Investment Heroes 2018: Encouraging and Diffusing Innovation Throughout the Economy

Despite the low unemployment rate, productivity growth is still stuck in slow gear. Non-farm business output per hour increased by 1.3 percent from the third quarter of 2017 to the third quarter of 2018 – well below the post- war average of 2.2 percent.1 Other countries around the world are also grappling with this slowdown in productivity growth.2 Productivity growth is the primary factor in boosting wages and living standards.

The continued lack of productivity growth arises from several causes. One important issue is a growth shortfall in the amount of capital relative to the amount of labor, where capital represents investment in equipment, structures, software, and other intellectual property.

The Bureau of Labor Statistics (BLS) calculates a measure it calls “capital intensity,” which measures the services produced by capital assets relative to the number of labor hours worked in the non-farm business sector. As shown in Figure 1, capital intensity has grown much more slowly over the past 10 years than in previous 10-year periods.

There has been much debate over the reasons for this shortfall. Some have suggested that corporate managers and stock market investors have become myopic and too focused on short-run returns. Others blame excessive regulation.

But, no matter the reason for the investment shortfall, we think it’s important to identify those companies that are bucking the trend. Starting with our 2012 “Investment Heroes” report, and continuing through this report, we have focused on identifying those companies making the largest capital investments in the United States. By expanding the capital stock, these companies are helping boost productivity and wages, and creating new jobs.

The Progressive Policy Institute’s (PPI) Investment Heroes report provides an exclusive estimate of domestic capital spending for major U.S. companies. Currently, accounting rules do not require companies to report their U.S. capital spending separately. To fill this gap in the data, we created a methodology using publicly-available financial statements from non-financial Fortune 150 companies to identify the top companies that were investing in the United States. That methodology, with small modifications, has been used in each year’s report since the first in 2012.

 

Mandel for NJ Spotlight, “It Would Be A Mistake to Make Brick-and-Mortar Retailers in NJ Accept Cash”

It would be better to go cashless, while creating new low-cost banking options for poor residents

Is cash a bane or a boon?

The underlying trends are clear. Across the country, from high-end salad chain Sweetgreen to the new Amazon Go stores, more and more retailers are going cashless as technology improves. For a company like Amazon, doing without cash means speeding or eliminating the checkout process, including getting rid of long lines at peak times. For small retailers, the advantages are fewer losses from cash theft and much simplified operations, especially in high-crime areas.

In response, New Jersey is considering new legislation that would require all brick-and-mortar stores to accept cash. Similar bills have been introduced in Chicago, Washington, D.C. and Philadelphia. Supporters say that such legislation is important to protect poor Americans who don’t have access to credit cards or bank accounts.

This move to lock in the status quo is a mistake. The shift to cashless stores is a positive for poor Americans and small retailers, if combined with a concerted effort to bring low-cost banking to poor Americans. Moreover, regulations requiring cash are likely to reduce the competitiveness of brick-and-mortar stores against e-commerce.

Continue reading at NJ Spotlight.

New Jersey Democrats Propose Legislation to Strengthen Small Business Borrower Safeguards

Online finance providers have supplied an innovative source of capital for small businesses after a credit gap opened up in the wake of the Great Recession. However, while disclosures such as annual percentage rate (APR) are required by federal law for consumer loans, they are not for small business loans and credit products. The result has been costly for small business owners, with some providers charging exorbitant but undisclosed rates. Research by Opportunity Fund found the average monthly payment for some small businesses was about double what they could afford to pay.

New Jersey has an opportunity to be a leader in extending commonsense consumer protections to the small business credit market. Proposed legislation currently being debated calls for standardized terms such as APR, the payment schedule, and the minimum payment to be applied to small business loans or credit products up to $100,000.

Access to financing is often one of the biggest hurdles small business owners face, particularly for the smaller loan amounts many new or very small businesses seek: 86 percent of minority-owned businesses and 88 percent of woman-owned business bring in less than $100,000 per year.[i] Supporting the financial health of these businesses is often critical to supporting the financial health of the communities they serve as well.

That’s why the Progressive Policy Institute (PPI) commends State Senator Troy Singleton and Representative Clinton Calabrese for introducing this important legislation requiring greater transparency in the small business lending market. California was recently the first state in the nation to enact a similar law. The New Jersey bill closely tracks a proposal detailed in a recent PPI policy report, “Shining a Light on Small Business Credit: Promoting a Transparent Marketplace” by Jessica Milano, the former Deputy Assistant Secretary for Small Business, Community Development, and Housing Policy at the Treasury Department under the Obama Administration.

