Today, the House of Representatives passed the America COMPETES Act, which will help ease supply chain tension, invest in American innovation, and strengthen our standing in the race to technological leadership.
Aaron White, Director of Communications for the Progressive Policy Institute (PPI) released the following statement:
“The Progressive Policy Institute is encouraged to see the House passage of the America COMPETES Act, a companion bill to the Senate’s bipartisan United States Innovation and Competition Act, which will invest in American innovation, ease the tensions on U.S. and global supply chains, and strengthen America’s standing in our race with China for technological leadership.
“This bill has the potential to spur long-term growth through significant investment in scientific innovation and new-age manufacturing and logistics advancements. The American technology sector has long been a leading global innovator; by investing in emerging technologies, research and development, the future workforce and the U.S. high-tech productive base, America can once again lead the world with a robust 21st century economy and expand opportunity for generations to come.
“Notably, it is unfortunate that House Republicans refused to vote for legislation that mirrored bipartisan bills and committee provisions, particularly given the Senate was willing to compromise and pass their companion bill on a bipartisan vote months ago. Important issues like supporting American innovation, technological leadership, and strengthening our economy should transcend partisanship, especially as we recover from the pandemic.
“We must acknowledge that there is still room for improvement. As the Senate and House begin the conference process for the United States Innovation and Competition Act and the America COMPETES Act, PPI encourages conference committee members to more closely examine the trade provisions within the final bill, and take the time needed — through hearings, public comments or other means — to consider the wide ranging implications for U.S. exporters and importers of several of the bill’s trade provisions.
“We also encourage the conference committee to consider reverse the Trump and GOP-era tax increase on scientific research that took effect this year. If left in place, this tax change threatens to undo much of the good that this legislation would do for American innovation. Finally, we hope lawmakers will wait for an official score from the Congressional Budget Office before voting on passage of the bill in its final form. Even if some public investments generate high enough returns to justify borrowing to pay for them, as PPI believes may be the case for some provisions in this bill, it is essential that our leaders have the necessary information to consider all the costs and tradeoffs.
“We thank Speaker Pelosi and Majority Leader Schumer for their continued work in advancing this legislative package, and congratulate President Biden for spearheading this historic advancement in American economic leadership. The finished product will be a major win for American workers, consumers, and manufacturers alike.”
U.S. Technological Innovation Needs Government Procurement to Succeed
Ongoing geopolitical pressures, primarily the modern rise of China, have brought American technological superiority back to the fore as a central political objective. By revitalizing corporate science and economic innovation through government procurement, policymakers can promote U.S. scientific leadership while protecting our national security, argues a new report from the Progressive Policy Institute (PPI)’s Innovation Frontier Project.
The report, authored by Sharon Belenzon and Larisa C. Cioaca of Duke University’s Fuqua School of Business, is titled “Government Procurement: A Policy Lever to Revitalize Corporate Scientific Research.”It details the history of government procurement from the 1957 Sputnik shock to the rise of China, along with evidence that an increase in procurement contracts leads firms to invest more in upstream R&D, especially when private market incentives are weaker.
“There’s no reason that America can’t lead the world again in science and technology. And as the authors of this report argue, the rise of China represents not only a threat, but an opportunity,” said Jack Karsten, Managing Director of the Innovation Frontier Project at PPI. “By bolstering corporate scientific research with the right targeted reforms to the procurement process, the U.S. government can constructively address the national security challenges it faces while reinvigorating domestic innovation.”
Belenzon and Cioaca call for the government to incentivize the participation of the private sector in procurement, while still responsibly and efficiently managing taxpayer dollars. They recommend that policymakers consider returning to the practice of rewarding firms that demonstrate technological superiority, encouraging domestic innovation while keeping us competitive abroad.
PPI releases this report as the U.S. House of Representatives considers the America COMPETES Act, a package meant to address supply chain issues, increase domestic production, and invest in American scientific and technological leadership. The legislation would appropriate $45 billion to prevent supply chain shortages and disruptions and $52 billion for semiconductor production in America, along with a collection of bipartisan science, research and technology bills.
Based in Washington, D.C., and housed in the Progressive Policy Institute, the Innovation Frontier Project explores the role of public policy in science, technology and innovation. The project is managed by Jack Karsten. Learn more by visiting innovationfrontier.org.
The Progressive Policy Institute (PPI) is a catalyst for policy innovation and political reform based in Washington, D.C. Its mission is to create radically pragmatic ideas for moving America beyond ideological and partisan deadlock. Learn more about PPI by visiting progressivepolicy.org.
Jasmine Stoughton, Program Lead for the Mosaic Economic Project at the Progressive Policy Institute (PPI), released the following response in reaction to Biden’s Federal Reserve Nominations:
“President Biden’s nomination of the Hon. Sarah Bloom Raskin, Dr. Lisa Cook, and Dr. Philip Jefferson to the Board of Governors of the Federal Reserve System is a key step toward ensuring stable economic growth that will be felt by every American, and it is a demonstration of Biden’s commitment to uplift leaders that reflect the diversity of our country.
“Raskin, Cook, and Jefferson are well-respected and highly qualified to serve on the Board. Combined, they have decades of experience in academia and government and have each shown extraordinary judgement and skill throughout their careers.
“Diversity in leadership is among the most important elements of successful governance. If the Senate confirms Biden’s nominations, the complete Board will be majority women for the first time in its 108-year history. Incredibly, Cook will be the first Black woman to serve on the Board, and Jefferson will be the fifth Black governor — representation that is long overdue.”
TheMosaic Economic Projectis a network of diverse women with expertise in the fields of economics and technology. Mosaic programming aims to bring new voices to the policy arena by connecting cohort members with opportunities to engage with top industry leaders, lawmakers, and the media.
The Progressive Policy Institute (PPI) is a catalyst for policy innovation and political reform based in Washington, D.C. Its mission is to create radically pragmatic ideas for moving America beyond ideological and partisan deadlock. Learn more about PPI by visiting progressivepolicy.org.
The Progressive Policy Institute (PPI) released the following statements ahead of the Senate Banking Committee’s hearing on the nominations of the Hon. Sarah Bloom Raskin, Dr. Lisa Cook, and Dr. Philip Jefferson for the Board of Governors of the Federal Reserve System:
“President Biden has overseen a year of remarkable achievement in restoring economic growth, with steady job creation and strong evidence of wage increases. With the economy stabilized after the COVID-19 pandemic experience but concerns about inflation rising, the country needs both professional management and imaginative policy in the coming years,” said Ed Gresser, Vice President and Director of Trade and Global Markets for PPI.
