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Underwater: Home Values in 2012 Battleground States

Thursday, January 19th, 2012
Jason Gold


Jason Gold is the director of the Progressive Policy Institute’s “Rethinking U.S. Housing Policy Project” and senior fellow for financial services policy.

Anne Kim


Anne Kim is the managing director for policy and strategy at the Progressive Policy Institute.

by Jason Gold and Anne Kim

As the 2012 election approaches, the nation’s unemployment rate will continue to drive the political debate and, in turn, the fortunes of President Obama and his GOP rivals.

Despite the central focus on unemployment, however, another number deserves equal attention as a barometer of the nation’s overall economic health: housing values.

As catastrophic as it is to lose a job, the percentage of Americans who are unemployed is actually exceeded by the percentage of Americans who have either lost significant wealth from their homes or are currently “underwater”—owing more on their mortgages than their homes are worth. Since 2006, Americans have lost a total of $7 trillion in housing wealth—a figure that, according to the Federal Reserve, is more than half of the nation’s aggregate home equity.

In recent days, the Obama Administration has telegraphed its intention to devote more energy to housing—and with a focus on foreclosures and defaults. While this is laudable, the Administration should not neglect a second front: the tremendous loss of housing wealth.

In this report, we make our case by analyzing home values in the 16 battleground states that will serve as the proving ground for 2012. In 15 of these states, home values have fallen by an average of 16% since October 2008. We also offer up suggestions for tackling this issue.

No doubt, every contender for the White House will have a jobs plan. But no economic plan can be complete without an equally robust plan to rebuild housing—and in particular, to rebuild housing wealth. Policies that address this loss of wealth, even for those not at immediate risk of losing their homes, makes sense both politically and economically

Negative equity: A new crisis in middle-class wealth

In a reversal of the optimism that is typical of Americans, 41% of people in a January 2012 poll—including a majority of seniors—said they feel less financially secure than last year, while just 14% said they feel more secure.

The loss of wealth—and housing wealth in particular—might help explain why.

According to the Federal Reserve’s Survey of Consumer Finances, 62.5% of families suffered a loss of wealth from 2007 to 2009. Moreover, says the Fed, “declines in home equity were an important driver of decreases in wealth.”

  • Homes made up 47.6% of the total non-financial assets held by Americans in 2009. Between 2007 and 2009, American homeowners saw their equity drop by a median of 11.8% (or $18,700).
  • From its peak in 2006, the Case-Shiller housing index (the “Dow” of home values) has fallen 32.93%, including an 11.33% decline from October 2008. Median home prices have fallen from $196,600 to $164,100.
  • As many as 12 million Americans are now “underwater” with mortgages that are more than their homes are worth.

The loss of home equity has broad implications for the nation’s economy beyond mere sentiments of economic confidence. For example, underwater homeowners can’t qualify to refinance their homes, which means they can’t take advantage of one of the Administration’s most successful monetary policies: low interest rates. A 1% lower interest rate on a $200,000 mortgage can mean $168 less in interest payments per month—money that could be spent in the broader economy on other things.

Underwater borrowers are also stuck in their homes, unable to trade up or move out (a problem that also limits job mobility). Negative equity also means no nest egg for homeowners nearing retirement, and fewer resources to draw on for households seeking to finance a new business, help a child through college or weather out a spell of unemployment or ill health.

Download the report.

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Why Obama Needs to Cut and Invest

Thursday, January 5th, 2012
Will Marshall


Will Marshall is the president of the Progressive Policy Institute.

by Will Marshall

This article is part of a a series of international responses to Policy Network‘s discussion paper In the black Labour: Why fiscal conservatism and social justice go hand-in-hand.

To most Americans, fiscal responsibility is a question of political morality. If Democrats allow the debate to be framed as a choice between more deficit spending and debt reduction, they lose

Much to the perplexity of US liberals, the politics of debt reduction dominated Washington in 2010, despite a faltering economic recovery.

No one was more incensed by the seeming illogic of this than Paul Krugman. The influential New York Times columnist railed often against “premature austerity” and urged President Obama instead to open the spigots of federal spending. It was the standard Keynesian prescription, but it betrayed a political tin ear. To a public alarmed by large-scale public borrowing and spending, it sounded like throwing good money after bad.

