issue: Regulatory Reform

Democracy in Crisis

Posted on by The Progressive Policy Institute

US Capitol Public attitudes toward politics and government today resemble a game of limbo: how low can you go? Just when you think Americans’ confidence in their government has hit rock bottom, it sinks even further.

Consider these eye-opening findings from Gallup’s newly released governance survey:

  • 57 percent of Americans lack confidence in the federal government’s ability to solve domestic problems.
  • 69 percent have no confidence in Congress, an all-time high.
  • The public thinks Washington wastes 51 cents of every tax dollar.
  • Nearly half believe “the federal government has become so large and powerful that it poses an immediate threat to the rights and freedoms of ordinary citizens.”

These numbers point to a fundamental breach of trust that goes far beyond Americans’ habitual grousing about government. The public is losing faith in their political system’s basic capacity to forge consensus and grapple effectively with national problems. We’re experiencing a crisis in democracy that eclipses all the other big challenges we face.

And it poses a particular problem for President Obama and his party, who believe in government’s ability to do good. How can they convince a jaundiced public that government isn’t the problem, but part of the solution?

For the kind of liberals who watch MSNBC and take ocean cruises with the staff of The Nation, the answer is obvious: offer an unapologetic, full-throated defense of government as the peoples’ instrument in their perennial struggles against the powerful. But the left’s blind defense of government is just as ideologically blinkered as the right’s demonizing of government as the insatiable usurper of our liberties.

Most voters, being pragmatic types, don’t have a dog in this fight; they just want some reassurance that government can be made to work again, and at a reasonable cost. For progressives, regaining the public’s trust begins with an acknowledgement of the validity of some of their complaints about government. Only then will progressives be heard when they make the positive case for new public initiatives.

No one understood this better than President Bill Clinton. He made government reform (“reinventing government” in New Dem-speak) an integral part of his progressive modernizing agenda. Clinton actually shrank the federal establishment, balanced the budget, injected choice and competition into the delivery of public services, and worked to devolve decisions from centralized bureaucracies to individuals and communities.

President Obama would be wise to follow Clinton’s example. Americans who believe the federal establishment has grown too big are not wrong; Obama should empanel a high-profile commission charged with dramatically overhauling a constellation of bureaucracies created on the industrial model to solve industrial era problems.

Americans who believe government spends too much aren’t wrong either, which is why Obama embrace his own Fiscal Commission’s grand bargain for debt reduction. Since the public already shares his view that the rich should pay higher taxes to solve the fiscal crisis, the stage is set for a deal that marries tax and entitlement reform.

And while Obama has made noises about regulatory reform, he has yet to offer a plausible way of systematically scaling back government rules that impede economic innovation and business creation. He could embrace, for example PPI’s proposal for a Regulatory Improvement Commission – a base-closing style commission that would periodically prune old and superfluous regulations.

The key point is that President Obama and progressives need to make reforming and disciplining government as integral to their message as their ideas for launching new public initiatives to solve common problems. This will show the public they understand that public activism is a tool for achieving progressive ends, not the end itself.

Photo credit: Shawn Clover

Managing Austerity’s Axe

Posted on by The Progressive Policy Institute

In the wake of Hurricane Irene, there has been consternation over whether the GOP proposed cuts to the United States Geological Survey signifies that they were actively endangering the public. Political scoreboard aside, while it is true that America as a nation could survive without quality weather surveillance, not needing a program does not automatically justify severe budget cuts.

Imagine America as a frigate. Our ship might be weighed down by our blossoming debt, but that does not mean we should be indiscriminately throwing our guns overboard in an attempt to lighten our load. Furthermore our focus on the crisis of the moment is also distracting us from one of the lessons of Hurricane Irene: the need to defend valuable government programs that cannot defend themselves. The national discussion needs to be reoriented from its current state to one about reducing the deficit in a way that does not prioritize politically expedient cuts over the budgets of beneficial government programs lacking political clout.

The smallest instance of this concept is a recent Washington Post cause célèbre – defending the Statistical Abstract of the United States. Called “America’s databook” by Post Columnist Robert Samuleson and defended by other Post Columnists E.J Dionne and Ezra Klein, the abstract provides a single destination for various sorts of facts that one normally would have to spend hours trolling through government databases to discover. While not essential to existence of the United States, the abstract provides useful information and would be in a sense akin to losing data from the Bureau of Labor Statistics, making our country worse off by making us less knowledgeable. For $2.9 million – pocket change to the federal government, the abstract is an unnecessary sacrifice in a blanket effort to reduce the budget.

To think about it another way, in pure job creation terms, government spending on the abstract creates 24 jobs at $120,000 per job – less than the $200,000 per job cost Felix Salmon finds for infrastructure spending.

Another more tangible example of this debate is a $784 million cut to Federal Emergency Management Agency (FEMA) emergency response grants. These grants fund first responders, paying for the training of local and state emergency personnel. The training prepares them to manage current crises like Vermont floods. Before immediately writing FEMA off as wasteful spending, it’s important to note the steps FEMA has taken to redeem its sullied reputation. FEMA received positive reviews from both sides of the aisle in its response to Hurricane Irene.

Yet due to a slimmed budget, FEMA disaster relief money is running out, pitting two disasters against each other for catastrophe aid. With funding not yet appropriated to help the Joplin, Missouri recovery efforts, Missouri Senators are already warning about diverting funding from rebuilding Joplin to recovering from Irene.

“Recovery from hurricane damage on the East Coast must not come at the expense of Missouri’s rebuilding efforts,” Senator Roy Blunt (R-Mo.) said Monday in a statement.

Competition should not exist between states for disaster relief. Not only is it immoral to declare one disaster more worthy of funding than another, but it also represents a basic betrayal of citizens who depend on the government for at least their very security.

Conservative economist, Doug Holtz-Eakin has a two-part test for creating government programs, “Does the economy fail to deliver something? And second, could the government do it better?” As Samuelson notes, there is no private market equivalent of the Statistical Abstract and I seriously doubt that a private corperation could provide disaster relief better than FEMA can. There is no denying that deficit reduction needs to occur, but legislators should think twice about government’s basic responsibilities before subjecting agencies without political clout to austerity’s axe.

Photo Credit: U.S Coast Guard

The Consumption Economy Is Dying-Let it Die

Posted on by The Progressive Policy Institute

With the stock market plunging, we’ve heard plenty of warnings that a “pullback” in consumer spending could trigger another recession. Let me suggest an alternative. The last thing this economy needs is more debt-fueled consumer spending which mainly creates jobs overseas. Instead, we should be focused on boosting investment in physical, human, and knowledge capital.

Now, who am I to be dissing the American consumer? Don’t I know that consumer spending “accounts for 70% of economic activity,” as many economic reporters have written in recent weeks? (Indeed, if I have to read that number in another story, I might be forced to go all Office Space on a piece of expensive consumer electronics.)

It’s true that consumer spending creates economic activity. But it’s not true that all that economic activity is in the United States. Many of the consumer goods we buy are imported. If you buy a shirt or television, you are stimulating manufacturing jobs in China, or perhaps Mexico. You aren’t doing as much to stimulate jobs at home.