“President Biden’s excellent nominations for the Federal Reserve Board of Governors demonstrate his awareness of this challenge. The current chair and nominee for vice chair, Jerome Powell and Lael Brainard, are exceptional public servants who have helped to steer the Fed through the turbulence of the Trump years and the COVID crisis, and fully merit confirmation. New nominees Lisa Cook, Sarah Bloom Raskin, and Phillip Jefferson are outstanding economists who will bring a diversity of strengths and experience to the Fed, with its dual mandate of price stability and full employment, and will help ensure that the Board of Governors takes its next steps with consideration for both macroeconomic consequences and impacts on Americans at all income levels and in all walks of life. This is a very strong group of nominees which will serve the country well during a very complex time, and deserves support,” concluded Gresser.
“The Progressive Policy Institute applauds President Biden and the Biden-Harris administration for this historic, diverse, and highly qualified slate of nominees to the Board of Governors of the Federal Reserve. At a time when our nation faces several economic challenges — caused primarily by the COVID-19 pandemic and evolving variants — this group will bring steady, competent leadership. America is getting back on track after an unimaginable health and economic crisis, and President Biden is proving his commitment to Build Back Better by prioritizing strong leadership in every facet of the federal government,” said Sarah Paden, Vice President and National Political Director.
The Progressive Policy Institute (PPI) is a catalyst for policy innovation and political reform based in Washington, D.C. Its mission is to create radically pragmatic ideas for moving America beyond ideological and partisan deadlock. Learn more about PPI by visiting progressivepolicy.org.
While the system of credit scoring used by Fannie Mae and Freddie Mac (the Enterprises) has been in effect for some time, Congress recently asked them — along with the Federal Housing Finance Agency (FHFA) — to review their credit scoring model to determine if additional models could be used to increase competition. But as Fontenot explains, the incorporation of a flawed new model could have unforeseen impacts and potentially drive up borrower costs.
The report concludes that the Enterprises have used a current credit scoring model that has produced necessary liquidity in the market in both good and difficult times — and that as the FHFA oversees the next phase of testing alternative credit score models, it should ensure that the models are subjected to scrutiny concerning the cost and market affects any change would have.
Read the full paper, expanded conclusion, and questions for consideration here.
Brodi Fontenot is President of Fontenot Strategic Consulting LLC. Mr. Fontenot was previously appointed by President Obama to be the Department of the Treasury’s Assistant Secretary for Management and was nominated to serve as Treasury’s Chief Financial Officer. Fontenot also served in a variety of senior roles at the Department of Transportation, including Assistant Secretary for Administration, Chief Human Capital Officer (CHCO), and Senior Sustainability Officer (SSO).
The Progressive Policy Institute (PPI) is a catalyst for policy innovation and political reform based in Washington, D.C. Its mission is to create radically pragmatic ideas for moving America beyond ideological and partisan deadlock. Learn more about PPI by visiting progressivepolicy.org.
The Federal Reserve made clear in its December 2021 meeting that it intends to raise interest rates in 2022. Interest rate changes flow through the economy and affect the rates borrowers pay on all types of loans. In particular, the increases in interest rates may place greater pressure on home mortgage rates and the credit scores that are used by financial institutions to determine who qualifies for loans.
In the area of housing finance, how credit scores are used by key market players has received attention for some time. The better the credit score, the more likely a borrower will qualify for a mortgage at the best possible rate, saving the borrower money over the life of the loan. There has been debate, however, over the models used to create those scores — should there be more competition and, more important, can new models lower costs for home buyers and ensure equity of access to loans.
Two of the most important entities in housing finance are the nation’s housing government sponsored enterprises — Fannie Mae and Freddie Mac (Enterprises) — which are now under government conservatorship overseen by Federal Housing Finance Agency (FHFA). As a result, many policymakers and elected officials have encouraged the FHFA to take steps to promote more competition in the credit scoring models used by the Enterprises to help lower costs to consumers and give greater access to credit for previously underserved individuals.
These are important goals and should be pursued. However, some reforms presented would have had a less than optimal effect — decreasing competition and potentially driving up mortgage costs rather than lowering them. The Enterprises have used a valid credit score model for over 20 years. Introducing competitive reforms has merit, but it must be done in a way that does not create unfair advantages. FHFA has a clear mandate to keep the Enterprises solvent and help homeowners, as witnessed by their recent COVID assistance. But FHFA must ensure that any reforms maintain competition and keep prices low for consumers.
This paper reviews how credit scores are presently used by the Enterprises and discusses some of the issues that can be addressed to keep competition in the credit score market. This paper also discusses some of the pitfalls associated with some proposed reforms to credit score markets.
ENTERPRISES HAVE USED PROVEN CREDIT SCORE MODELS FOR OVER TWO DECADES
Fannie Mae and Freddie Mac (Enterprises) are commonly known as housing government sponsored enterprises. Somewhat unique in their structure, they were originally chartered by Congress, but owned by shareholders, to provide liquidity in the mortgage market and promote homeownership.[1] The Enterprises maintained this unique ownership structure until their financial condition worsened during the financial crisis of 2008, when they were placed in government conservatorship under the leadership of the Federal Housing Finance Agency (FHFA).
The Enterprises do not create loans. They purchase loans made by others (such as banks), and then package those loans into securities which are then sold on the secondary market to investors. The loans purchased by the Enterprises can only be of a certain size and home borrowers must have a minimum credit score to qualify. The Enterprises use these and other criteria to minimize the risk that the loans they purchase will not be paid back (default) — an important step because it is this step of buying loans from banks and other lenders, thereby providing them with replenished funding that allows further home lending.
The loans purchased by the Enterprises then are packaged into securities that have specific characteristics which are told to investors — including the credit scores on the loans in the security. According to FHFA, the Enterprises use credit scores to help predict a potential borrowers likeliness to repay and has been using a score developed from a model, FICO Classic,[2] for over 20 years.[3] In discussing FICO Classic, FHFA points out that it “and the Enterprises believe that this score remains a reasonable predictor of default risk.”[4]
While the current system has been in effect for some time, Congress recently asked FHFA and the Enterprises to review their credit scoring model to determine if additional credit scoring models could be used by the Enterprises to increase competition. Specifically, FHFA was to “establish standards and criteria for the validation and approval of third-party credit score models used by Fannie Mae and Freddie Mac.”[5] Advocates of using alternatives to FICO Classic said, at the time, that using other validated credit scoring models would lead to more access.[6] While a worthy goal, incorporating a flawed new model, could have impacts and potentially drive-up costs.