After 2007, US budget deficits ballooned as the Bush and Obama administrations spent heavily to bail out the big banks (plus insurance and auto companies) and counter the worst recession since the 1930s. The federal deficit, $469 billion in 2008, zoomed to an eye-popping $1.3 trillion in 2011. Coming on top of the Bush tax cuts and two costly wars, this emergency spending pushed the US national debt over 70% of GDP.

Had this torrent of spending – reinforced by generous doses of monetary “easing” – unlocked business investment and cut the jobless rate, all might have been forgiven. But it didn’t, and public apprehension about exploding debts amid a jobless recovery rose steadily, reaching a crescendo in the 2010 elections. Republicans swept House races and, lashed on by the Tea Party, stormed into Washington determined to cut government down to size.

Thus 2011 became a year of fiscal brinkmanship. First the government was almost shut down last spring when budget talks broke down. Then came the summer showdown over raising the debt ceiling, which ended when Obama blinked and agreed to GOP demands for spending cuts rather than let America default on its debts for the first time ever. In the fall, a bipartisan “supercommittee” that was granted extraordinary powers to rein in deficits failed to reach agreement, triggering automatic domestic spending cuts in 2013.

Despite such nips and tucks, US leaders thrice failed to come to grips with the structural causes of America’s debt crisis: tax revenues well below historic norms, and the rapid growth of public health and pension costs as the baby boomers throng into retirement. This ensures that the debate over how to control the national debt – $15 trillion and growing – will be front and centre in the 2012 presidential election.

The public’s top priorities are jobs and reviving US competitiveness. But fiscal discipline also matters to most voters, especially the moderates and independents who hold the balance in close races. Only by embracing both goals can progressives forge an electoral majority in 2012. If Obama and the Democrats allow the fiscal debate to be framed as a choice between more deficit spending or debt reduction, they lose. If instead they champion fiscal restraint and focus the debate on the fairest and most growth-friendly way to achieve it, they can win.

That’s because Republicans have painted themselves in a corner by refusing to raise any new tax revenue to help solve the debt crisis. Americans don’t relish paying higher taxes, but they do want their elected leaders to work together to solve the country’s problems. House Republicans have repeatedly put their anti-tax dogma before their responsibility to govern, and have seen their public approval ratings tumble as a result.

In contrast, Obama appears eminently reasonable in calling for “shared sacrifice”, which in practice means reducing the debt with a mix of spending cuts and tax revenues. He has also put Republicans on the defensive for opposing tax hikes on the rich, even to pay for tax relief for working families.

But Obama can’t let his own party off the hook, either. If Republicans are in denial about the need for higher revenues, Democrats have yet to get serious about the other side of the fiscal equation – slowing the unsustainable cost growth of the big “entitlement” programmes: Medicare, Medicaid and Social Security. Washington has promised more to future retirees than it can afford to pay; the government recently put the funding gap at $34 trillion, many times larger than the entire US economy.

There’s nothing “progressive” about denying hard fiscal facts, yet many liberals cling to the habit of opposing any cuts in future benefits – even for wealthy Americans – as a breach of faith, if not a plot to kill social insurance in America. Not only is this stance blind to demographic and budget realities, it’s morally dubious as well.

If benefits for the elderly are deemed untouchable, then Congress will have to either raise taxes on everyone, including working families, or cut domestic spending to the bone, or both. Domestic spending (including defence) has already borne the brunt of the spending cuts agreed to last year. It is only 12% of the budget, but it includes all the key public investments progressives should be for – in infrastructure, education and workforce skills, science and technology – not to mention public health and safety and measures to alleviate poverty. To shield entitlements from cuts is, in effect, to give priority to retirees’ consumption over strategic investments in a more prosperous and equitable society.

There is little mystery over what it will take to solve America’s debt crisis. President Obama’s own Fiscal Commission says $4 trillion in debt reduction over the next decade is necessary to stabilise the national debt at around 60% of GDP. Hitting that ambitious target will require a political “grand bargain” in which Republicans accept increased tax revenues, and Democrats agree to trim benefits for affluent retirees in the future. Unfortunately, Obama’s reluctance to endorse his Commission’s blueprint has left his own party as well as the public in doubt about the depth of his commitment to fiscal stabilisation.

As the presidential race begins in earnest, Obama will come under growing pressure to offer bigger and more specific ideas for spurring economic growth and shrinking the national debt. He needs a concrete plan for restoring fiscal responsibility gradually, through a combination of tax and entitlement reform, while also boosting public investment. Properly sequenced, a “cut and invest” approach can attenuate the dilemma Krugman and others point to – the collision between the stimulative effect of public spending (and tax cuts) and the contractionary impact of fiscal retrenchment.