This is true across the economy, but a helpful example is the clothing, or apparel, industry. Since the fourth quarter of 2007, clothing purchases by consumers have increased by about 5% in real terms, according to the latest figures from the Bureau of Economic Analysis. Over roughly the same period, shipments from U.S. apparel factories fell by 31% in real terms, while apparel jobs fell by 26%. The winner: Factories in China and elsewhere making clothes for the U.S. market.

It’s not just clothes, of course. In many stores, it’s getting harder and harder to even find products that say “Made in the U.S.A.” That’s one reason why much of the economic stimulus escaped out the back door in the form of imports.

Now, this doesn’t mean imports are evil. When we buy goods from overseas, we generate some jobs in retail and wholesale. If you buy a shirt for cheaper than it would otherwise be if we made it here, you have more money left over to buy other things, like health care.

But the big problem with consumer spending is that if you buy a product made outside the U.S., it doesn’t encourage domestic investment. And that’s what we really need. In the past, a dollar spent on a shirt would start a virtuous circle, as the clothing factory expanded, adding more workers and buying new sewing machines. That investment in new machines, in turn, would create more business for the sewing machine company, who would then hire more workers who would need new shirts.

Today, the cycle is happening overseas. We have a genuine investment shortfall in the U.S., where both business and government are way below historical norms for spending on equipment, buildings, software, and infrastructure.

Consider this: Personal consumption in real terms is 11% below its long-term trend, based on the 1997-2007 period. That sounds bad enough. But nondefense government investment is 17% below its long term trend, as state and local governments cut back. And counting all private sector enterprises, nonnresidential investment is a stunning 25% below its long-term trend.

nonresidential investment.png

These figures are devastating for our economic future, both short and long-term. Low investment means fewer jobs and weaker productivity growth. The longer the investment shortfall lasts, the more damage it does. However, we’re not going to close the shortfall by encouraging debt-financed consumer spending. Instead, we need to redirect resources to productive investment.

Here’s a couple of examples of what we can do. First, I like to see the Obama administration publicly identify and applaud “investment heroes”: the top companies who are investing domestically in either physical capital or knowledge capital (R&D, design, and other forms of intellectual investment). The bully pulpit of the president can be a wonderful tool, if it directed toward the right cause, and this would send a signal of the importance of investment.

Second, Obama should come out in favor of countercyclical regulatory policy. We should accelerate the regulatory approval process during periods of economic weakness to boost corporate investment, just as countercyclical monetary and fiscal policy have been used to stimulate consumer spending. This is a message that has to be sent from the top to encourage regulators to consider the effects of their action on the economy.
The potential list of policies to boost investment goes on and on, including targeted infrastructure spending, as I described in my previous Atlantic piece, and perhaps a rationalization of the corporate tax code.

But what’s important is that none of these policies is about boosting consumer spending. If we want Americans to prosper, we need consumer spending to become less important to the economy, not more. In the end, we need a production economy, not a consumption economy.

The piece was originally written for the Atlantic.

Photo credit: Grace

Stimulus for Entrepreneurs

Posted on by The Progressive Policy Institute

The debt-ceiling stalemate is distracting policymakers’ attention from what should be their number one economic priority: putting Americans back to work. Big jolts of conventional stimulus, through public spending or tax cuts, are off the table for now, but Washington could try a different tack — stimulating entrepreneurship.

So says economist Robert Litan of the Ewing Marion Kauffman Foundation, who unveiled last week a creative menu of proposals for rebooting America’s entrepreneurial spirit. These ideas have been incorporated into the Startup Act, a bipartisan proposal endorsed by an unlikely pair of political bedfellows, House Majority Leader Eric Cantor (R-Va.) and Senator Jon Tester (D-Mont.)

Litan’s offering came on the heels of a new Kauffman study that shows why Congress should be thinking about ways to spur entrepreneurship. Startup job growth, which Kauffman says is the main engine behind net job growth in the United States, has been slowly declining. This drop began before the Great Recession. What’s more, the survival rate of new firms is declining, along with the number of jobs created on average by new startups.

No one seems to know why start-ups have been losing momentum. But Litan, also a senior fellow at the Brookings Institution, argued that public policy can be a catalyst for new business creation, just as it can also put obstacles in the way of entrepreneurs. The Startup bill’s provisions fall in four main baskets: selective immigration reform, easier access to capitol, streamlining the commercialization of new ideas, and resetting the regulatory burden on businesses.

Immigration reform: The bill advocates green cards for any foreign student that completes a STEM (science, technology, engineering, and mathematics) degree at a U.S university and more easily available visas for non-American future entrepreneurs. Litan specifically suggested targeting talented individuals currently working in America on 6-year H-1 visas, a demographic that starts new firms at a higher rate than the rest of the workforce, as an easy starting point for reform.

Financing startups: At a time when credit is tight, the bill would generate capital to finance new startups from two sources: tax breaks and easier access to public markets. It proposes a capital gains exemption for long-term investments (those held over five years) in startups with a market value of less than $50 million. To give more startups a fighting chance to survive, the bill also would exempt them from the corporate income tax for the first five years. In addition, the act suggests would allow shareholders of startups under $1 billion in market value to decide whether or not to comply with the Sarbanes-Oxley Act, arguing that the cost of compliance for startups far outweighed any benefits compliance could provide.

Patent Reform: The bill also endorsed recent patent reform passed by both the House and Senate designed to make the process more efficient. Under this approach, smaller startups would be allowed to pay less for a priority patent review.

Regulatory Reset: Finally the plan calls for regulatory reform as well as data collection on individual states – ranking them on how well they create a favorable climate for startups. It would require a cost-benefit analysis for all proposed rules and subject them to automatic, 10-year sunset requirements. State rankings would provide states with the motivation to decrease their regulatory burden and attract more new business.

At a recent forum, Litan noted that the government seems to be out of fiscal policy bullets to jolt the economy back to life. By creating a climate more conducive to the birth and survival of new firms, however, the U.S. could spur job creation at a relatively modest cost that won’t break the bank.

Photo Credit: Ewing Marion Kauffman Foundation

Natural Gas Reconsidered

Posted on by The Progressive Policy Institute

During the past few years, the United States has received an unexpected energy windfall: put simply, we have a lot more natural gas than we previously thought. This realization is altering America’s energy future in a fundamental way. For many years, the conventional wisdom was that natural gas would play an important role as a bridge fuel but then fade away as the U.S. and the world turned to renewable sources of energy later in the 21st century.

Recent discoveries of enormous gas reserves in the United States offer a very different vision for the future of natural gas. Expanding domestic production will resolve the primary issue that is presently keeping natural gas from becoming the dominant energy resource in the U.S.: the inadequacy of supplies to guarantee long-term availability at reasonable and predictable prices. Yet a recent report by the MIT Energy Initiative estimates that U.S. reservoirs may contain enough natural gas to meet the demand for 90 to 100 years at current consumption levels with much less price volatility.

