A Scalpel, Not an Axe: Updating Antitrust and Data Laws to Spur Competition and Innovation

Americans justifiably have long taken great pride in the unmatched ability of the U.S. economy to enable entrepreneurs to launch and grow highly innovative companies that drive growth and advance living standards. Bold entrepreneurs and the companies they founded brought us modern communications, airplanes, automobiles, computer software and hardware, and electricity and other forms of energy to power them all.

These innovations and others have constantly reshaped and remade our economy – displacing less efficient technologies and ways of doing business in a process of “creative destruction” that economist Joseph Schumpeter, many decades ago, singled out as the most important feature of capitalist economies.

The most innovative and valuable companies of our time are the leading “technology platform” companies: Amazon, Apple, Facebook and Google – a group New York University Professor Scott Galloway simply labels “The Four.” Except for Apple, none of these companies existed before 1990. That they have eclipsed in the public mind – in such a relatively short amount of time – such other tech giants as Microsoft, Oracle, Cisco and Intel is a testament to the remarkable acumen of the founders and leaders of The Four, their highly skilled workforces, and to the economy and society that have enabled them to flourish.

Kim for Governing, “When Cities Rely on Fines and Fees, Everybody Loses”

They’re a tempting alternative to raising taxes, but their long-term costs far outweigh the revenue they bring in.

Raising taxes is painful. That may be why, since 2010, 47 states and a number of cities have instead raised both civil and criminal fines and fees. These increases are often viewed as a conflict-free way to plug budget holes.

In the last decade, for example, New York City grew its revenues from fines by 35 percent, raking in $993 million in fiscal 2016 alone. The monies came largely from parking and red light camera violations, as well as stricter enforcement of “quality of life” offenses such as littering and noise. In California, routine traffic tickets now carry a multiplicity of revenue-boosting “surcharges.” As a result, the true price of a $100 traffic ticket is more like $490 — and up to $815 with late fees, according to the Lawyers’ Committee for Civil Rights of the San Francisco Bay Area.

This increasing reliance on fines and fees comes despite what we learned following the shooting in 2014 of Michael Brown by a police officer in Ferguson, Mo. A federal investigation of the city’s police department subsequently revealed that as much as a quarter of the city’s budget was derived from fines and fees. Police officers, under pressure to “produce” revenue, extracted millions of dollars in penalties from lower-income and African-American residents. In 2017, the U.S. Commission on Civil Rights issued a follow-up report finding that the “targeting” of low-income and minority communities for fines and fees is far from unique to Ferguson.

Continue reading at Governing.

Comments submitted to the FTC on “Competition and Consumer Protection in the 21st Century”

The FTC recently asked for comments on “Competition and Consumer Protection in the 21st Century.”

PPI submitted  two excerpts from a forthcoming paper, “Taking Competition Policy Seriously: Macro Indicators for Regulators.”  Here is a summary of the first excerpt, the introduction:

Recent work has linked increased concentration to poor macroeconomic outcomes. In this spirit, this paper describes a set of quantitative market and labor indicators that can help competition regulators identify those sectors that are showing signs of impeding growth, overcharging customers, or underpaying workers. Conversely, these same indicators can be used to identify sectors that are exerting a positive influence on growth, benefiting customers, and providing jobs and higher pay to workers.

The paper finds that the tech/telecom/ecommerce (TTE) sector—also known as the digital economy–has outperformed the rest of the private sector on every macroeconomic indicator. Indeed, the evidence suggests that to the degree that there are competition problems in the US economy, they are more likely to be found outside the TTE sector.

Here is a summary of the second excerpt, on Assessing Labor Market Outcomes:

The lack of real wage growth has raised the suspicion that corporations are using their market power to artificially hold down employment, pay, and labor share. In particular, the tech/telecom/ecommerce (TTE) sector has received sustained criticism for its “bigness”.

However, we find that the TTE sector has generated significantly faster hours growth and bigger real pay increases since 2007 than the rest of the private sector. We also find that labor share in the TTE sector has risen significantly since 2007, while falling in the rest of the private sector.

These results are consistent with strong competition in the labor markets associated with TTE industries. Competition regulators concerned with labor market monopsony should be looking outside the TTE sector, at industries where employment and real wage growth are weak and the labor share is falling.

The links to the comments on the FTC site can be found here and here.

 

PPI Metro Playbook: Kansas City

In 2011, Sly James won election to his first term as mayor of Kansas City, Mo. Within roughly 48 hours of his victory, he was swept into a meeting room to close a long anticipated deal: the approval of an agreement to make the City of Fountains the site of the first Google Fiber ultra-highspeed broadband network.