Adopting a 10-year framework for debt reduction will reassure nervous investors that Washington is determined to get its borrowing under control and protect the nation’s credit. By cutting debt service payments, it will redirect public spending from consumption to productive investment. It will reduce America’s dependence on foreign lenders (especially China) and rebuild the nation’s “fiscal reserve” so that it can borrow to meet future emergencies or downturns without plunging into Greek-style levels of debt.

The economic case for providing certainty about debt reduction is compelling. But most Americans don’t wear green eyeshades; for them, fiscal responsibility is a question of political morality. They see the nation’s runaway debt as emblematic of a corrupt political class that doles out slices of the public weal to privileged interests and rent-seekers in return for campaign contributions. The image of a bloated state that lives beyond its means powerfully buttresses the anti-government populism that resonates not only with Tea Partiers but also with the independent voters that progressives need to win back this year.

The good news for Obama is that the demands of economic growth and fiscal rectitude point in the same direction – away from America’s old economic model of debt-fueled consumption, towards a new progressive growth strategy based on higher levels of investment, faster innovation and expanded production.

Photo credit: Andrew.Speight

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Nuclear Risk in Perspective: Making Fact-Based Energy Choices

Wednesday, December 21st, 2011
Kevin Makinson


Kevin Makinson is a Ph.D. Candidate at Oregon State University in radiation health physics. His research focuses on developing new methods for severe acci-dent risk communication to senior operations staff in nuclear power plants.

Andrew Klein


Andrew C. Klein is a Professor of Nuclear Engineering and Radiation Health Physics at Oregon State University.

by Kevin Makinson and Andrew Klein

March 11, 2011 was a day of calamity the Japanese people will never forget. According to the National Police Agency of Japan the Tōhoku earthquake and tsunami left 15,841 dead, 5,890 injured and 3,490 people missing (as of December, 2011). Mother Nature’s freakish, one-two punch also triggered the partial meltdowns of four reactors in the Fukushima Daaichi complex, one of the worst commercial nuclear power plant disasters in history.

The Fukushima incident has stoked nuclear dread around the world and led some to conclude that nuclear power is too risky. Perhaps the most dramatic shift in public attitudes has been in Germany, where a conservative-led government recently unveiled a plan to close down all the country’s nuclear power plants by 2022.

Americans, however, should not endorse this knee-jerk anti-nuclear policy. For the foreseeable future, nuclear power will remain a vital part of a balanced and realistic national energy portfolio. Moreover, as champions of reason and science, U.S. progressives have a responsibility to avoid panicky overreactions and instead undertake a clear-eyed assessment of the actual risks of nuclear energy.

Generating electricity—like getting out of bed in the morning, or any other human activity—carries inherent risks. That’s true regardless of the fuel used to generate power. Instead of carefully weighing and comparing such risks, however, some environmental activists have tried to pose a false choice between “clean” and presumably safe renewable fuels like wind, solar and geothermal energy, and “dirty” fossil fuels or allegedly “unsafe” nuclear power. This dichotomy has nothing to do with science.

No sensible person is against renewable energy. But it will probably be a long time—likely decades, not years—before such sources have a realistic prospect of providing the base load needs of our national economy, let alone meeting the growing requirements of the entire globe. The Obama administration takes a more realistic approach in including nuclear energy along with other non-carbon emitting sources in its “Clean Energy Standard.” To understand why this is the case, we first need to review a few of the often overlooked, but important subtleties of electrical power generation.

Download the memo.

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Crowd Control: The Need for a Spectrum Management Mitigation Fund

Monday, December 19th, 2011
Anne Kim


Anne Kim is the managing director for policy and strategy at the Progressive Policy Institute.

by Anne Kim

Whether it’s 4G cell phones, light-as-a-feather laptops or the latest tablet, Americans are enjoying a wireless revolution. In 2010, Americans typed, tapped, texted, and called on an estimated 300 million mobile devices.

But all this increased connectivity is taking a toll on the nation’s increasingly crowded airwaves. The Federal Communications Commission (FCC) warns of a “spectrum crunch” that could hit as early as 2013, given how quickly wireless traffic is growing.