New technology enabling the extraction of natural gas from shale has been called the most significant energy innovation this century; this discovery has spurred the expansion of U.S. natural gas production. Technology developed primarily in the United States has made the dramatic expansion of U.S. natural gas resources possible. Further technical improvements may enable an even larger expansion of our natural gas resources. ExxonMobil, a company nearly synonymous with oil, now predicts that natural gas will be the fastest growing major fuel source worldwide through 2030. Clearly, something very significant has happened in the world of energy.

Read the entire policy brief here.

PPI Policy Brief: Is the FDA Strangling Innovation?

Posted on by The Progressive Policy Institute

As the key gatekeeper for pharmaceutical and device innovation, the Food and Drug Administration (FDA) has a tough job. If it is too lenient, it will allow the sale of drugs and medical technology that could harm vulnerable Americans. Too tight, and the U.S. is being deprived of key innovations that could cut costs, increase health, and create jobs.

With this in mind, this paper addresses the question: Is the FDA unintentionally choking off cost-saving medical innovation? First, I discuss the difficulty of assessing whether the FDA is under-regulating or overregulating new drugs and devices, given the desire for safety. I then show how the FDA is clearly applying “too-high” standards in the case of one noninvasive device currently under consideration—MelaFind, a handheld computer vision system intended to help dermatologists decide which suspicious skin lesions should be biopsied for potential melanoma, a lifethreatening skin cancer. I then draw analogies to development of the early cell phones and personal computers.

Read the entire policy brief.

As Obama Prepares to Speak, PPI Hosts Tax Reform Forum

Posted on by The Progressive Policy Institute

Today, President Obama is speaking on long-term deficit reduction. He’s expected to embrace the National Commission on Fiscal Responsibility and Reform’s general framework (also known as Bowles-Simpson).

Yesterday, the Progressive Policy Institute joined forces with the Moment of Truth Project to host an event to discuss what comprehensive tax reform should look like, and what it will take to get it passed. (Moment of Truth was formed by Fiscal Commission co-chairs Erskine Bowles and Sen. Alan Simpson to build momentum behind the commission’s deficit reduction plan.)

Yesterday’s event, at Johns Hopkins University, helped build the momentum for reform. There was wide consensus that tax reform will need to be bipartisan and comprehensive, and will need to scale back most of the $1.1 trillion in tax expenditures. Tax expenditures are at the heart of the “modified zero plan,” which would eliminate or scale them back, and use the savings to cut individual and corporate tax rates, as well as budget deficits.

Coinciding with the event, PPI released a policy memo on the modified zero plan, written by PPI Senior Fellow Paul Weinstein and Marc Goldwein of the Committee for a Responsible Budget, and both formerly of the Commission. Both were on hand.

Yesterday’s forum event featured three Senators who have been leading the charge for reform – Michael Bennet (D-Colo.), Ron Wyden (D-Ore.) and Dan Coats (R-Ind.) – and one CEO and Fiscal Commission member, Dave Cote (CEO of Honeywell). They provided the big picture framing, so I’ll summarize the highlights of their remarks first, and then delve into the two panels of experts second.

Sen. Bennet kicked off the event with stories from the town halls he’d been spending the last two years doing: “In every single meeting, debt and deficit came up,” he said. “There’s a deep skepticism that if we can’t figure out how to pay our bills, it suggests a lack of confidence in our government and our elected leaders, and it’s fairly well-placed.”

Bennet offered three criteria for what a deficit reduction plan would have to accomplish to pass muster with voters. First, it would need to be comprehensive. “People know we can’t fix this overnight, but they want it to be comprehensive.”; Second, sacrifice has to be shared: “They want to know that we’re in this together, and everybody has a share of the burden.”; Third, it has to be bipartisan.

Coats laid out a similar series of principles for the legislation that he has introduced with Senator Wyden. First, he said, echoing Bennet, it has to be bipartisan. Second, it has to be revenue neutral. Third it has to be simple (“Right now we’ve got 71,000 plus pages of tax code, 10,000 plus special preferences and deductions. It’s a nightmare.) Fourth, it has to help out the middle class, and help families to save money for college, and help charitable organizations. And fifth and finally, “this has to be based on a principle of growth…the bottom line is it has to lead to jobs.”

Wyden looked at the problem through the lens of tax simplification, noting that as April 15 approaches, “Americans are going through the 6 billion hours they spend each year filling out tax forms — 690,000 years is what you have in an annual effort going through the water torture of figuring out if line 9 is modifying line 7.”

Wyden also stressed that any tax reform also needed to encourage investment in what he called “red-white-and-blue jobs” – that is, solid American jobs, preferably in manufacturing. Wyden called his bill fundamentally a jobs bill.

Cote, CEO of Honeywell, echoed similar themes in his remarks. “We need a global competitiveness agenda for the U.S.” he began. “Our corporate tax system is globally uncompetitive. We have the highest tax rate in the world, and we’re the only major country with a territorial system that encourages companies to keep their cash overseas. And we give back $1.2 trillion in what is euphemistically named ‘tax expenditures,’ but just another form of spending that’s done through the tax code.”

Echoing the urgency of the Senators, Cote posed the looming crisis this way: “The debt problem can get resolved one of two ways. We can do it now and do it thoughtfully, or the bond market can force us t do it, like Greece and Portugal.”

Moving to the policy substance, the first panel featured Paul Weinstein, PPI Senior Fellow, Diane Rogers of the Concord Coalition, Alan Viard of the American Enterprise Institute, and Howard Gleckman of the Tax Policy Center as moderator

Weinstein gave the quick version and backstory of the “modified zero plan,” which is the subject of a new PPI memo Weinstein co-authored. As the name might suggest, it began as the “zero plan,” which was the name the deficit commission gave the plan that reduced all tax expenditures to zero, saving $1.1 trillion in deductions, credits, and deferrals. The “modified zero plan” put back in only a few consensus tax expenditures, like the EITC, a mortgage deduction, a charitable contribution deduction.

“The rates are lower, it simplifies the tax code to fewer incentives and helps reduce tax avoidance and mistakes,” explained Weinstein. “Obviously the revenue increases get bigger and bigger over time. We estimate $800 billion over ten years.”

Rogers responded favorably to the plan. “I like the approach. There’s something for everyone to love,” she said. “Liberals should like it because it’s progressive and better than having to cut direct spending. Conservatives should like it because it’s an economically efficient way to raise revenues, and it doesn’t raise the size of government. It reduces the size of government.”

Viard gave it two cheers. He called it “Well-specified and thoughtful. This is one of the best approaches you can have with an income-based tax system that includes a separate corporate income tax.” Viard’s stated preference was for a value-added tax (VAT), though the subsequent discussion highlighted how difficult the politics of transitioning to a VAT would be. (Rogers put it this way: “we should work within the existing system first.”)