CONFLICT OF INTEREST COULD LEAD TO DECREASED COMPETITION
Beginning in 2017, FHFA proposed a rule which would set the stage for reviewing the Enterprises’ credit score models. The rule FHFA finalized in 2019 directed the Enterprises to review and validate alternative credit models in the coming years.
Section 310 of the Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018 (Pub. L. 115–174, section 310) amended the Fannie Mae and Freddie Mac charter acts and the Federal Housing Enterprises Financial Safety and Soundness Act of 1992 (Safety and Soundness Act) to establish requirements for the validation and approval of third-party credit score models by Fannie Mae and Freddie Mac.[7]
At the time of the proposed rule, some thought that alternative credit scores could open access to a larger group of homeowners.[8][9] While an admirable goal, and in keeping with FHFA’s mission for the Enterprises even now, a major issue was left unresolved. The proposed rule “would have required credit score model developers to demonstrate, upon applying for consideration, that there was no common ownership with a consumer data provider that has control over the data used to construct and test the credit score model.”[10]
The proposed rule would have created a separation between those who create and control the data, from those in charge of the model creating the scores — an important goal. Not surprisingly, the proposed rule received significant comments. Sadly, the final rule did not adopt this important provision which required those submitting models to not have a conflict of interest or “common ownership with a consumer data provider that has control over the data used to construct and test the credit score model.”[11] This lack of clear independence could set the stage for a lack of competition in the future.
While the rule was being proposed, former FHFA director Mel Watt in 2017 said, “how would we ensure that competing credit scores lead to improvements in accuracy and not to a race to the bottom with competitors competing for more and more customers? Also, could the organizational and ownership structure of companies in the credit score market impact competition? We also realized that much more work needed to be done on the cost and operational impacts to the industry. Given the multiple issues we have had to consider, this has certainly been among the most difficult evaluations undertaken during my tenure as Director of FHFA.”[12]
Several at the time of the proposed rule pointed out that having one dominant player possibly replaced by another, would not further competition but could further consolidate it. One commentator stated, “to push for alternative scoring models may simply trade one dominant player (FICO) for another (Vantage),”[13] in referring to legislation which would ultimately be incorporated into the bill where the proposed rule was developed. The Progressive Policy Institute (PPI) held an expert panel discussion at the time which also discussed the problems with adopting VantageScore due to conflict of interest.[14] “The reason? Because the owners of Vantage control the supply of information currently used by FICO to make its determination. And given the history of monopolies, it would not be surprising to see Equifax, Experian, and TransUnion use that leverage to the advantage of Vantage, and eventually force FICO out of business.”[15]
The proposed rule points out that “VantageScore Solutions, LLC is jointly owned by the three nationwide CRAs. The CRAs also own, price, and distribute consumer credit data and credit score. This type of common ownership could in theory negatively impact competition in the marketplace.”[16] Another writer at the time, also acknowledged the potential conflict of interest provision of the proposed rule.[17] While these issues were not resolved in the final rule, they still matter and can affect not only competition but also costs in the residential mortgage marketplace.
Competition is key to innovation and inclusiveness is important to further homeownership. Using alterative data, rent payments, utility payments, bank balances, all could potentially be used help complete the credit picture and increase access to credit.[18] Other research organizations have acknowledged that FICO has improved models and incorporated alternative sources of data that are available,[19] which would not have the conflict of interest that VantageScore would have. FHFA must ensure that competition is maintained, without creating unfair advantages.
LACK OF REAL COMPETITION COULD INCREASE COSTS
Before any changes can happen, however, FHFA must articulate all costs to consumers, lenders, the Enterprises, and investors of any change. COVID-19 proved a real-world laboratory for the Enterprises under stress. FHFA’s recent Performance Report lays out the series of actions the Enterprises took to help borrowers affected by COVID-19, including payment deferrals, forbearance, and evictions suspensions.[20] These actions likely kept many homeowners in their homes during a difficult period, and kept the Enterprises functioning. The relief provided was important and was balanced against the risk to the Enterprises — but it did come at a cost.
FHFA made their first announcement on COVID assistance to homeowners in March 2020.[21] A few months later in August 2020, FHFA announced that the Enterprises would charge a fee of 50-baisis points per refinancing to help make up for any potential losses the Enterprises might experience.[22] An initial estimate put the projected losses at $6 billion. Thankfully the Enterprises saw declining rates of loans in forbearance and the fee was ultimately ended in July 2021.[23]
Changes at the Enterprises have affects across the industry. Just as the potential increases in interest rates by the Federal Reserve this year could raise interest costs to home buyers, at time of the proposed rule, former FHFA Director Watt knew that changes to the credit scoring model could raise costs and even stated “much more work needed to be done on the cost and operational impacts to the industry,”[24] before changes were made. Clearly, the FHFA realizes that any changes to its credit scoring models will also likely have increased costs to the housing finance sector. As an aside, the related issue of changes to issues such as mortgage servicing have led to increased costs in the home purchase ecosystem.[25]
Changes to the credit scoring models could also affect prices in the secondary market for mortgage-backed securities (MBS) and credit risk transfers (CRT). As the FHFA pointed out, investors “in Enterprise MBS and participants in Enterprise CRT transactions would need to evaluate the default and prepayment risks of each of the multiple credit score options.”[26] While the FHFA in the final rule did not address the costs of these evaluations, incorporating multiple credit score options could raise the cost investors demand and ultimately increase the costs to home buyers via the fees the Enterprises would need to pass on.
Others have pointed out that changes to credit scoring models could have cost impacts for banks, investors, pension funds, and others.[27] These issues of cost and operational impacts need to be given serious consideration, because as the recent Enterprise actions related to COVID-19 made clear — they matter. The lending industry was upset when the Enterprises raised a temporary fee to help ensure Enterprises’ soundness through the difficult period.[28] What would the costs be with a wholesale change to the credit score model system? And who would ultimately pay those costs? These are questions the FHFA must address as they review any changes to the credit scoring model.
One of the FHFA’s current core goals is to “Promote Equitable Access to Housing.”[29] To ensure that the Enterprises can undertake their important role in addressing long standing issues of equity, they need to be in the best place possible financially to do that. A question that FHFA needs to address as they review credit scoring models is, would using a model with a conflict of interest hurt their goal of equity? Would changes raise prices or worse, limit access for those FHFA is looking to provide access into the market?