Milano calls for legislation to extend the Truth in Lending Act disclosure requirements to small business loans or credit products under $100,000. While no one likes reading fine print and filling out loan documentation, a recent poll by Small Business Majority found that 74 percent of small business owners support regulating online lending to ensure small businesses are protected from predatory practices. Simple disclosures including a few key metrics—especially APR—would allow a small business owner to “comparison shop” and easily analyze loan prices and terms across multiple credit providers, whether they are a bank, a payment processor, or an online lender.

According to the research by Opportunity Fund, some online lenders charge businesses average APRs of 94 percent, without ever disclosing those rates to the borrower. These companies argue that disclosing APR will discourage customers from taking their loans, causing the small business credit gap to widen further. That’s like arguing that if your doctor told you smoking was dangerous you might not do it, which in turn would hurt tobacco companies, so better not to know. If your doctor kept information that was vital to your health from you, he could be accused of malpractice, so why doesn’t the same principle apply to financial health as well?

As Singleton and Calabrese recognize, disclosing APR at the time of offering and acceptance of a loan would equip small business owners with a transparent metric to make an apples-to-apples comparison between products and choose the best option for them.

[i] Kate Bahn, Regina Willensky Benjamin, and Annie McGrew, “A Progressive Agenda for Inclusive and Diverse Entrepreneurship,” Center for American Progress, October 2016. https://cdn.americanprogress.org/wp-content/uploads/2016/10/13000159/ProgressiveAgenda.pdf

New Report: Washington Is Crippling America’s Economic Future

Public investment spending could fall to lowest level in modern history by 2026 

WASHINGTON — Young Americans are having their future mortgaged by Washington lawmakers who are slashing critical public investments in future generations while simultaneously burying these generations under a mountain of debt, according to a new report published today by the Center for Funding America’s Future (CFAF) at the Progressive Policy Institute.

The comprehensive report documents these trends and explores how the reckless policies of the current administration and its predecessors will drain America’s economic strength and seriously harm young Americans for decades to come if no action is taken to change course.

“America’s current fiscal trajectory is on a dangerous path,” said Ben Ritz, director of the CFAF and author of the report. “By 2029, the national debt as a percent of gross domestic product is projected to surpass the all-time high it reached at the end of World War II, if current policies remain in place. Meanwhile, annual interest payments would explode from $316 billion today to nearly $1 trillion in 2028. That’s $1 trillion every year we could be using to build bridges and railroads, find a cure for cancer, train a next-generation workforce, strengthen our armed forces, or cut taxes for middle-class workers. Instead, it will be spent servicing past debts.”

Instead of tackling these problems, President Trump and the Republican-controlled Congress are making them worse, Ritz argues. While virtually every other developed country is paying down their debts post-recession, they enacted $2 trillion in tax cuts and abandoned spending caps that Republicans demanded be imposed at a time when most economists believed it was far more perilous to cut spending than it is today.

As America racks up debt thanks to irresponsible fiscal policies, public investments are being starved. According to the report, federal spending on public investments in education, infrastructure, and scientific research was just over $300 billion in 2017 – less than 1.5 percent of GDP. Between 1965 and 1980, total federal spending on public investments regularly equaled about 2.5 percent of GDP (roughly $470 billion in 2017). If current policies continue, public investment spending is projected to fall to its lowest level in modern history as a share of the economy by 2026.

The unaffordable tax cuts enacted over the past year can and should be reversed, writes Ritz, but even if federal taxes were immediately raised to their highest level since WWII and remained there indefinitely, deficits and debt would still be growing significantly faster than the economy. It is critical that policymakers also control the costs of Medicare, Medicaid, and Social Security, which are growing on autopilot faster than the economy due to America’s aging population.

By abandoning any pretense of fiscal responsibility, today’s policymakers are placing fiscal handcuffs on the elected officials of future taxpayers. By 2048, the report estimates Congress will have the authority to appropriate just 18 cents out of every dollar spent by the federal government, compared to 66 cents in 1968. This erosion of fiscal freedom robs future elected officials of their ability to respond to the changing policy priorities of their constituents and address unforeseen national emergencies, such as natural disasters and economic recessions.