As the discussion shifted into the politics of policy, there was general agreement that tax reform terminology is confusing to the general public, and any discussion of tax expenditures is going to lead to thousands of interest groups begging to keep their favorites. And again, there was agreement that it needs to be comprehensive. “Tax reform can’t be done unless it’s in the context of deficit reduction,” said Weinstein. “You need to look at the whole apple.”

The second panel featured Leonard Burman of Syracuse University, Marc Goldwein, of the Committee for a Responsible Federal Budget, Joseph Minarik of the Committee for Economic Development and Derek Thompson of The Atlantic as moderator.

Goldwein began by reiterating the consensus: “The current income tax code is a mess. There is a consensus to broaden the base, and reduce the rates, and don’t keep tax expenditures that aren’t worth their cost.”

But how to do that? Burman argued that ending tax expenditures would require not referring to them anymore as tax expenditures. “We need to change the fiscal language. I sometimes call them IRS pork,” he said. “Part of the problem is mischaracterizing tax expenditures. Some people think that by putting new tax expenditures in the code you’re making government smaller, but what you’re doing is just spending more money and making taxes higher to achieve a given level of revenue.”

Minarik, a grizzled veteran of tax fights, highlighted the fact that the inside-the-halls negotiating in Congress is very different from the “outside” formulating that goes on at events like this, and reminded everyone that the simpler the solution, the easier it will be to pass. In that respect, he said, a fifth-best solution that’s simple and straightforward is better than a second-best solution that can lead to more complicated politics.

More Regulatory Overreach at the FCC

Posted on by The Progressive Policy Institute

Imagine that you had an industry where customer satisfaction was increasing faster than any other part of the economy. Now imagine that the same industry showed rising real investment, even during the worst recession in 75 years. Finally, imagine that industry charged falling prices for both consumers and businesses.

But of course, that industry is not imaginary: The telecom industry, and in particular the wireless sector, has outperformed the rest of the economy on key measures such as customer satisfaction, investment, and price. Moreover, at a time when President Obama is calling for more innovation, the wireless industry has produced more genuine new products and services than anyone else.

So given the great performance of the industry during this tough period, why the heck does the Federal Communications Commission keep imposing additional regulations on wireless providers? The latest case of regulatory overreach: On April 7, the FCC issued an order forcing the big wireless providers to sign ‘data-roaming’ agreements with smaller carriers. In effect, the smaller carriers can now tell their customers that they could have data service all over the U.S., free-riding on the mammoth investments by the big carriers. In addition, the FCC made it clear that it is willing to set the price for each data roaming agreement if it doesn’t like what the big carriers are offering–effectively reinstituting price regulation for the most dynamic sector of the economy.

This aggressive regulatory move by the FCC follow its enactment of confusing ‘net neutrality regulations’ in December 2010, an 87-page order that raises more questions than it resolves. And then coming down the road is the ‘bill shock’ regulation. In order to address the rather rare and fixable problem of a surprisingly high bill, this regulation would force providers to spend scarce investment dollars on revamping their billing system rather than building out their networks.

In many ways, enacting this series of regulations is like throwing pebbles in a stream. One pebble doesn’t make much of a difference, but throwing enough pebbles in the stream can dam it up.

Frankly, the degree of regulation that the FCC wants to impose is more appropriate to a failing industry rather than one which is demonstrably successful and growing. Let’s just run through the performance of the telecom/wireless industry over the past five years. According to the American Customer Satisfaction Index, satisfaction with wireless service has increased by 14% over the past five years, by far the biggest jump of any industry.

Now let’s look at investment. The data on investment is somewhat fuzzier than for satisfaction, since the government’s figures on industry investment only run through 2009, and merges the telecom and broadcasting industries.

But here’s what we see: In the telecom/broadcasting industry, real investment in equipment and software is up 30% since 2005, despite the turbulence of the financial crisis. By contrast, overall private sector real investment in equipment and software is down 8% over the same period.

And then of course the price of wireless service keeps falling. The latest figures from the Bureau of Labor Statistics say that consumer wireless prices are down 6% since 2011, and business wireless prices are down a lot more.

Right now the FCC has the good fortune to preside over one of the few growing industries in the economy. If the commissioners genuinely want to support innovation and growth, they should stop throwing regulatory pebbles into the stream.

Crossposted at Mandel on Innovation and Growth

We Can Do Better on an Oil Spill Liability Cap Compromise

Posted on by The Progressive Policy Institute

Last year’s Deepwater Horizon oil spill revealed not just technological problems, but policy gaps as well. Among the most notable of these gaps is the federal limit on liability for oil spills, set at $75 million for offshore facilities. This is three or four orders of magnitude smaller than the damages associated with a major offshore spill like Deepwater Horizon, whose damages are estimated in the tens of billions. Firms that cause more damage than the limit aren’t liable, at least not under federal law. It is only BP’s decision to waive this limit that has kept it from being a much larger problem.

But we may not be so lucky next time, and the spill has greatly increased pressure to increase or eliminate the cap. I and my colleagues at Resources for the Future have written on this and, most notably, the President’s Commission on the spill recommended significantly raising liability caps. Congress could not agree on a measure to do so last year, however, and urgency ebbed in the election season. The problem still exists, however, and discussions in Congress have begun again. The latest development is a potential compromise between Democratic Sens. Mark Begich and Mary Landrieu. But unfortunately, this compromise is likely to make the situation worse, not better.

The Begich/Landrieu compromise has two elements: first, it raises the liability cap to $250 million. This is relatively meaningless given the size of large-spill damages, but let’s set that obvious objection aside for now. The deeper problems with the compromise exist even if the cap number is much higher. The second element is a kind of insurance pool, funded by contributions from all drilling firms, that would cover spill damages above the cap level.

This insurance pool creates problems that undermine any benefit from an increased cap. The first is moral hazard – liability works because, by forcing wrongdoers to pay for damages they cause, it creates incentives to avoid dangerous or negligent activity. But when liability is pooled, these incentives are blunted. Under the compromise, if a firm spilled oil that caused damage over $250 million, it would not pay much for these “excess” damages – but its competitors would. In a sense, the pool lets firms outsource the costs of their dangerous activity, and therefore erases much of the incentive to avoid it. This “moral hazard” is a recognized problem with insurance and particularly pooled insurance. There are ways to deal with it, but it is impossible to resolve it entirely.

But this isn’t the only way the compromise would kill firms’ incentive to operate safely. It would also undercut spill victims’ only real remedy under current law. Critics of the federal spill liability cap often forget that it isn’t the only game in town – spill victims can sue under state law. And with the big exception of Louisiana, state law has no liability caps at all. This means that victims can recover damages even beyond the federal cap levels. Now federal caps do still matter – for procedural reasons and due to protections offered under federal law, it is a better route for most victims. And of course Louisianans are out of luck under either law.

But if there is an insurance pool, victims won’t pursue claims under state law. No good lawyer would advise them to do so when they could just recover from the insurance pool. State liability laws would become largely meaningless, and any incentives they give firms to operate safely would fade. This makes the moral hazard problem even worse. The only remaining reasons for firms to prevent major spills would be avoiding bad press and cleanup costs (which aren’t covered under the caps). And that’s not likely to be enough to increase safety investments, as the recent spill has shown is necessary.