Innovative companies are devising new ways to maximize spectrum efficiency so more users can take up less space. But while these advances deserve strong support, they’re also not cost-free. In some cases, existing “legacy” users must retrofit older and less efficient technologies to adjust to these new uses.

This brief proposes a “spectrum management mitigation fund” to help legacy users defray the inadvertent costs of adapting to innovations in the marketplace. This fund would involve no new federal money and instead would be financed from a portion of revenues from “voluntary incentive auctions”—a mechanism endorsed by the FCC to encourage more efficient spectrum allocation between current and prospective licensees.

Creating the fund would reconcile two goals: it would both encourage much-needed innovation while also acknowledging the legitimate concerns of users with older technologies. Moreover, it would obviate the politicization of spectrum management issues currently occurring in part due to the absence of a mitigation mechanism. For example, this fund could help re-solve the current controversy between the legacy GPS community and the wireless broadband start-up LightSquared—it could partially compensate legacy GPS users for the cost of retrofitting existing devices, thereby clearing the path for LightSquared to deploy its network.

With the benefits of spectrum innovation too great pass up, this fund could be an important next step to ensure Americans enjoy the next generation and beyond of new wireless technologies.

Read the entire report.

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The Credit Gap: Easing the Squeeze on the Smallest Businesses

Thursday, December 15th, 2011
Brian Martin


Brian Martin is an independent policy analyst and researcher with 21 years of Capitol Hill experience on economic policy, health care, disaster recovery, and federal budget issues.

by Brian Martin

Among the many casualties of the 2007-2008 financial meltdown were small businesses. As the financial system virtually shut down, millions of small business owners across America found themselves unable to get the credit they desperately needed to run their businesses, let alone expand. As a result, thousands of otherwise flourishing firms were forced into bankruptcy or closure, with thousands of American jobs lost.

While this credit freeze has begun to thaw, one critical group of small businesses—firms with fewer than 50 workers—are still at risk of being left behind. These smallest of small businesses provide as much as 30 percent of all private-sector employment. Yet because of their small size, they are much less likely to benefit from government small business loan programs, and they are less likely to win loans from big commercial banks. For this group, the credit crunch is a serious impediment to their success. Many of these businesses relied on personal assets, such as home equity, for financing. But with the crash in home prices, those resources have evaporated. Instead, many smaller businesses rely almost exclusively on risky and expensive credit cards to finance their firms, if they can get credit at all.

Smaller businesses clearly need more options for getting credit, and credit unions, which already help many small borrowers finance their self-employment and small business ventures with personal loans, lines of credit, and limited business loans, could be an ideal source of credit for these underserved entrepreneurs. However, credit unions are blocked from offering as much help as they could because of an arbitrary and outdated cap on the amount of small business lending that credit unions can do. Bipartisan proposals to increase this limit—such as the ones offered by Sens. Mark Udall and Susan Collins and Reps. Ed Royce and Carolyn McCarthy—would help credit unions fill the “credit gap” that these smaller businesses face. It would also be a sensible and cost-effective way to jumpstart the job creation our country urgently needs.

Read the entire brief.

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501 Shareholders: Redefining “Public” Companies to Help Emerging Firms

Tuesday, December 13th, 2011
Anne Kim


Anne Kim is the managing director for policy and strategy at the Progressive Policy Institute.

by Anne Kim

In 2004, Google made headlines by “going public,” raising $1.7 billion in what was then the biggest initial stock offering since the heady days of the tech boom. Next spring, Facebook is expected to make its debut with a $10 billion initial public offering (“IPO”)—one of the largest ever.

Dreams of a splashy IPO may spur many entrepreneurs, but in reality, fewer and fewer companies are going public. While the stock exchange has long been the fastest and easiest way for companies to finance their growth, reaching the public market is getting tougher for emerging companies.

Thanks to a combination of legislative, regulatory, and technological changes, going public is more expensive, more burdensome, and less appealing than in the past—especially for younger, smaller, and less sexy companies that aren’t expected to become Google-sized blockbusters. One recent study puts the average cost of going public at $2.5 million, plus ongoing annual costs of $1.5 million a year to keep up with paperwork and regulatory requirements.

The result has been a drought in IPOs and a crisis in access to capital for young companies seeking to grow. From 1991 to 2000, the U.S. stock markets saw an average of 530 IPOs every year. Since then, the average annual number of newly-minted public companies has plummeted to about one-fourth that number. In 2009, just 61 companies went public. Moreover, the number of public companies listed on U.S. stock exchanges shrank from 8,000 in 1995 to 5,000 in 2010.