CONCLUSION AND QUESTIONS FOR CONSIDERATION
The crisis of COVID-19 and its effects on the housing market were serious, but thankfully not detrimental due to prudent planning and oversight of the Enterprises and FHFA. The Enterprises have used a current credit scoring model that has produced necessary liquidity in the market in both good and difficult times. As FHFA oversees the next phase of testing alternative credit score models, it should ensure that the models are subjected to the criteria laid out in their final rule — with emphasis placed on the cost and market affects any change would have. The Enterprises were called upon to help homeowners during the recent crisis and could do so with minimal disruption to the consumers and housing finance stakeholders. The Enterprises and FHFA should take seriously how any further changes would impact competition, soundness of the Enterprises, and how those changes could increase the costs for everyone in housing finance.
REFERENCES
[1]“Fannie Mae and Freddie Mac in Conservatorship: Frequently Asked Questions,” Congressional Research Service, July 22, 2020, https://crsreports.congress.gov/product/pdf/R/R44525.
[2] “Selling Guide: B3-5.1-01, General Requirements for Credit Scores,” Fannie Mae, September 2021, https://selling-guide.fanniemae.com/Selling-Guide/Origination-thru-Closing/Subpart-B3-Underwriting-Borrowers/Chapter-B3-5-Credit-Assessment/Section-B3-5-1-Credit-Scores/1032996841/B3-5-1-01-General-Requirements-for-Credit-Scores-08-05-2020.htm.
[3] “There’s More to Mortgages than Credit Scores,” Fannie Mae, February 2020, https://singlefamily.fanniemae.com/media/8511/display.
[4] “Credit Score Request for Input,” FHFA Division of Housing Mission and Goals, December 20, 2017, https://www.fhfa.gov/Media/PublicAffairs/PublicAffairsDocuments/CreditScore_RFI-2017.pdf.
[5] “FHFA Issues Proposed Rule on Validation and Approval of Credit Score Models,” Federal Housing Finance Agency, December 13, 2018, https://www.fhfa.gov/Media/PublicAffairs/Pages/FHFA-Issues-Proposed-Rule-on-Validation-and-Approval-of-Credit-Score-Models.aspx.
[6] “Validation and Approval of Credit Score Models,” Federal Housing Finance Agency, August 13, 2019, https://www.fhfa.gov/SupervisionRegulation/Rules/RuleDocuments/8-7-19%20Validation%20Approval%20Credit%20Score%20Models%20Final%20Rule_to%20Fed%20Reg%20for%20Web.pdf.
[8] Karan Kaul, “Six Things That Might Surprise You About Alternative Credit Scores,” Urban Institute, April 13, 2015, https://www.urban.org/.
[9] Michael A. Turner et al., “Give Credit Where Credit Is Due,” Brookings Institution, June 2016, https://www.brookings.edu/wp-content/uploads/2016/06/20061218_givecredit.pdf.
[12] Melvin L. Watt, “Prepared Remarks of Melvin L. Watt, Director of FHFA at the National Association of Real Estate Brokers’ 70th Annual Convention,” Federal Housing Finance Agency, August 1, 2017, https://www.fhfa.gov/Media/PublicAffairs/Pages/Prepared-Remarks-of-Melvin-L-Watt-Director-of-FHFA-at-the-NAREB-70th-Annual-Convention.aspx.
[13] Paul Weinstein Jr., “No Company Should Have a Monopoly on Credit Scoring,” The Hill, December 7, 2017, https://thehill.com/opinion/finance/363755-no-company-should-have-a-monopoly-on-credit-scoring.
[14] “Updated Credit Scoring and the Mortgage Market,” Progressive Policy Institute, December 4, 2017, https://www.progressivepolicy.org/event/updated-credit-scoring-mortgage-market/.
[16] “Validation and Approval of Credit Score Models: Final Rule,” Federal Register, August 16, 2019, https://www.federalregister.gov/documents/2019/08/16/2019-17633/validation-and-approval-of-credit-score-models.
[17] Karan Kaul and Laurie Goodman, “The FHFA’s Evaluation of Credit Scores Misses the Mark,” Urban Institute, March 2018, https://www.urban.org/sites/default/files/publication/97086/the_fhfas_evaluation_of_credit_scores_misses_the_mark.pdf.
[18] Kelly Thompson Cochran, Michael Stegman, and Colin Foos, “Utility, Telecommunications, and Rental Data in Underwriting Credit,” Urban Institute, December 2021, https://www.urban.org/research/publication/utility-telecommunications-and-rental-data-underwriting-credit/view/full_report.
[19] Laurie Goodman, “In Need of an Update: Credit Scoring in the Mortgage Market,” Urban Institute, July 2017, https://www.urban.org/sites/default/files/publication/92301/in-need-of-an-update-credit-scoring-in-the-mortgage-market_2.pdf.
[21] “Statement from FHFA Director Mark Calabria on Coronavirus,” Federal Housing Finance Agency, March 10, 2020, https://www.fhfa.gov/Media/PublicAffairs/Pages/Statement-from-FHFA-Director-Mark-Calabria-on-Coronavirus.aspx.
[22] “Adverse Market Refinance Fee Implementation Now December 1,” Federal Housing Finance Agency, August 25, 2020, https://www.fhfa.gov/Media/PublicAffairs/Pages/Adverse-Market-Refinance-Fee-Implementation-Now-December-1.aspx.
[23] “FHFA Eliminates Adverse Market Refinance Fee,” Federal Housing Finance Agency, July 16, 2021, https://www.fhfa.gov/Media/PublicAffairs/Pages/FHFA-Eliminates-Adverse-Market-Refinance-Fee.aspx.
[25] Laurie Goodman et al., “The Mortgage Servicing Collaborative,” Urban Institute, January 2018, https://www.urban.org/sites/default/files/publication/95666/the-mortgage-servicing-collaborative_1.pdf.
[27] Pete Sepp and Thomas Aiello, “Risky Road: Assessing the Costs of Alternative Credit Scoring,” National Taxpayers Union, March 22, 2019, https://www.ntu.org/publications/detail/risky-road-assessing-the-costs-of-alternative-credit-scoring.
Aaron White, Director of Communication for the Progressive Policy Institute (PPI), released the following response in reaction to the Senate Judiciary Committee’s advancement of the American Innovation and Choice Online Act:
“For those of us that believe in good governance and the importance of legislative deliberation and debate, today’s markup of the American Innovation and Choice Online Act was embarrassing for the Senate.
“The Judiciary Committee’s markup made it crystal clear that there are still significant, unresolved concerns on both sides of the aisle. As written, the bill sparks major national security and privacy risks, includes overly broad and burdensome language, and will harm American consumers, workers, and the digital economy.