The spill illustrated something we probably should have recognized earlier – that our liability policy for oil spills is totally inadequate. The liability cap was too low when it was passed, and it is far too low now. There’s a very strong case that we shouldn’t have one at all.

But changes to the liability cap won’t happen without compromise. It’s a good thing that legislators continue to discuss the issue and are making such compromises (though getting Republicans on board will be necessary eventually). But whatever political benefits the Landrieu/Begich compromise has, it’s bad policy. It will make the problems with current liability policy worse, not better. The senators risk expending political capital only to make the Gulf less safe. Oil companies and the legislators that champion them may still oppose this compromise, but there will be a certain amount of Br’er Rabbit and the briar patch in their cries. Even if politics means an ideal spill liability policy is impossible, we can do better than this.

The views expressed in this piece do not necessarily reflect those of the Progressive Policy Institute.

Obama Gets His Comeuppance For Failing the Lobbying Purity Test

Posted on by The Progressive Policy Institute

If you search through the White House visitor logs, you can find me. In fact, I’ve been to the Obama White House twice (though I seem to have two records for the same visit). Let me explain: A good friend of mine worked at CEQ for a while. Once, she took some friends on a tour of the White House. Once, we went to see the Christmastime decorations at the East Wing. However, if I had visited this friend at her office, which was not the White House but instead at Jackson Place, there’d be no trace of me in the White House visitor logs.

Yesterday, Politico ran a story noting this fact and insinuating that lobbying meetings were intentionally being moved to Jackson Place, or to the nearby Caribou Coffee on 17th Street, just so that they wouldn’t show up in the visitor logs. Many bloggers, especially those on the right have jumped all over Obama for this supposed hypocrisy. The ever-clever Michelle Malkin triumphantly rhymed: “Obama lied, transparency died.” Common Cause asked Obama to disclose every meeting regardless of where it occurs.

Now, I really don’t know if the Administration moved meetings off-campus so that they didn’t show up in the visitor logs. It seems to me like a silly thing to do. I’m trying to imagine what visitor would be so terrible that his or her presence in the visitor logs would be an instant scandal. I can’t. Based on what I know about the scarcity of space in the White House, I’m willing to buy the rationale that meetings were held elsewhere just because that’s where space could be found.

But I can see why people in the White House might be unnecessarily sensitive about who they are meeting with. The problem is that from Day One, when the Administration placed a ban on registered lobbyists serving in the White House, it tried to place itself somehow above and beyond the influence of lobbyists.

But as anybody who has spent any time in Washington knows, lobbyists are part of the policymaking fabric in this town, like it or not. To try to govern without at least getting their input and occasional buy-in is simply impossible. There are reasons to be concerned about their influence and power, but simply demonizing them as to-be-avoided-at-all-costs is not helpful, and almost certainly counter-productive.

In many ways, Obama has held himself to a standard that was far beyond reach. Of course he wasn’t going to rid Washington of special interests. But that’s politics. Everybody comes to Washington to change the way business is done. Nobody is ever powerful/foolhardy enough to do so.

One of the reasons that Obama was able to make White House visitor logs public is because the Secret Service keeps close track of everyone going in and out of the White House. When I’ve visited, somebody had to see my ID and check me in. What I can glean from yesterday’s press conference transcript is that this puts me into something called the “the WAVES system.” And when you’ve got an electronic database, it’s easy to make it public. And there’s no reason not to do so.

Maybe meeting disclosure should extend to Jackson Place. Maybe it should extend to Caribou Coffee. Should it extend to every phone call? Every kid’s soccer game an administration staffer attends where lobbyists might have kids playing as well? Where do you draw the line?  Washington is in many respects one big social network. And lobbyists, the majority of whom once worked in government, are part of that network.

I suppose what Obama should have said from the beginning was that he was doing the best he can. He was going to make White House visitor logs public because the White House belongs to everyone, and everyone should know who is visiting. But that he also recognized that the White House is not a compound on a hill, and that disclosing visitor logs is not going to capture all the conversations he or anyone on his staff ever has with an interested party. Moreover, he could have also said that he valued the inputs of everyone, be they lobbyists or not. And that he and his staff had enough integrity, thank you very much, to cut through the self-serving BS of lobbyists.

But instead, Obama succumbed to the familiar politics of purity and moralizing when it came to lobbyists. This moment of gotcha journalism, I suppose is his comeuppance. When you hold yourself to unrealistic standards, it’s bound to come sooner or later.

Obama’s Minimalist Budget

Posted on by The Progressive Policy Institute

President Obama’s new budget is a highly tactical exercise in fiscal minimalism. It proposes just enough spending cuts to be plausible, while putting off the critical work of tax and entitlement reform. Its unspoken premise seems to be: Given the ax-wielding frenzy that grips House Republicans, the best the White House can do now is to frame the fiscal debate on terms favorable to progressives.

The President’s $3.7 trillion budget would trim federal deficits by just over $1 trillion over the next decade. To the chagrin of liberals, the budget proposes to reach this total through a formula of two-thirds spending cuts, one-third tax cuts, rather than a 50-50 split. Also, it limits military spending growth without cutting specific programs. Meanwhile, the blueprint freezes discretionary spending for five years, and cuts over 150 programs, for $25 billion in budget savings next year. In short, the toughest discipline falls on domestic spending, so expect howls of betrayal from the left.

For all that, however, the Obama proposal would still leave us with deficits over 3 percent of GDP in 2020, while doing nothing to brake the runaway growth of costs for Medicare, Medicaid or Social Security, which account for 40 percent of the budget. These costs, propelled by soaring health care prices and demographics, and growing automatically each year, are what drive our nation’s long-term debt crisis.

The new budget does stabilize the national debt, but at a level – 77 percent of GDP – that most economists believe is well above what’s good for our fiscal health. It’s getting panned by deficit hawks. “This budget fails to meet the Administration’s own fiscal target, it fails to tackle the largest problem areas of the budget, and it fails to bring the debt down to an acceptable level,” said Maya MacGuineas of the Committee for a Responsible Federal Budget.

Over the weekend, GOP leaders lambasted Obama for not embracing the much more robust and comprehensive recommendations of his own Fiscal Commission. Its plan would cut deficits by $4 trillion by 2020, make big reductions in tax expenditures, and trim future Social Security and Medicare benefits for the well-off. Bear in mind that, even as they criticize the President’s fiscal pusillanimity, House Republicans have rejected the Fiscal Commission blueprint, oppose tax increases of any kind, and are engaged in an Alphonse-and-Gaston routine with the White House over who should go first on entitlement reform.

Nonetheless, the Commission’s Democratic co-chairman, Erskine Bowles, also expressed disappointment that the President hasn’t used its work as the point of departure for a serious push to restore fiscal stability in Washington. He accurately called the President’s proposal “nowhere near where they will have to go to resolve our fiscal nightmare.”