Republicans’ fiscal mismanagement gives Democrats a unique opportunity to offer the electorate a compelling alternative: a new progressivism that invests in our country without leaving the bill to young Americans. But instead of holding Republicans accountable, some Democrats seem determined to outdo them. Many on the left now propose tens of trillions of dollars in new social spending on top of the unfunded promises the federal government already has made, without offering credible ways to pay for either.

Fixing our fiscal policy won’t be easy, but it is necessary. Ritz argues that the next Congress and President must modernize federal health and retirement programs to reflect an aging society and enact pro-growth tax reform that raises the necessary to renew public investments in the foundation of our economy. Only then can policymakers ensure America has a bright economic future.

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Defunding America’s Future: The Squeeze on Public Investment in the United States

Executive Summary

Policymakers who have chosen to slash critical public investments in future generations while simultaneously saddling these generations with a mountain of debt are jeopardizing the long-term economic health of the United States. Failure to correct course could have serious consequences for the economy and the American people, including lower incomes, fewer high-quality jobs, and a reduced ability for future policymakers to address new challenges.

America’s deteriorating fiscal condition should be a central issue in the 2018 midterm and the 2020 presidential elections. As Republicans in Congress and the White House abandon any pretense of fiscal responsibility, the time is right for Democrats to offer a new progressivism that invests in our country without leaving the bill to young Americans.

The goal of this report is to alert the public and policymakers to the problem and highlight the actions our elected leaders must take to avoid fiscal ruin, which include renewing public investments in the foundation of our economy, modernizing federal health and retirement programs to reflect an aging society, and enacting pro-growth tax reform that raises the revenue necessary to support both of these critical government functions. 

DEBT AND DEFICITS THREATEN PUBLIC INVESTMENTS (PP. 5-11):

• By 2029, the national debt as a percentage of gross domestic product is projected to surpass the all-time high reached at the end of World War II if current policies remain in place. And on that trajectory, the national debt would grow to more than double the size of the U.S. economy within the next 30 years.

• All this borrowing comes at an enormous cost: if current policies remain in place, annual interest payments would rise from $316 billion today to nearly $1 trillion in 2028. At that point, annual interest costs would be twice the projected federal spending on public investments in education, infrastructure, and scientific research combined.

 

INSTEAD OF ADDRESSING THE PROBLEM, TODAY’S POLICYMAKERS ARE MAKING IT WORSE (PP. 12-17):

• While virtually every other developed country from Germany to Japan is paying down their debts, self-proclaimed “king of debt” Donald Trump and the Republican-controlled Congress have been making ours bigger. In the span of just two months, they enacted $2 trillion in tax cuts and abandoned spending caps that Republicans demanded be imposed at a time when most economists believed it was far more perilous to cut spending than it is today.

• The last time the national unemployment rate was as low as it was for most of 2018, the Clinton administration was in its fourth consecutive year of budget surpluses. But, thanks to the GOP’s borrow-and-spend policies, the next presidential election in 2020 – and potentially every election thereafter – will occur against the backdrop of an annual budget deficit of over $1 trillion.

PUBLIC INVESTMENTS ARE BEING STARVED BY BAD BUDGETING (PP. 17-21):

• Between 1965 and 1980, total federal spending on public investments in education, infrastructure, and scientific research regularly equaled about 2.5 percent of GDP (which would have been roughly $470 billion in 2017). But misguided cuts imposed by policymakers seeking to reduce deficits have taken their toll: Federal spending on public investment was just over $300 billion in 2017 – less than 1.5 percent of GDP.

If current policies are continued, public investment spending is projected to fall to its lowest level in modern history as a share of the economy by 2026. Public investment spending is likely to be cut even more in the future if policymakers are unwilling or unable to tackle the main drivers of growing deficits.

SECURING PUBLIC INVESTMENTS REQUIRES FIXING HEALTH CARE AND RETIREMENT PROGRAMS (PP. 21-29):

• While spending on public investments shrinks, spending on Medicare, Medicaid, and Social Security is growing on autopilot due to an aging population. Spending on these programs relative to the size of the economy is projected to grow by half over the next 30 years (from about 10 percent of GDP today to nearly 16 percent of GDP in 2048).

• In 1965, there were 5.4 working-age Americans (those between the ages of 18 and 64) who could pay taxes to finance the health care and retirement benefits of each American aged 65 and older. But by 2050, the U.S. Census Bureau projects the ratio of working-age to retirement-age individuals could be as low as 2.6 to 1 – less than half what it was in 1965.