“Senator after Senator raised concerns that this was a rushed legislative process, and this bill is not ready for primetime, yet Senator Klobuchar chose to force this vote. The Senate should do its job and return to the legislative process that all Senators can be proud of. This bill should not see the Senate floor until the legitimate concerns of Senators are addressed.
“The digital economy is a hallmark American achievement that has created millions of middle-class jobs. Scrutiny is important and healthy; but the Senate must address their concerns in a deliberative fashion — not in a haphazard, potentially reckless manner.”
Today, the Progressive Policy Institute (PPI) released a new research deck on how Senators Amy Klobuchar and Chuck Grassley’s anti-tech antitrust bill, the American Innovation and Choice Online Act, could do irreparable harm to the services and products millions of Americans rely on every day.
“The bill is notable for combining very broad language, very heavy penalties, and very narrow grounds for affirmative defense,” said Dr. Michael Mandel, Vice President and Chief Economist for the Progressive Policy Institute. “The problem is that this three-way combination goes far beyond imposing normal compliance costs and regulatory burdens, creating huge financial and business risks for even ordinary business decisions.”
Well-liked services such as Google Search, Fulfillment by Amazon, and the Apple App Store, could have to be substantially reconfigured and/or limited, according to the deck’s authors, Mandel, John Scalf of NERA Economic Consulting and D. Daniel Sokol of University of Southern California Gould School of Law. Popular smartphone features and user reviews on online marketplaces could be affected as well. These proposed standards would not only undermine the tech companies that would be subjected to the legislation, but inevitably harm its users.
Consumers could also suffer from reduced innovation, as the targeted companies would have to obtain regulatory pre-approval with every new product or meet the unspecified criteria in the bill.
A mark-up of the bill is scheduled for Thursday of this week in the Judiciary Committee. Read PPI’s statement on the markup and the bill here.
This deck was authored by Michael Mandel of the Progressive Policy Institute, John Scalf of NERA Economic Consulting, and D. Daniel Sokol of the University of Southern California Gould School of Law.
The Progressive Policy Institute (PPI) is a catalyst for policy innovation and political reform based in Washington, D.C. Its mission is to create radically pragmatic ideas for moving America beyond ideological and partisan deadlock. Learn more about PPI by visiting progressivepolicy.org.
The American Innovation and Choice Online Act Would Likely Harm Consumers
SUMMARY:
Recently, Senator Klobuchar introduced the American Innovation and Choice Online Act (“AICOA”) proposing sweeping regulations for a handful of tech companies that operate digital services used by both businesses and consumers.
While the Bill is ostensibly intended to prevent self-promotion and discriminating against competitors, it would end up sweeping up a broad range of ordinary business operations that provide huge benefits to consumers.
The Bill is notable for its combination of very broad and vague language for defining illegal activity; very heavy penalties for companies and corporate officers; and very narrow language for affirmative defense.
Moreover, the Bill makes no mention of consumer benefits as an affirmative defense and hence advances the interests of certain businesses over the interests of consumers and small businesses that use such services.
The problem is that this three-way combination goes far beyond imposing normal compliance costs or regulatory burdens, by creating huge financial and business risks for even ordinary business decisions.
In response, well-liked services such as Google Search, Fulfillment by Amazon, and the Apple App Store, will have to be substantially reconfigured and/or limited. These proposed standards would not only undermine the tech companies that would be subjected to the legislation, but inevitably harm its users as well.
In fact, because the Bill fails to distinguish between markets that are competitive and markets that suffer from market power, it would inevitably harm competition in digital markets as well. The Bill would essentially make it less likely that either firms subjected to the regulations or ones arbitrarily protected from them would invest in new, innovative consumer products.
Consumers could lose out on a range of products and services offered by the targeted companies that would be swept up by the Bill. Just a few of the products and services that could hampered by the Bill include:
Search engines that concentrate on delivering the most relevant results to consumers from Google
Online shopping with massive product catalogs and two-day shipping from Amazon
Smartphones and a vast library of third-party apps that have revolutionized everyday life from Apple
Consumers would also suffer from reduced innovation, as the targeted companies would have to obtain regulatory pre-approval with every new product to meet the unspecified criteria in §2(a) and (b) of the Bill.
Far beyond its stated goals, the Bill could end up harming consumers by breaking the products and services that they have come to greatly value and depend on.
View the full research deck by Dr. Michael Mandel of the Progressive Policy Institute, Dr. John Scalf of NERA Economic Consulting, and Professor D. Daniel Sokol of the University of Southern California Gould School of Law.
In a statement released after the latest consumer price report, President Biden remarked on the “meaningful reduction in headline inflation” but indicated that there was still “more work to do, with price increases still too high and squeezing family budgets.”
In particular, the Biden Administration wants to protect consumers by identifying markets where sellers are taking advantage of the pandemic and supply chain snarls to raise prices. That’s a great plan.
At the same time, it’s also important to recognize and acknowledge those industries where price increases have been moderate and restrained.
In that spirit, we examine the inflation performance of the digital sector of the economy, encompassing tech, ecommerce, broadband, and related industries. These companies have come under fire for a variety of different reasons, some deserved, some not.
In this blog item we will show, based mainly on government data, that digital companies are helping hold down inflation at a time when prices are soaring in many other parts of the economy. For the Democrats and the Biden Administration, this is a success story they can build on.
The Historical Perspective
We’re used to computers getting cheaper over time, as they become more powerful and versatile. The Internet opened up entirely new dimensions of free websites, with everything from recipes to news to maps and directions. Long distance phone calls have effectively become free. Broadband networks, both wired and wireless, have become faster, connecting almost every part of the country. Content has become more varied and cheaper, at the same time.
There is no doubt that technology has been a profoundly disinflationary force historically. But what about today? The GDP inflation rate was 4.6% in the year ending with the third quarter of 2021. That’s a big jump from the 1.7% GDP inflation rate in the third quarter of 2019, before the inflation. How much of that acceleration is coming from the tech sector?
The answer is, precisely none. As part of its calculation of GDP, the Bureau of Economic Analysis (BEA) calculates price changes by industry. It turns out that inflation rates in four key digital industries are not only negative but falling (Table 1). For example, the inflation rate in the “data processing, internet publishing, and other information services” industry fell from +0.5% in 2019 to -1.1% today.
The same is true for the other three key digital industries. Digital is still following the historical trends of being disinflationary.