The administration apparently is calculating that its modest deficit-reduction proposal has several tactical advantages. First, it may better reflect the public’s actual appetite for fiscal restraint. The same polls that show strong public support for reining in public deficits also find majorities opposed to major program cuts. Second, and relatedly, the White House wants to contrast its moderate approach to GOP austerity zealots, who have launched a single-minded jihad against government spending. Once the public tumbles to the implications of the GOP’s demands for $100 billion in domestic program cuts now, Democrats reason, they will recoil and demand a more balanced approach that includes defense cuts and tax hikes.

That seems likely. Republicans have convinced themselves that most Americans share their goal of shrinking government by cutting off its credit card. “The country’s biggest challenge, domestically speaking, no doubt about it, is a debt crisis,” House Budget Committee Chair Paul Ryan said this weekend.

But progressives believe that Americans – especially the independents and moderates who abandoned Democrats in the midterm election – are even more concerned about the scarcity of good jobs and America’s eroding competitiveness. More than fiscal stringency, they are looking to their leaders for a hopeful plan to jumpstart the stalled U.S. job machine.

The President’s budget accordingly makes room for significant new public investments, especially in infrastructure, innovation, and education. He wants to spend $53 billion over the next six years on high speed rail, and invest $50 billion in capitalizing a National Infrastructure Bank. The GOP’s knee-jerk dismissal of such strategic investments as just more government waste is wrong as a matter of economics, and it leaves conservatives without a credible theory for how they would rekindle economic growth.

So maybe Obama is right to stand back and give Republicans all the fiscal rope they need to hang themselves from the tree of uncompromising budget austerity. But his Fiscal Commission, which labored diligently and successfully to find some fiscal common ground between the parties, especially on scaling back tax expenditures, deserves better from him. And sooner rather than later, the President will have to step up and lead on entitlement reform, a national imperative that can no longer be safely deferred.

End Separate War Spending

Posted on by The Progressive Policy Institute

It’s federal budget season. Before you doze off, stick with me: there’s a deceptive budgetary maneuver that is costing you billions in defense dollars, forcing progressive members of Congress into uncomfortable votes on Iraq and Afghanistan, and defying every historical precedent in Pentagon budgeting.

This maneuver is the supplemental appropriation for war funding. Every year since the United States launched military operations in Afghanistan in response to the September 11th attacks, Congress has appropriated separate funds for unanticipated wartime costs in addition to the Pentagon’s baseline budget. In some years, only one extra war spending bill is approved; in 2010, two supplemental appropriations were passed.

Supplemental war funding appropriations are hardly new, beginning in World War II. When used correctly, the process serves as a vital tool that delivers timely funding to America’s fighting men and women. In the initial stages of combat, supplemental appropriations are extraordinarily useful in the face of the lengthy Congressional budget process, which does not allow for unanticipated military spending. Typically, the supplemental funds pay for pre-deployment costs, servicemembers’ transportation to the warzone, combat operations, equipment needs, and military construction. Without this tool, the Pentagon would essentially be forced to sacrifice long-term projects to meet immediate wartime needs.

Here’s the rub: Under the Bush administration, allegedly “emergency” supplemental appropriations for war costs became routine avenues for backdoor spending. Their opaque nature and lack of oversight have created a propensity to fund low-priority programs that has effectively eroded any sense of fiscal discipline at the Pentagon, bloating military spending. We must put an end to the practice

The Department of Defense (DoD) is the unquestioned champion of discretionary spending—money the government chooses to spend, rather than is obliged to pay for entitlements like Medicare, Medicaid, or Social Security. With more than $700 billion in discretionary funds available, the Pentagon far outpaces its nearest competition, the Department of Health and Human Services, at $80 billion.

Since 2001, the Congressional Research Service (CRS) estimates that Congress has approved $1.12 trillion in supplemental appropriations, 90 percent of which—$1.01 trillion—has been destined for the Department of Defense. One estimate is that Congress has no control over one-fifth of supplemental war spending; therefore, a rough calculation suggests that some $200 billion has been wasted in 10 years.

While those on the extreme left and in the Tea Party would like to see slashes in the Pentagon’s spending, what DoD’s budget really needs is not gutting, but a solid dose of discipline.

Read the policy memo

The New Centrism

Posted on by The Progressive Policy Institute

I don’t do much politics, but I feel like I have to say something about the demise of the Democratic Leadership Council, which helped bring Bill Clinton to the Presidency in the early 1990s. A lot of writers have interpreted the end of the DLC as the end of centrism, and a sign that Washington has become completely polarized.

My take is different. To me, we’re moving into a new era of centrist ideas, based around the importance of innovation and investment, creative thinking about regulation and jobs, and a greater appreciation of a global economy built around cross-border collaboration rather than “you-me” economic nationalism.

Rather than the center disappearing, I think we’re going to start seeing both left and right start drawing on ‘new centrist’ ideas. Let me just give a few of them:

*The importance of innovation for driving economic and job growth. When businesses try and innovate, we should reward rather than punish them, especially given the innovation shortfall of the past decade.

*The need to  think about investment in broad terms, including human capital and knowledge capital. Our conventional economic statistics, which measure only physical investment, are giving us a misleading view of the economy.

*The need to understand the true nature of the long-term fiscal and entitlement problem: The long-term rise in medical spending is a total reflection of falling or flat productivity in the healthcare sector. If we can fix that–through a combination of techological advances and institutional change–we can in effect grow our way out of the entitlement problem.

*The importance of rising real wages for young educated workers as a sign of the health of the economy. Real wages for young college grads have been falling since 2000–we cannot operate a modern economy this way, because our young people can no longer afford to pay for the education they need.

*The need to find some way to lessen the burden of regulation without losing touch with our social values. We need a systematic process for examining the thousands of regulations and carefully adjusting or removing the ones that slow down growth, while protecting public health, safety, and the environment.

*The need to think about the global economy in terms of supply chains which cross national borders. The U.S. needs to make sure that we are part of global supply chains and that we are getting our fair share of the benefits.  And we need new measures of competitiveness that take account of the new world.

This piece is cross-posted at Mandel on Innovation and Growth

Another Look at the Leveling Off of Lobbying

Posted on by The Progressive Policy Institute

The Washington Post’s reporting on the apparent leveling off of Washington lobbying expenditures has a misleading but telling lede: “Could the great lobbying gold rush be over?”

The more banal misunderstanding tied up in this framework is the tendency to overhype small changes, which,  of course, is the nature of a news business in which every new piece of information demands a story. But if lobbying is indeed a gold rush (more on this shortly), it’s hard to see how this gold rush could be over when organizations are still spending $9.5 million a day (or $3.5 billion a year) on it.

Rather, given the amount of money that is still spent, it seems like it’s still very much a booming business, and as I’ve written before, my strong guess is that this is but a hiccup in what has been and will continue to be a steadily increasing interest in lobbying. Any speculation about the demise of lobbying is presumably much over-rated.

The more significant misunderstanding is that lobbying is a gold rush, and I think this is a more pervasive misunderstanding. Do companies and other organizations come to Washington to pursue special programs, earmarks, tax breaks? No doubt many do, and this is a non-trivial part of the lobbying business.

