job creation and expanded economic opportunities throughout rural America by…[n]urturing local and regional food systems and expanding access to healthy foods for low-income Americans in rural and urban food deserts.

From an OMB paper on job creation:

First, to support the Rural Innovation Initiative, the Department of Agriculture (USDA) plans to set aside funding to foster rural revitalization through a competitive grant program. Second, the Budget supports local and regional food systems through many USDA programs including the Business and Industry guaranteed loan program and the Federal State Marketing Improvement Program.

From an OMB summary of the USDA budget:

Promotes economic and job creation opportunities for rural America by focusing on five core areas: access to broadband services, innovative local and regional food systems, renewable energy programs, climate change, and rural recreation.

Taken together, these spending decisions on food systems and job creation reveal an administration in tune with the idea of a holistic approach to our economic, social, and health problems. Following a glum January for progressives, the budget offers compelling reminders of the progressive governance that we expected from the administration.

The State of Play on Health Care

Posted on by The Progressive Policy Institute

The last week has brought a blizzard of news from the administration: the State of the Union, bank reforms, high-speed rail, 4th-quarter GDP growth, President Obama’s highly lauded appearance at the House GOP retreat, and now his budget and jobs proposals. Conspicuously missing from the headlines has been health care reform. And that’s just how the Democrats like it.

As Jonathan Cohn reported this weekend, there’s more going on behind the scenes on health care than the dismal outlook suggests. The decision to shift the attention to other issues, while viewed skeptically by many progressives as the first step toward dropping the issue altogether, might actually be having a salubrious effect:

Even the decision to focus on jobs, banking, and the economy right now–while letting the “dust settle” on health care reform–may not be quite the sign of retreat it seems at first blush. Many insiders have suggested to me that giving leadership a little breathing space to negotiate, and giving members of Congress more time to adjust to the post-Massachusetts political landscape, will ultimately make a deal more likely. In today’s Los Angeles Times, Rep. Gerald Connolly, president of the House Freshman Democrats says that strategy may be working: “The more they think about it, the more they can appreciate that it may be a viable . . . vehicle for getting healthcare reform done.”

By diverting the attention to jobs, banks, and budgets, the president is betting that he gives Congress the time and room to work out their differences and talk each other off the ledge. Maybe he’s right.

But there’s a legitimate fear that unless the president takes firm control of the process soon — be it behind the scenes or in front of cameras — health reform is in danger of dying of neglect. Cohn reports that the administration is still taking a hands-off approach with Congress, which is giving his supporters heartburn.

Is it enough to tell the Dems to not “run for the hills”? Based on the skittish display congressional Democrats put on in the wake of the Scott Brown win, color me skeptical. It need not happen in full public view, but the president might need to do much more exhorting and hand-holding to get the House to act.