Table 1. Digital is Still Disinflationary
(change in value-added prices)
year ending
2019Q3
2021Q3
Computer and electronic product manufacturing
-0.1%
-1.8%
Broadcasting and telecommunications
-0.9%
-2.6%
Data processing, internet publishing, and other information services
0.5%
-1.1%
Computer systems design and related services
-0.2%
-2.8%
Gross domestic product
1.7%
4.6%
Data: BEA, based on Table TVA104-Q
Ecommerce and inflation
Let’s now consider ecommerce prices in particular. As of the third quarter of 2021, ecommerce accounted for 13% of retail sales according to the Census Bureau. That’s back on the long-term trend line after a temporary pandemic-induced jump.
But still, there’s an important question: Why isn’t ecommerce a bigger share of retail sales, given how much we are all shopping online? One reason might be that online prices tend to rise at a slower rate than brick-and-mortar prices, according to the available evidence. Indeed, government data shows that the long-term trend of ecommerce has been and continues to be disinflationary.
Consider this: The BLS measures changes in gross margins in all major retail industries, where the margin is defined as the selling price of a good minus the acquisition price for the retailer. Margins include all costs, such as labor, capital, and energy, plus profits, taking into account gains in productivity. A slower rise in margins translates directly into less inflation for consumers, all other things being equal.
Between December 2007 and December 2021—a 14-year stretch that included the financial crisis, the long boom, and the pandemic—margins in the electronic shopping industry rose by 20%, according to BLS data (Figure 1). Over the same stretch, consumer prices rose by 33%. The implication: Ecommerce companies were accepting thinner margins in real terms, and passing those benefits onto consumers.
By comparison, the data for the overall retail industry has shown a much worse inflation performance, measured by margins. Margins for the total retail industry rose by 48% since December 2007, much faster than consumer inflation. As a result, real margins for the retail industry as a whole have risen, putting upward pressure on consumer prices.
Now let’s look at the current situation. Even in today’s inflationary burst, ecommerce stands out as a force holding down margin increases compared to the rest of retail. In the year ending December 2021, overall retail margins rose by 13.1%. Meanwhile margins at general merchandise stores like warehouse outlets rose by 12.6%. Margins at auto dealers and other auto-related retailers rose by a stunning 26%, far outpacing inflation
By comparison, over the past year, ecommerce margins only rose by 7.1%, about the rate of inflation (Figure 2). These results are completely consistent with the economic literature, which mostly concludes that prices for online goods rise slower than the prices for comparable goods sold offline. A 2018 paper co-authored by Austan Goolsbee (CEA head under President Obama) found that online inflation was more than a full percentage point lower than the corresponding official consumer price index. Sometimes the difference can be much greater. The latest “Digital Price Index” report issued by Adobe shows that the price of furniture and bedding sold online rose by 3% in the year ending November 2021. Meanwhile the official CPI for furniture and bedding, including all brick-and-mortar stores, rose by 12%,
Moreover, the slow growth of ecommerce margins came at the same time that ecommerce fulfillment centers were dramatically boosting employment and pay. Over the last year, the average hourly earnings for production and nonsupervisory workers in the warehousing industry rose by 19.4%. That covers the great majority of ecommerce fulfillment centers.
The ability to simultaneously hold down prices for consumers, reduce shopping time for households, and boost pay for workers, represents a rare win-win proposition. What could be better?
Smartphones, Telecom, and the Digital Economy
During the pandemic, the daily life of Americans has been supported by wired broadband and wireless networks, by content delivered to the home and to wireless devices such as smartphones. This Digital Economy has been essential for work, school, and social contacts in the midst of these bizarre years.
But equally important, the Digital Economy is also a low-inflation economy. While the price of old economy products like cars, clothing, and gasoline has been soaring, the inflation rate of digital goods and services like smartphones, video and audio services, wireless, and internet access has remained low.
According to our analysis of BLS data, the digital consumer inflation rate was only 1.6% in the year ending December 2021, barely above the 1.4% rate in the year ending December 2019, before the pandemic started (Figure 3). This figure includes computers, smartphones, and other IT commodities; video, audio, and music services; telephone services; and internet services and electronic information providers. We use BLS spending shares to weight the components of the digital inflation rate.
Looking at individual items, the inflation rate for video and audio services, including cable and satellite television service, fell from a 3.1% rate in 2019 to a 2.6% rate in 2021. The inflation rate for telephone services, including wireless, went from 1.6% in 2019 to 0.7% in 2021. Perhaps most striking, the price of smartphones continued their relentless plunge in 2021, dropping in price by 14% after adjusting for quality.
By contrast, there was a huge jump in core consumer inflation, which went from 2.3% in 2019 to 5.5% in 2021. Note that even if some of the components of digital inflation are mismeasured, as some have argued, looking at the change over time should be more accurate if the size of the mismeasurement stays the same.
Tech Inflation
Here we drill down into inflation performance into various components of the tech sector, using data from the BLS Producer Price program. Figure 4 compares inflation in several tech-related industries with consumer inflation.
According to the BLS, prices for the software publishing industry fell by 0.7% in the year ending December 2021. Prices for data processing and IT support and consulting rose by a measly 0.5%. Computer and electronic product manufacturing prices rose by 2.8%. And the price of internet publishing and search advertising rose 4.1%, considerably slower than the overall consumer inflation rate. That means in real terms the price of internet publishing and search advertising has been getting relatively cheaper.
The App Economy
Finally, we come to the App Economy and the app stores. Arguably one of the great technological shifts of all time, the introduction of the Apple iPhone in 2007 and then the Apple App Store in 2008 created an entirely new model for delivering services to consumers conveniently and at a low price. It is clear that the App Economy is a profoundly disinflationary force.
The current price statistics do not break out app-relevant price measures, like the price of app downloads or in-app purchases, either from the consumer or app developer perspective. Nevertheless, a careful look at the structure of the pricing structure of the app stores suggests they are contributing to low inflation today.
App store pricing comes in two parts. First, both the Apple App Store and Google Play charge a nominal fee for registering for a developer account. Google Play charges $25 to register, an amount that hasn’t changed in years. Similarly, the Apple App Store charges an annual fee $99 for a basic developer membership, an amount that also hasn’t changed in the U.S. for years (there are a variety of exemptions). As a result, the inflation-adjusted fee has fallen substantially over time.