• There are no easy substitutes for tackling the growth of federal health and retirement spending. The unaffordable tax cuts enacted over the past year can and should be reversed, but even if federal taxes were immediately raised to their highest level since WWII and remained there indefinitely, deficits and debt would still be growing significantly faster than the economy.

THE SHORTSIGHTED STATUS QUO IS SHORTCHANGING YOUNG AMERICANS (PP. 29-31):

• Current policies are unfair to young Americans, who are already starting from a worse financial position than their parents and grandparents did. The federal government is spending nearly six times as much per elderly American (those aged 65 and older) as it is per child, even though children have a poverty rate nearly twice that of the elderly.

• The shift in priorities – from annually appropriated discretionary spending to formula-driven mandatory spending – will leave future politicians with less say over how their constituents’ tax dollars are spent. Whereas the Congress of 1968 had the authority to appropriate 66 cents out of every dollar spent by the federal government, the Congress of 2048 will have the same authority over just 18 cents on our current trajectory. This erosion of “fiscal freedom” robs future democratically elected officials of their ability to respond to the changing policy priorities of their taxpaying constituents.

• Growing debt and interest costs also have the potential to make future generations poorer, reducing the size of our economy by up to $6,000 per person per year in 2048.

The longer we wait to address these problems, the harder they will be to solve. Neither progressives (who want more social spending) nor conservatives (who want lower taxes) will benefit from a federal budget that has no room for either because it is stuck paying for the policies of the past. As Republicans in Congress and the White House abandon any pretense of fiscal responsibility, the time is right for Democrats to offer a new progressivism that invests in our country without leaving the bill to young Americans. Voters must demand our leaders enact the policies necessary to lay the fiscal foundation for a better world tomorrow.

 

Read the full article here:

Bledsoe & Ritz for The Hill, “Democrats must bridge the generational divide to prevent climate and budget crises”

Amid the daily drama of President Trump’s tweets and scandals, it can be hard to focus on the most important issues for our future. An unfortunate consequence of this purposeful turmoil is that few serious solutions are being offered for addressing two of the greatest threats facing the United States: runaway climate change and unsustainable budget policies.

The resignation of EPA Administrator Scott Pruitt may end his days of plundering the environment and public treasury, but the Trump administration will continue doing both even in his absence, risking long-term national well-being for temporary political benefits. It’s critical that Democrats offer credible alternatives, especially if they hope to inspire younger voters who will bear the burden of these problems, because we cannot afford to dither on either issue much longer.

We speak from experience. One of us is a baby boomer who has spent most of his career working on energy and climate policy; the other is a millennial focused on the federal budget. Although our two fields may seem unrelated, both these existential challenges require our generations to work together to solve.

Continue reading at The Hill.

Building Middle Class Wealth with American Development Accounts

U.S. social policy traditionally has emphasized supporting income for low-income families, to the neglect of wealth-building strategies.1 While income supports are essential for covering daily expenses, upward mobility depends on saving and building personal assets, especially completing post-secondary education, purchasing a home, or creating a business.2

Moreover, inequality of wealth in America is worse than income inequality. That’s why it’s time for a new approach to empowering low-income and working Americans. U.S. social policy in the 21st century should stress social investment and wealth creation, not just income transfers to support consumption. This report proposes a new policy – American Development Accounts (ADAs) – intended to help younger workers and blue-collar households rise into the middle class by enabling them to save and accrue assets.

Kim for The Hill, “Giving tax cuts to the companies that deserve them”

A recent White House press release boasted that as many as one million Americans have gotten what it called ‘Trump Bonuses” and “Trump Pay Raises” from their employers the purported result of lower corporate tax rates in the tax cut legislation rushed through Congress in December.

In reality, however, shareholders, not U.S. workers, are likely to be the Trump tax cuts’ biggest beneficiaries. In earnings calls last fall, reported Bloomberg, most big companies assured investors they would pass along their windfalls in the form of share buybacks and dividends.

Democratic Senate Minority Leader Chuck Schumer (N.Y.) recently circulated a list of 30 large companies that have announced a total of $83.7 billion in share buybacks in expectation of the new law.

Continue reading on The Hill. 

PPI Launches Center for Funding America’s Future

WASHINGTON – The Progressive Policy Institute today announced the launch of a new Center for Funding America’s Future that will promote a fiscally responsible public investment agenda.