But look at who the heaviest spenders on lobbying are, and you’ll not find a lot of gold rushing.

I stole the excellent chart below from the Center for Responsive Politics, which does an invaluable service in collecting federal lobbying data.

Client 2010 Total 2009 Total Difference % Change
U.S. Chamber of Commerce $132,067,500 $144,496,000 -$12,428,500 -8.6%
PG&E Corp. $45,460,000 $6,280,000 $39,180,000 623.9%
General Electric $39,290,000 $26,400,000 $12,890,000 48.8%
FedEx Corp. $25,582,074 $16,370,000 $9,212,074 56.3%
American Medical Association $22,555,000 $20,720,000 $1,835,000 8.9%
AARP $22,050,000 $21,010,000 $1,040,000 5.0%
PhRMA $21,740,000 $26,150,520 -$4,410,520 -16.9%
Blue Cross/Blue Shield $21,007,141 $23,646,439 -$2,639,298 -11.2%
ConocoPhillips $19,626,382 $18,069,858 $1,556,524 8.6%
American Hospital Association $19,438,358 $18,347,176 $1,091,182 5.9%
Boeing Co. $17,896,000 $16,850,000 $1,046,000 6.2%
National Cable &
Telecommunications Association		 $17,710,000 $15,980,000 $1,730,000 10.8%
National Association of Realtors $17,560,000 $19,477,000 -$1,917,000 -9.8%
Verizon Communications $16,750,000 $17,680,000 -$930,000 -5.3%
Northrop Grumman $15,740,000 $15,180,000 $560,000 3.7%
AT&T Inc. $15,395,078 $14,729,673 $665,405 4.5%
United Technologies $14,530,000 $8,100,000 $6,430,000 79.4%
National Association of Broadcasters $13,710,000 $11,090,000 $2,620,000 23.6%
Pfizer Inc. $13,330,000 $25,819,268 -$12,489,268 -48.4%
Southern Co. $13,220,000 $13,450,000 -$230,000 -1.7%

First, it’s worth noting that that among these top 20 lobbying organizations, two-thirds (65 percent) of these organizations spent more on lobbying in 2010 than they did in 2009.

But more importantly, it’s worth peeking under the hood of these numbers and seeing what it means to spend eight or nine figures on lobbying.
Last year was certainly not a gold rush for The Chamber of Commerce, which accounts for four percent of all lobbying. Mostly, I suspect they’ve been playing quite a bit of defense, trying to shape intellectual environment by spinning narratives and doing everything they can to advance a free-market, pro-business perspective.

If you take a look at one of the Chamber’s quarterly lobbying reports from last year, you should be impressed at the length of the thing. The first quarter report runs 92(!) pages.

Here are the listings from a sample page, listing the Chamber’s lobbying on a single issue, category: “ENG – ENERGY/NUCLEAR”:

H.R. 3246/ S. 2843, Advanced Vehicle Technology Act of 2009 H.R. 3534, Consolidated Land, Energy, and Aquatic Resources Act of 2009 H.R. 5320, Assistance, Quality, and Affordability Act of 2010, including an amendment by Rep. Diana DeGette which would establish disclosure requirements regarding materials used in the hydraulic fracturing process S. 1462, American Clean Energy Leadership Act of 2009 S. 1792, A bill to amend the Internal Revenue Code of 1986 to modify the requirements for windows, doors, and skylights to be eligible for the credit for nonbusiness energy property S. 2818, A bill to amend the Energy Conservation and Production Act to improve weatherization for low-income persons, and for other purposes S. 3177 / H.R. 5019 / S. 3434, Home Star Energy Retrofit Act of 2010 S. 3072, Stationary Source Regulations Delay Act S. 3663, Clean Energy Jobs and Oil Company Accountability Act of 2010 S. J. Res. 26, A joint resolution disapproving a rule submitted by the Environmental Protection Agency relating to the endangerment finding and the cause or contribute findings for greenhouse gases under section 202(a) of the Clean Air Act

Clean Energy Jobs and American Power Act (bill number not yet assigned) Department of the Interior, Environment, and Related Agencies Appropriations Act, 2011 (bill number not yet assigned)

Draft climate legislation expected to be sponsored by Senators Kerry, Graham, and Lieberman (not yet introduced) Draft legislation to provide incentives to deploy nuclear power (not yet introduced) Various issues relating to the Kerry-Lieberman “American Power Act” (draft legislation, not yet introduced) Legislation to reauthorize the “Diesel Emissions Reduction Act” (not yet introduced)

NHTSA Proposed Rulemaking on Notice of Intent to Prepare an Environmental Impact Statement for New Medium- and Heavy-Duty Fuel Efficiency Improvement Program (see June 14, 2010, Fed. Reg., Vol. 75, No. 113, Docket No. NHTSA-2010-0079) EPA Proposed Rulemaking on National Ambient Air Quality Standards for Ozone (see January 19, 2010, Fed. Reg., Vol. 75, No. 1, Docket ID No. EPA-HQ-OAR-2005-0172) EPA Proposed Rulemaking on Identification of Non-Hazardous Secondary Materials That Are Solid Waste (see Januaray 2, 2009, Fed. Reg., Vol. 75, No. 107, Docket No. EPA-HQ-RCRA-2008-0329) EPA Proposed Rulemaking on National Emission Standards for Hazardous Air Pollutants for Major Sources: Industrial, Commercial and Institutional Boilers and Process Heaters (Boilers MACT) (see June 9, 2010, Fed. Reg., Vol 75, No. 110, Docket ID: EPA-HQ-OAR-2002-0058)

General issues including: policy for storing nuclear waste, the Department of the Interior’s moratorium on offshore oil and gas exploration in the Gulf of Mexico, DOE Loan Guarantees for Rare Earth Elements, and Endangerment and Cause or Contribute Findings for Greenhouse Gases Under Section 202(a) of the Clean Air Act (specific legislation not yet introduced)

Or similarly, here are the listings for “CSP – CONSUMER ISSUES/SAFETY/PRODUCTS”

H.R. 1521, Cell Tax Fairness Act of 2009 H.R. 2271, Global Online Freedom Act of 2009 H.R. 2309, Consumer Credit and Debt Protection Act H.R. 2221, Data Accountability and Trust Act H.R. 690 / S. 144, Modernize Our Bookkeeping In the Law for Employee’s Cell Phone Act of 2009 H.R. 3458, Internet Freedom Preservation Act of 2009 H.R. 2267, Internet Gambling Regulation, Consumer Protection and Enforcement Act H.R. 3924, Real Stimulus Act of 2009 H.R. 3126, Consumer Financial Protection Agency Act of 2009 H.R. 6038, Financial Industry Transparency Act of 2010 H.R. 4173, Dodd-Frank Wall Street Reform and Consumer Protection Act of 2009, all issues pertaining to Title X, the Consumer Protection Bureau H.R. 5777, To foster transparency about the commercial use of personal information, provide consumers with meaningful choice about the collection, use, and disclosure of such information, and for other purposes (BEST PRACTICES Act) H.R. 1346 / S. 540, Medical Device Safety Act of 2009