Most app developers pay no more than this initial fee, or the somewhat higher fee for enterprise developers. As Judge Yvonne Gonzalez Rogers wrote in her September 2021 decision in the court case involving Apple and game developer Epic: “over 80% of all consumer accounts [in the Apple App store] generate virtually no revenue as 80% of all apps on the App Store are free.” These are apps which are free to download, and have no in-app purchases or subscriptions. Many of them, like banking or airline apps, may be quite frequently downloaded and used. This huge swath of the app stores is disinflationary, with a price that is fixed in dollars over time.
Then there are the small percentage of apps which collect significant consumer revenues on the app stores. Most of these are gaming apps. For the purposes of assessing their impact on inflation, there are two important factors. One factor is whether the price of the subscription or in-app purchase is rising. The other factor is whether the percentage fee charged by Apple and Google for use of their platform is rising or falling.
We have little visibility into the price evolution of subscription costs and IAP prices. One survey from Sensor Tower suggest that the median price of subscriptions for non-game apps did not change from 2017 to 2020, while the median price of in-app purchases for non-game apps rose by 50%. However, even in the latter case, we have no way of knowing whether consumers are buying the same digital goods or shifting to higher value purchases, which matters for inflation.
We have much better information on the effect on inflation of the fees charged by Apple and Google. The statistical literature makes it clear that if the fee percentages stay the same, they has a neutral impact on inflation. If the fee percentages rise, that is inflationary. If fee percentages fall, that is disinflationary.
In the past year or so, both Google and Apple have voluntarily cut fees for a significant portion of their developer base. Apple, for example, cut the App Store fee from 30% to 15% for all developers who earned less than $1,000,000 in 2019. By one estimate, that covered 98% of apps with revenue in 2019. Google reduced its fee on subscriptions to 15% (previously it had charged 30% for the first year). These are substantial changes.
With the app store registration or membership fee being held constant in money terms, and revenue-based fee percentages falling, it’s clear that the app stores are contributing to disinflationary pressures.
Conclusion
Both historically and currently, the broad swath of tech, telecom, and ecommerce companies appear to be leaders in the fight against inflation. Data from the government and elsewhere shows no evidence of accelerating price increases in this sector.
Today, the Senate Judiciary Committee announced a markup of an antitrust bill aimed at a handful of America’s most successful technology companies, led by Senator Amy Klobuchar (D-MN). The bill will harm American consumers and American middle-class jobs from coast to coast.
Dr. Michael Mandel, Vice President and Chief Economist of the Progressive Policy Institute, released the following statement:
“The digital economy should be a source of pride for Democrats. Digital inflation is low, wage growth in the tech-ecommerce sector is extremely rapid, and digital job creation is strong – especially in pivotal swing states.
“Instead, if this bill is passed, it will undercut the tech and ecommerce industries – which are vital to our 21st century economy – and give China the edge in leadership and the digital economy. The Senate and House bills are unpopular with voters in the battleground congressional districts, and will likely stunt job growth in these pivotal swing states ahead of the 2022 election.
“Senate Democrats should rethink their push to cater toward the extremes of the party and instead focus on pragmatic, pro-growth legislation that makes the digital economy stronger.”
The Mosaic Economic Project application process is now open for the March 2022 Women Changing Policy workshop, scheduled for February 28 to March 2, 2022.
“The Women Changing Policy workshop is an opportunity to connect with and learn alongside other diverse experts in fields where women are traditionally underrepresented” said Jasmine Stoughton, Project Lead. “Through our interactive workshop, participants hone the skills necessary to engage with lawmakers and the media.”
This is the fourth Women Changing Policy workshop. Previous workshops have included candid conversations with seasoned media professionals, policy leaders, and representatives from the United States Congress.
Applicants should be well established in their careers and eager to grow their profile in the policy arena. This workshop will be held in person in Washington, D.C., and the deadline to apply is February 11, 2022.
The Mosaic Economic Projectis a network of diverse women with expertise in the fields of economics and technology. Their programming aims to bring new voices to the policy arena by connecting cohort members with opportunities to engage with top industry leaders, lawmakers, and the media.
The Progressive Policy Institute (PPI) is a catalyst for policy innovation and political reform based in Washington, D.C. Its mission is to create radically pragmatic ideas for moving America beyond ideological and partisan deadlock. Learn more about PPI by visiting progressivepolicy.org.
On a new episode of the Radically Pragmatic podcast, PPI’s Mosaic Economic Project examines the findings of the 2021 Greater New Orleans Startup Report. The episode explores topics such as the growth, resiliency, and economic sustainability of New Orleans – including the effects of increased remote work options – and dives into solutions to bridge gaps in race and gender equity in critical areas from entrepreneurship to COVID relief.
Hosts Jasmine Stoughton and Crystal Swann were joined by Emily Egan, Director of Strategic Initiatives at the Albert Lepage Center for Entrepreneurship and Innovation at Tulane University, and Ann Marshall Tilton, Community Engagement Manager at the Albert Lepage Center.
Listen to the podcast here:
The Mosaic Economic Project is a network of diverse women with expertise in the fields of economics and technology. Mosaic programming aims to bring new voices to the policy arena by connecting cohort members with opportunities to engage with top industry leaders, lawmakers, and the media.
The Progressive Policy Institute (PPI) is a catalyst for policy innovation and political reform based in Washington, D.C. Its mission is to create radically pragmatic ideas for moving America beyond ideological and partisan deadlock. Learn more about PPI by visiting progressivepolicy.org.
Republicans hoping to capitalize on high inflation have proposed a surprising solution: ending COVID-19 restrictions. But surrendering to COVID is the wrong cure for inflation. It would endanger public health without addressing the supply-chain snarls that are pushing prices higher. Ending pandemic inflation requires making the global economy a safe place to spend, work and live by continuing the fight against the virus.
The United States is enjoying an exceptionally strong economic recovery thanks in part to the bold stimulus actions lawmakers took last March. But businesses are raising prices, some because they and their competitors are bidding up the cost of workers and materials, and others simply because strong demand means that they can. Consumer prices were 6.8 percent higher in November than they were a year before, and almost half of households say inflation is hurting their finances.
Summary: Because of their mixed urban/rural nature, swing states are a magnet for digital “tech-ecommerce” jobs. Democrats should consider building their 2022 political narrative around support for the digital economy, which brings strong job growth, higher wages, and lower inflation to swing states.
1. This piece is primarily economic, not political. But to focus our analysis, we start with a list of eight potential 2022 Senate swing states: Arizona, Florida, Georgia, Nevada, New Hampshire, North Carolina, Pennsylvania, and Wisconsin. Adding or subtracting a state from this list doesn’t change the analysis appreciably.