This launch comes at a pivotal moment in the federal budget debate. In under two months, Donald Trump and the Republican-controlled Congress have enacted policies that grow federal budget deficits by several trillion dollars throughout the next decade. The administration’s latest budget proposal, meanwhile, offers few ideas to tackle the soaring deficit aside from gutting critical investments in our nation’s intellectual, human, and physical capital.

The PPI Center for Funding America’s Future will offer sensible center-left alternatives to this reckless agenda that foster robust and inclusive economic growth. The Center’s work will include publishing research reports, providing timely commentary on policy debates, and organizing a series of public engagement events around the country.

“The United States now faces trillion-dollar deficits every year as far as the eye can see, which threaten to undermine public support and funding for important investments in the long-term health of our economy,” said Will Marshall, President of the Progressive Policy Institute. “The events of the past week make clear that the work of PPI’s new Center on Funding America’s Future is needed now more than ever.”

The Center will be led by Ben Ritz, who will provide PPI with expert analysis of government spending and tax policies. Ritz previously staffed the Bipartisan Policy Center’s Commission on Retirement Security and Personal Savings, where he helped develop the commission’s comprehensive proposals to reform Social Security and retirement-related tax expenditures, and served as Legislative Outreach Director for the budget-focused Concord Coalition. Ritz has also provided communications and research assistance to several victorious Democratic political campaigns in the Trump era.

“Democrats have a unique opportunity to present themselves as the responsible stewards of government,” said Ritz. “But in order to do so, they need to stand firm against Republican profligacy and offer a credible alternative. I am excited to help PPI’s Center on Funding America’s Future make the case for a fiscally responsible public investment agenda to policymakers and their constituents alike.”

Don’t Help GOP Budget Busters

The Republican Party, led by self-proclaimed “King of Debt” Donald Trump, is embracing fiscal profligacy on an epic scale. First, the Trump Republicans broke their promise of “revenue-neutral tax reform” and instead rammed through a bill that will grow deficits by at least $1.5 trillion last December. Now they’ve struck a deal with Senate Democrats that, combined with the tax bill, would add more than $3 trillion to the deficit over the next decade. It’s a one-two gut punch to fiscal responsibility.

It’s regrettable that Senate Democrats have made themselves complicit in the Republican raid on the U.S. Treasury. Yes, this deal would avoid a federal shutdown, which is a good thing. But the pricetag is simply too steep. We support funding disaster relief, health care programs and other critical public investments, and we support adequate defense spending as well. But we’re against unnecessary borrowing to pay for it, which represents an abdication of Congress’s core Constitutional responsibility: paying for government without passing the bill to the next generation.

From the Brownback debacle in Kansas to the tax bill and this latest budget deal, Republicans are proving to be the most reckless and incompetent managers of public finances. All their fiscal posturing and brinksmanship during the Obama years stands exposed as rank hypocrisy. But Democrats can’t effectively make that case to voters if they join in a bipartisan conspiracy against fiscal discipline in Washington.

It would be one thing if this budget deal merely repealed the sequester, which was never meant to take effect and has hamstrung important investments in both defense and domestic initiatives. The Senate budget deal, however, would raise spending above the original levels agreed to by both parties in the Budget Control Act of 2011. It would also cut taxes for corporations by an additional $17 billion and repeal important cost-control measures imposed by the Affordable Care Act – all without paying for them.

If policymakers are going to abandon the BCA, they need to replace it with another plan for controlling America’s massive public debt. The Senate deal places America on the fast track to trillion-dollar deficits as far as the eye can see. That’s the opposite of the fiscal policy our country needs today. When the economy is expanding, we should be unwinding the debt, not using the threat of a government shutdown to make it worse. Otherwise, young Americans will face higher tax and debt payment burdens, and the federal government will have little “fiscal reserve” to tap the next time the economy goes into recession.