But, while the award of Google Fiber represented a unique civic opportunity, it could not change a basic fact: Kansas City was an aging Midwestern metropolis with a lot of very typical urban challenges, including worn-out infrastructure and tightly constrained public budgets.

 

An Economic Analysis of Japan’s Current Mobile Communication Policy from the Competition and Innovation Perspective

Since 2016, the Ministry of Internal Affairs and Communications (MIC) and the Japan Fair Trade Commission (JFTC) have tried to promote more competition in the mobile market in order to encourage economic growth and promote fairness. In particular, the government agencies have restricted handset subsidies in an effort to lower rates.

The results of these policies have fallen short of expectations. Mobile service prices in Japan have dropped by 10 percent over the past two years, far less than the 25 percent decline in the United States in the same period.

One piece of good news for competition is the impending entry of Rakuten Mobile as the fourth mobile network operator. However, we show in this paper that the restriction on handset subsidies makes it significantly harder for Rakuten to attract customers from the incumbents, since the challenger will be forced to charge customers for the “privilege” of switching to a new network.

日本語の記事:PPI_JapanMobile_Japanese

Langhorne for The Hill, “Stop asking teachers if they’ll kill children”

Whenever we had lockdown drills, I’d get angry with my students. The lights were off, the door was locked, and students were seated silently under their desks. For about three minutes.

Then, the whispers began. Muted laughter followed; Phone screens flashed as students texted their friends, taking advantage of this “break” from learning.

After the drill, I tried to impress its importance upon them, but the routine would play out the same next time.

I couldn’t blame them. The majority of these students weren’t even born when Columbine happened. They were a generation who’d grown up with mass shootings and a 24-hour news cycle.

Continue reading at The Hill.

Good News: FCC Proposes to Streamline 5G Small-Cell Siting Process

PPI has repeatedly made the economic case that accelerating the deployment of 5G  is essential for boosting growth.   For example, in a 2016 report, we estimated that next generation wireless could add 0.7 percentage points annually to economic growth.* Moreover, as we noted in a January 2018 report, 5G networks can play a key role in reviving manufacturing and other physical industries, and enabling what we call the “Internet of Goods.”**

For these reasons, we strongly support the FCC’s new proposal to streamline the deployment of next generation wireless facilities by reducing the federal regulatory burden for establishing new sites, to be voted on at their March 22 meeting. The FCC says that  their revised approach to small cells “could cut the regulatory costs of deployment by 80 percent, trim months off of deployment timelines, and incentivize thousands of new wireless deployments—thus expanding the reach of 5G and other advanced wireless technologies to more Americans.”

In our view, the FCC is making a significant contribution to economic growth by proposing policies that that encourage the rapid deployment of 5G networks.  The revival of local manufacturing, and other physical industries that are part of the Internet of Goods,  requires high speed mobile broadband to be as pervasive as possible.  Regulations that delay or depress the build-out of these networks are standing in the way of higher living standards for Americans.

*”Long-term U.S. Productivity Growth and Mobile Broadband: The Road Ahead,” March 2016

**”The Internet of Goods and a Revitalized Economy: Upstate New York as a Template“, January 2018

 

Tax Cuts for the Companies That Deserve It: It’s not too late to put people on par with profits.

Corporate tax cuts have long been on the wish list of American businesses, which have rightly argued that both the rates and structure of the U.S. corporate tax code hurt America’s ability to compete globally. U.S. companies are now on track to see dramatic reductions in their tax rates, thanks to the $1.5 trillion tax cut package just passed by the GOP-led Congress and signed by President Donald Trump.

Trump and GOP Congressional leaders claim this relief will spur economic growth through new jobs and higher wages. As proof, they point to a series of commitments by companies such as Boeing and AT&T to provide their workers with bonuses and more worker training.

Unfortunately, it’s far more likely that shareholders, not U.S. workers, will reap the biggest benefits from the Trump tax cuts. According to Bloomberg, for example, many major corporations reportedly told investors in earnings calls this fall that they plan to “turn over most gains from proposed corporate tax cuts to their shareholders” through share buybacks or higher dividends. The Washington Post reported in December that, among America’s 20 biggest companies, just two explicitly promised to hire more workers – and no one committed to raising wages.

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!

Updated Credit Scoring and the Mortgage Market

Our past event featured newly issued white papers from respected industry experts related to the ongoing GSE credit score evaluation. Topics include: Research from a leading analytics firm on the value that updated credit scoring models will add to the mortgage market; Economic and competitive issues in the credit scoring market as detailed by an industry economist; and Legal and regulatory matters to consider as outlined by a former state banking commissioner.

 

Read the reports:

“Risks and Opportunities in Expanndinng Mortgage Credit Availability Through New Credit Scores” by Tom Parrent

Alternate Credit Scores and the Mortgage Market: Opportunities and Limitations” by Ann B. Schnare

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.