2. For the most part, swing state employment is still below pre-pandemic levels, creating a handicap for the party in power. For example, Wisconsin had 260,000 fewer private sector jobs in November 2021 than in November 2019. The only swing state above pre-pandemic employment levels is Arizona.
3. Average hourly wage growth has significantly lagged national inflation in most swing states, That means real wages are falling on average in the swing states, an obstacle to making a positive economic argument. Once again, there is one exception, North Carolina.
4. However, voters in most swing states are benefiting from exceptionally dynamic job creation in the digital “tech-ecommerce” sector. The reason is not hard to understand. Swing states, by their nature, tend to have a mixed urban/rural character. Not surprisingly, ecommerce fulfillment centers are often sited in areas that are within easy driving distance of large populations but where land is relatively cheap, making them a good match for swing states. Similarly, software and internet operations looking to broaden out from the Bay Area and Boston will pick cheaper locations near to good urban amenities.
5. Digital employers gravitated to swing states during the Biden Administration. From the second quarter of 2020 to the second quarter of 2021, the most recent data available, swing states showed a 14% gain in tech-ecommerce jobs By comparison, the rest of the country only showed an 8% gain in tech-ecommerce jobs over the same period.
6. We’ve bolded the key numbers in the table below, which lays out the job gains by digital industry. Ecommerce fulfillment and warehousing jobs registered a 22% gain in the swing states, almost double the 12% gain in the rest of the country. The same thing held true for the electronic shopping industry (which mainly consists of those establishments that are in the technology end of electronic shopping but don’t do fulfillment). Also showing strong swing state growth was internet publishing, which also includes search and other “internet-type” companies.
By contrast, job growth in manufacturing and healthcare was weaker in the swing states than the rest of the country. These states see their future in tech and ecommerce.
Table 1. Swing States Lead In Digital Growth
Employment change, 20Q2-21Q2
Swing states
Other states
Computer and electronic manufacturing
-1.6%
-0.4%
Electronic shopping
18.5%
11.8%
Local delivery
12.4%
13.9%
Ecommerce fulfillment and warehousing
22.1%
12.3%
Software publishing
11.8%
8.7%
Data hosting
12.6%
6.1%
Internet publishing and other information services
14.6%
6.1%
Computer software systems
7.1%
3.5%
Tech-ecommerce (total)
14.0%
8.1%
Private
11.2%
10.6%
Manufacturing
5.0%
6.1%
Healthcare and social assistance
5.6%
6.4%
7. What are the positive economic stories in individual swing states? Digital employers in Arizona, Florida, Nevada, North Carolina, and Wisconsin are adding digital jobs at a faster rate than private sector jobs. Voters in North Carolina, for example, have benefited from 20% growth in tech-ecommerce jobs, almost double private sector job growth.
Table 2. Digital Jobs Drive Swing State Growth
Employment change, 20Q2-21Q2
Tech-ecommerce
Private sector
Arizona
16.7%
8.6%
Florida
18.2%
10.8%
Georgia
8.6%
10.4%
Nevada
24.6%
21.4%
New Hampshire
8.4%
13.4%
North Carolina
20.3%
11.5%
Pennsylvania
7.8%
12.4%
Wisconsin
10.2%
9.1%
Swing states
14.0%
11.2%
All other states
8.1%
10.6%
8. A strong economic narrative around digital growth in the swing states depends on wages as well. On average, tech-ecommerce jobs pay significantly more than the average for the private sector in every swing state. For example, in the second quarter of 2021, tech-ecommerce workers in swing states got paid at an average annual rate of $81,000, 39% more than the private sector average of $58,000. This includes the full range of tech-ecommerce jobs, from software developers to fulfillment center workers.
Table 3. Workers in Digital Jobs Are Paid More on Average
Annual pay, thousands of dollars, based on 21Q2
Tech-ecommerce
Private sector
Arizona
76
59
Florida
81
57
Georgia
83
60
Nevada
65
57
New Hampshire
111
71
North Carolina
86
57
Pennsylvania
81
62
Wisconsin
77
53
Swing states
81
58
All other states
123
66
All other states except California and Washington
96
62
9. The core of the tech-ecommerce job boom in the swing states is the expansion of ecommerce jobs. These jobs pay well for high-school educated workers. Amazon pays its starting distribution workers an average of $18 per hour. That’s roughly comparable to starting manufacturing wages in many parts of the country. Overall, ecommerce industries pay about 30% more than brick-and-mortar retail in swing states, on average. This is at the heart of a powerful political narrative of growth that creates better jobs.
Table 4. Ecommerce Industries Pay More than Brick-and-Mortar Retail
21Q2 pay in thousands at annual rates
Ecommerce industries
Brick-and-mortar retail
Arizona
48
41
Florida
49
39
Georgia
45
36
Nevada
46
39
New Hampshire
57
38
North Carolina
40
35
Pennsylvania
51
34
Wisconsin
45
31
Swing states
47
37
Other states
62
38
Other states ex California and Washington
51
37
10. Democrats have a chance to build a powerful economic narrative around strong digital growth in swing states. They should embrace this opportunity.
Ben Ritz is Director of the Center for Funding America’s Future at the Progressive Policy Institute, Jason Fichtner is Vice President and Chief Economist at the Bipartisan Policy Center, and Charles Blahous is the J. Fish and Lillian F. Smith Chair and Senior Research Strategist at the Mercatus Center.
Despite repeated warnings from Social Security’s trustees that the program is facing a growing financial shortfall, lawmakers seem to have reached a bipartisan consensus to kick the can down the road. If they continue procrastinating until Social Security’s trust funds near depletion in the 2030s, it will be impossible to save the program without abruptly cutting benefits for retirees or significantly reducing the lifetime incomes of young workers. Americans who rely on Social Security cannot afford to wait much longer for lawmakers to enact corrections.
Unfortunately, a new proposal that was the subject of a congressional hearing earlier this month, Social Security 2100: A Sacred Trust, moves in the wrong direction. It would worsen intergenerational inequities by providing substantial benefit increases for those becoming benefit-eligible in 2022-2026, while passing the costs to everyone else, especially young workers already getting the short end of the stick under current law. There is no justification for such discriminatory treatment. In fact, those who would receive the proposed windfall already benefit from superior treatment under current Social Security law, relative to those who would pay for it.
By comparison, the data for the overall retail industry has shown a much worse inflation performance, measured by margins. Margins for the total retail industry rose by 48% since December 2007, much faster than consumer inflation. As a result, real margins for the retail industry as a whole have risen, putting upward pressure on consumer prices.