Happy Holidays from PPI

It’s been a surreal political year, but PPI has much to celebrate this holiday season. Throughout 2017, we expanded our productive capacity and the scope of our political and media outreach significantly. For example, PPI organized 150 meetings with prominent elected officials; visited 10 state capitals and 10 foreign capitals, published an influential book and more than 40 original research papers, and hosted nearly 30 private salon dinners on a variety of topical issues.
Best of all, we saw PPI’s research, analysis, and innovative ideas breaking through the political static and changing the way people think about some critical issues, including how to revive U.S. economic dynamism, spread innovation and jobs to people and places left behind by economic growth, and modernize the ways we prepare young people for work and citizenship.
Let me give you some highlights:
  • This fall, David Osborne’s new book, Reinventing America’s Schools, was published on the 25th anniversary of the nation’s first charter school in Minnesota. David, who heads PPI’s Reinventing America’s Schools project, documents the emergence of a new “21st Century” model for organizing and modernizing our public school system around the principles of school autonomy, accountability, choice, and diversity. David is just winding up a remarkable 20-city book tour that drew wide attention from education, political, and civic leaders, as well as the media. Because David is a great storyteller, as well as analyst, it’s a highly readable book that offers a cogent picture of a K-12 school system geared to the demands of the knowledge economy. It makes a great holiday gift!
  • Dr. Michael Mandel’s pioneering research on e-commerce and job creation also upended conventional wisdom and caught the attention of top economic commentators. Dr. Mandel, PPI’s chief economic strategist, found that online commerce has actually created more jobs in retail than it destroys, and that these new jobs (many in fulfillment centers in outlying areas) pay considerably better than traditional ones. His research buttresses the main premise of PPI’s progressive pro-growth agenda: that spreading digital innovation to the physical economy will create new jobs and businesses, raise labor productivity, and reduce inequality.
  • PPI challenged the dubious panacea of “free college” and proposed a progressive alternative – a robust system of post-secondary learning and credentials for the roughly 70 percent of young Americans who don’t get college degrees. PPI Senior Fellow Harry Holzer developed a creative menu of ways to create more “hybrid learning” opportunities combining work-based and classroom instruction. And PPI Senior Fellow Anne Kim highlighted the inequity of current government policies that subsidize college-bound youth (e.g., Pell Grants), but provide no help for people earning credentials certifying skills that employers value.
  • Building on last year’s opening of a PPI office in Brussels, we expanded our overseas work considerably in 2017. In January, I endeavored to explain the outcome of the U.S. election to shell-shocked audiences in London, Brussels, and Berlin. In April, we led our annual Congressional senior staff delegation to Paris, Brussels, and Berlin to engage European policymakers on the French presidential election and other U.S-E.U. issues, including international taxation, competition policy, and trade. PPI also took its message of data-driven innovation and growth to Australia, Brazil, Japan and a number of other countries.
Other 2017 highlights included a strategy retreat in February with two dozen top elected leaders to explore ideas for a new, radically pragmatic agenda for progressives; a Washington conference with our longtime friend Janet Napolitano (now President of the University of California system) on how to update and preserve NAFTA; public forums in Washington on pricing carbon, infrastructure, tax reform, and other pressing issues; creative policy reports on varied subjects; and a robust output of articles, op-eds, blogs, and social media activity.
I’m also happy to report many terrific additions to PPI in 2017. Rob Keast joined to manage our external relations and new policy development; Paul Bledsoe assumed a new role as Strategic Adviser as well as guiding our work on energy and climate policy; and Emily Langhorne joined as Education Policy Analyst. We will also be adding a fiscal project next year.
All this leaves us poised for a high-impact year in 2018. In this midterm-election year, our top priority will be crafting and building support for a new progressive platform — a radically pragmatic alternative to the political tribalism throttling America’s progress. That starts with new and better ideas for solving peoples’ problems that look forward, not backward, and that speak to their hopes and aspirations, not their anger and mistrust.
It’s a tall order, and we cannot succeed without your help and support. Thanks for all you have done over past years, and we look forward to working with you in 2018.
Happy holidays and New Year!

Weinstein for The Hill, “The right way to create greater competition in consumer credit scoring”

Why is the decision to promote competition in the credit scoring model industry complicated? At first blush it would seem to make perfect sense. More competition could lead to lower costs for those who use the scores. Furthermore, it might increase the likelihood that some qualified individuals — who may not be approved for a loan under the criteria utilized by the FICO model — get access to credit.

The problem is not of course more competition. The credit scoring industry — and ultimately consumers — would benefit from more alternatives to FICO. This was discussed at an event I moderated this week in Washington, D.C. hosted by the Progressive Policy Institute.

The issue is the legislation to push for alternative scoring models may simply trade one dominant player (FICO) for another (Vantage).

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.

Continue reading at The Hill.

Shining a Light on Small Business Credit: Promoting a Transparent Marketplace

For many Americans, self-employment and running  a small business can be an important pathway to the middle class, yet accessing credit to start or grow a business is more difficult, and potentially even more dangerous, than most realize.