Marshall for The Hill, “GOP tax bill: Wrong debate at the wrong time”

As President Trump and Republicans go full throttle to ram a partisan tax bill through Congress this week, let’s step back and ask a basic question: What does the U.S. economy need most today? The answer isn’t tax cuts – it’s public investment in modern infrastructure.

Having wasted most of 2017 trying to kill ObamaCare, however, Trump and his party have accomplished next to nothing and are desperate for a political “win.” Their budget-busting tax plan is designed to solve Republicans’ political problems, not the country’s economic problems.

From an economic perspective, the Republicans are fighting the wrong war in the wrong place at the wrong time.  Tax cuts may make sense when the economy is slowing down and needs a jolt. But with healthy business profits, a surging stock market and tight labor markets pushing up wages, there’s little need now for a dose of fiscal stimulus.

In fact, average working families finally are beginning to reap the gains of the long economic expansion that started under President Obama. Blue collar wages have soared in the last two years, growing even faster than those for professionals and managers. Despite all the populist angst about a “rigged economy,” stronger growth is narrowing economic inequality.

Continue reading at The Hill.

Bledsoe for The Hill, “Dems should offer own plan to destroy GOP tax nightmare”

House Republicans have passed a grotesque tax giveaway to the richest 1 percent that will only exacerbate America’s biggest economic and political problem: the massive income inequality that inhibits broad-based growth and is leaving more and more Americans out of the middle class.

What’s more, the Republican tax bills squander essentially all the money needed for investments that would actually grow the economy to the benefit of all Americans; namely, rebuilding our antiquated infrastructure to be competitive in the digital economy.

Republican Senators have replicated these mistakes in legislation that has passed the tax-writing Finance Committee, adding repeal of a key element of the Affordable Care Act, to boot. They have now pledged to push the bill through the full Senate as early as this week and into an expedited conference with the House to be signed into law by Trump before Christmas.

Continue reading on The Hill.

Rotherham for US News, “A Tale of Two Zinkes”

Interior, it landed pretty well. Zinke was a well-regarded former Navy SEAL and congressman known as a champion of protecting public lands and for being attentive to native issues. As opposed to some Trump nominees where defections of Republicans complicated the Senate math, Zinke was confirmed with a bipartisan 67 Senate votes – a landslide in the Trump-era.

During his Senate confirmation, Backcountry Hunters & Anglers, a pro-public lands conservation group, said, “Both Zinke and President-elect Trump have identified themselves as conservationists in the model of Theodore Roosevelt, a Republican who helped create America’s priceless public land heritage.”

That was then.

Now, Zinke finds himself in political trouble that ranges from just plain odd to possibly illegal. And, in the crucible, he hasn’t turned out to be the defender of public lands many hoped for.

 Continue reading at U.S. News & World Report. 

Bledsoe for The Hill, “Trump is isolated on climate. Ignore him at negotiations.”

As ministers from 195 countries travel to Bonn, Germany for annual climate negotiations to begin Nov. 6, momentous decisions await.

Convincing major-emitting nations to increase the pace of emissions reductions, gaining hundreds of billions in new private and public investment in clean energy, protecting vulnerable populations and finalizing key rules of the Paris Agreement will all be debated.

The backdrop? Increasingly deadly, hugely expensive climate change impacts now manifest in the U.S. and around the world and what scientists believe is a rapidly shrinking window of time to prevent far worse.

Within this urgent context, little effort should be spent worrying about or currying favor with Donald Trump or his appointees. Everything we’ve learned about Trump since he took office suggests it’s a fool’s errand to attempt to convince him to take more responsible action regarding climate change.

Continue reading at The Hill.

Soaring Construction Costs Threaten Infrastructure Push

Throughout the 2016 presidential campaign, Donald Trump promised a massive infrastructure program financed primarily by the private sector. Trump’s 2018 budget proposed leveraging $200 billion in direct federal spending into $1 trillion in infrastructure investment through private sector incentives.

However, President Trump recently retreated from this campaign pledge that private sector funding would be a cornerstone of his infrastructure plan, raising questions as to whether the plan would be financed through increased federal spending or if state and local governments would be forced to foot most of the bill. Unfortunately, this approach is likely to limit the scope of the initiative to a fraction of what Trump has described, as federal, state, and local governments continue to deal with the reality of limited budget resources. In any case, there’s a large obstacle to any ambitious infrastructure plan – soaring construction costs.

Bringing down the astronomical cost of construction in the United States, which turns even the simplest infrastructure projects into enormous fiscal burdens, would help make the infrastructure upgrade that America so badly needs more affordable.