S. 139, Data Breach Notification Act S. 43, Permanent Internet Tax Freedom Act of 2009 S. 773, Cybersecurity Act of 2009 S. 1490, Personal Data Privacy and Security Act of 2009 S. 1192, Mobile Wireless Tax Fairness Act of 2009 S. 788, m-SPAM Act of 2009 S. 1597, Internet Poker and Game of Skill Regulation, Consumer Protection, and Enforcement Act of 2009 S. 3155 / H.R. 4962, International Cybercrime Reporting and Cooperation Act S. 3480, Protecting Cyberspace as a National Asset Act of 2010 S. 3386, Restore Online Shoppers’ Confidence Act S. 3742, Data Security and Breach Notification Act of 2010 S. 3579, Data Security Act of of 2010

Legislation Regarding Offline and Online Privacy (draft released by Rep. Boucher)

What impresses me is the sheer range of issues on which the Chamber is lobbying. The Chamber has the resources to make sure that every time a piece of legislation comes up that touches on some aspect of the broader business community, it can get in to see the right folks to explain why a particular piece of legislation would be good or bad for business, and help people on the Hill to “improve” legislation in a way that the Chamber approves of. There’s something to be said for being ubiquitous, I’m sure.

General Electric, third on the list, also has a similarly expansive quarterly lobbying report at 35 pages, covering an impressive range of issues. Again, pulling from the Center for Responsive Politics, here are the areas on which General Electric lobbied in 2010:

Issues

Issue Specific Issues No. of Reports*
Defense 26 39
Fed Budget & Appropriations 23 34
Taxes 20 33
Finance 17 24
Transportation 13 19
Railroads 13 17
Copyright, Patent & Trademark 10 17
Radio & TV Broadcasting 11 16
Trade 9 14
Telecommunications 4 11
Health Issues 9 11
Energy & Nuclear Power 9 11
Environment & Superfund 7 8
Clean Air & Water 4 8
Aviation, Airlines & Airports 5 6
Banking 6 6
Labor, Antitrust & Workplace 3 6
Medicare & Medicaid 5 5
Aerospace 3 5
Advertising 4 4
Law Enforcement & Crime 3 4
Torts 2 4
Retirement 2 4
Roads & Highways 1 4
Science & Technology 3 4
Foreign Relations 1 1
Government Issues 1 1

Yes, General Electric is a major conglomerate and an important part of the American economy. But again, one can’t help but be impressed by the range of issues on which GE is lobbying. It clearly wants to be part of the debate on just about everything.

Institutions like the Chamber, GE, and others are permanent parts of the Washington policymaking community. They are not part of a gold rush, and they are certainly not going away.

More broadly, if you look at the top 20 spenders on lobbying for 2010, it turns out that they represent $524 million in expenditures, or about 15 percent of all lobbying expenditures. There are about 15,000 organizations that have hired lobbyists in Washington, but the distribution of expenditures is highly skewed: a handful of large organizations (mostly companies and business groups) dominate.

From this vantage point, lobbying in 2010 looks a lot like lobbying in 2009: Mostly dominated by a handful of large important companies and business lobbying groups who want to have a say on a wide range of issues, and more broadly, to ensure that any conversation that might impact on them does not happen without them.

When Did the Innovation Shortfall Start?

Posted on by The Progressive Policy Institute

I’m responding to the posts by Arnold Kling andcritiquing  Tyler’s The Great Stagnation. Let me just throw out some thoughts, from the perspective of someone who thinks that The Great Stagnation is a terrific book.

1. I agree wholeheartedly with Tyler that the current crisis is a supply-side rather than a demand-side problem. That explains why the economy has responded relatively weakly to demand-side intervention.

2. From my perspective,  the innovation slowdown started in 1998 or 2000, rather than 1973–sorry, Tyler.  The slowdown was mainly concentrated in the biosciences, reflected in statistics like a slowdown in new drug approvals, slow or no gains in death rates for many age groups (see my post here),  and low or negative productivity productivity in healthcare (see David Cutler on this and my post here).  This is a chart I ran in January 2010 (the 2007 death rate has been revised up a bit since then)–it shows a steady decline in the death rate for Americans aged 45-54 until the late 1990s.

The innovation slowdown was also reflected in the slow job growth in innovative industries, and the sharp decline in real wages for young college graduates (see my post here). (Young college grads, because they have no investment in legacy sectors, inevitably flock to the dynamic and innovative industries in the economy. If their real wages are falling, it’s because the innovative industries are few and far between).

3. The apparent productivity gains over the past ten years have been a statistical fluke caused in large part by the inability of our statistical system to cope with globalization, including: The lack of any direct price comparisons between imported and comparable domestic goods and services; systematic biases in the import price statistics (see Houseman et al  here, for example); and no tracking of knowledge capital flows. I’ve got several posts coming on this soon.

4. I agree with Tyler that regulation of innovation is a big problem.  That’s why I’ve suggested a new process, a Regulatory Improvement Commission, for reforming selected regulations.

5. I’m of the view that we may be close to another wave of innovation, centered in the biosciences, that will drive growth and job creation over the medium run.  If we want growth and rising living standards, we need to avoid adding on well-meaning regulations that drive up the cost of innovation.

Cross-posted at Mandel on Innovation and Growth

Reviving Jobs and Innovation: A Progressive Approach to Improving Regulation

Posted on by The Progressive Policy Institute

Today, the U.S. is suffering from a regulatory paradox: Too few and too many regulations at the same time. On the one hand, financial services were clearly under-regulated during the 2000s, making financial reform essential. Similarly, President Obama’s healthcare reform bill was a key first step to reining in medical costs.

But in other areas we see an accumulation of rules and regulations over the past decade. The trend started with the vast expansion of homeland security regulation under the Bush administration and continued through the first two years of the Obama administration.

That’s why President Obama should be applauded for issuing his executive order “Improving Regulation and Regulatory Review” on January 18. The order asked agencies to pay more attention to promoting innovation as part of the regulatory process. In addition, agencies were directed to come up with a plan for reviewing their existing significant regulations.

However, the president’s executive order did not go far enough. A regulatory ‘self-review’ process has been tried repeatedly in the past, and it’s always fallen far short of expectations. Regulators have a tough time trimming their own regulations, given internal bureaucratic pressures. But don’t blame the agencies—neither Congress nor the executive branch has a good way of reviewing and reforming existing regulations, even when they have become outdated or burdensome.

The regulatory system needs a mechanism to address this need for periodic review. We propose a Regulatory Improvement Commission (RIC), an independent body analogous to the BRAC Commissions for evaluating military base closures. This is designed to build on the president’s executive order, and in the process improve its effectiveness. The RIC will take a principled approach to evaluating and pruning existing regulations, gather input from all stakeholders (not just business or just agencies), and do so in a manner that ensures we protect public health, safety, and the environment.

Download the entire memo