While banks have historically provided the majority of small business credit in the United States, and still do, there’s a hitch: Small business lending has high fixed costs relative to the returns banks can expect from their loans. This decline in profitability has meant a widening small business credit gap – even during an economic recovery.

Into the breach have stepped a host of companies hoping to leverage advancements in technology and the proliferation of data about small businesses to lower the cost of extending credit. As more small businesses utilize internet-based services for shipping, ordering, or record keeping; make or accept digital payments; and engage with social media, they are creating large, real-time datasets about their businesses that can be applied to credit underwriting. These developments are encouraging many new companies – or, in some cases, established companies with no history of extending credit – to begin offering small business financing products, often without the regulatory oversight and supervision applied to banks.

Flashback Friday: PPI in Hindsight

Just over a year ago, PPI unveiled a big ideas blueprint with a prescient subtitle: Unleashing Innovation and Growth: A Progressive Alternative to Populism. We knew that progressives in the United States and Europe needed better answers to the economic and cultural grievances that have fueled the rise of a retrograde populism and nationalism around the world. We did not foresee that Democrats would fail to offer a forward-looking plan for jobs and shared growth, opening the door to Donald Trump’s improbable victory.

Which makes the themes and ideas in PPI’s sweeping policy blueprint more important than ever. Populism today thrives in the political vacuum left by center-left parties that offer no clear vision for reviving economic dynamism and hope. “Winning the economic argument will be essential to victory in the 2016 elections and it starts by getting the diagnosis right,” the blueprint noted. Instead, Democrats ran a campaign that leaned heavily on identity politics, wealth redistribution and centralized, small-bore solutions.

Unleashing argued that America (and Europe) are stuck in a slow-growth trap that holds down wages and living standards. And it offered bold prescriptions for building on America’s competitive advantage in technology and entrepreneurship to spread innovation – now concentrated in a vibrant digital sector — to the nation’s physical economy, which continues to suffer from low productivity. In addition, the document proposed creative ways to modernize the nation’s economic infrastructure, improve the regulatory environment for innovation, build middle class wealth and empower poor Americans to work, save and chart their own course to social mobility and inclusion.

Crucially, the blueprint also urged progressives to reject anger and victimhood and offer voters a confident account for how America can build a new, inclusive prosperity:

What America needs is a forward-looking plan to unleash innovation, stimulate productive investment, groom the world’s most talented workers, and put our economy back on a high-growth path, It’s time to banish fear and pessimism and trust instead in the liberal and individualist values and enterprising culture that have always made America great.

That was the road not taken in 2016. Now it’s the road to political relevance and success for progressives here and elsewhere.

 

The Hill: Universal Pensions: A Progressive Alternative to Retirement

In the midst of the chaos of this election cycle, some important themes are emerging. In particular, voters are highly worried about retirement security. Indeed, 91 percent of voters in four swing states agree that most Americans are not prepared for retirement. That’s according to a poll by the Progressive Policy Institute (PPI), in partnership with veteran Democratic pollster Peter Brodntiz.

That’s why it’s time for a Universal Pension system that would help all U.S. workers save for retirement by eliminating the need to navigate the maze of tax-favored retirement plans, and making their job-based pensions portable. Specifically, the UP would reduce today’s welter of tax-favored retirement accounts into one universal IRA account (with a choice between a traditional or Roth-style IRA).

The accounts would be managed by private firms, under the supervision of the individual rather than the employer, giving workers more control over their investment choices. Furthermore, when workers switch jobs, they can rollover their existing 401(k) or other company pension plans into their Universal Pension reducing paperwork burdens and financial fees for both employers and employees.

And by helping all workers start saving for retirement from their very first day of work, the Universal Pension would harness the power of compound interest for everyone. It would help to close a yawning wealth gap at a time when wealth inequality is roughly 10 times wider than income inequality.

Continue reading at The Hill.

Slate: One Reason Tax Returns Are So Complicated? Because H&R Block and Other Preparers Like It That Way

Slate columnist Helaine Olen references a PPI report in this article on the complexity and cost of filing taxes.

“According to the Progressive Policy Institute, the average recipient of the earned income tax credit loses about $400 of his or her refunds to the preparers who helped complete and submit his or her taxes. For some, that’s almost 25 percent of what they received back from the federal government.”

Read the article in its entirety at Slate.