But at the same time that going public has become tougher for younger companies, outdated rules are forcing some firms to either go public prematurely—or else radically curtail their growth to stay private. The problem is an outdated cap on the number of shareholders that a company can have before it’s essentially required to go public. The so-called “500 shareholder rule”—first promulgated in 1964 to define the “public” companies in need of regulatory oversight—now poses a significant hurdle to growth for many companies. These firms may not be ready or don’t want to go public but have few other options for raising capital because they can’t expand their investor pool. Thus, some companies nearing the 500-shareholder threshold may face an unpalatable choice: either bear the financial and regulatory costs of going public or forego opportunities for growth.

By raising the shareholder threshold to 1,000 or 2,000, as policymakers such as Sens. Tom Carper and Pat Toomey and Rep. David Schweikert have proposed, younger companies will have more room to grow, invest and create jobs, as well as more flexibility before making the plunge into going public. Coupled with other efforts to fix the broken IPO market, an amendment to this rule could give younger and smaller companies a much-needed boost toward growth.

Amending this rule would also be an important step in modernizing and reorienting the nation’s overall regulatory scheme toward promoting innovation—an effort that is crucial to America’s future economic renewal.

Read the entire brief.

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Innovation by Acquisition: New Dynamics of High-tech Competition

Wednesday, November 30th, 2011
Michael Mandel


Michael Mandel is the chief economic strategist at the Progressive Policy Institute and the founder of Visible Economy LLC, a New York-based news and education company.

Diana G Carew


Diana G. Carew is an Economist at the Progressive Policy Institute.

by Michael Mandel and Diana G Carew

Right now policymakers are grappling with the implications of slow economic growth in the United States and the rest of the industrialized world. One response is austerity—cutting back on spending, accepting reduced living standards, and slowly digging out from the mess.

A better option, though, is innovation, which accelerates growth, creates new jobs, and makes U.S. products and services more competitive world-wide.  Innovation has the potential for raising incomes, an especially important task given that real median household incomes have fallen more than 10 percent since the beginning of the recession.

While innovation can come from any industry, the technology sector is particularly important, as it has been the main source of growth and innovation in the economy for the past 35 years.  The locus of innovation started with the personal computer in the late 1970s and 1980s; shifted to software and the internet in the 1990s; and now has moved to mobile, search, and more broadly communications, where U.S. companies are world leaders. Today’s technological advances have facilitated the emergence of innovation “ecosystems,” or platforms on which many different companies can build products or provide services.

The growth of tech companies stems from a combination of organic growth and business acquisitions, driven by the rapidity of innovation. It’s a virtuous circle, where successful technology companies pay large sums for small startups, which in turn induces the formation of more startups. For that reason, technology acquisitions need not diminish competitiveness, even as they accelerate innovation and job growth.  Indeed, as we will see later in this paper, periods of high levels of acquisition have also been periods of rapid job growth.

One question is whether there is anything that government policy can do to encourage technology innovation in the short run.  The answer is probably not—while the government does have plenty of long-term levers, such as spending on basic research and investment in science and engineering education, there are few ways to speed up innovation over the next year.  On the other hand, government policy is actually quite capable of discouraging innovation in the short-run, through outdated regulation and restrictive antitrust policy that does not take the importance and uniqueness of the technology sector into consideration.

Antitrust policy, as applied to the technology sector in its current form, can impede the virtuous circle of nurturing innovation through startups and acquisitions. By slowing down or blocking acquisitions, antitrust policy can limit the exit routes for startups, potentially reducing their value and making it less attractive for investors to put their money into the next round of innovative new companies.

This paper will explore the role of technology acquisitions in encouraging innovation, facilitating economic growth, stimulating jobs, and enhancing our quality of life. First, this paper examines past trends in technology acquisitions, establishing that waves of industry acquisitions have been an integral part of the rapid innovation in tech since the 1980s.  We focus in particular on the post-2005 acquisitions by major tech firms.

Second, we examine the question of whether technology acquisitions facilitate innovation, and in particular high-impact innovations. In fact, the benefits to the rest of the economy are connected to the speed at which potential innovations are moved to market and scaled up. This is because the value created from rapid technological innovation is distributed across all users of the new technology.

Further, this paper will show that periods with high levels of acquisitions generally also tend to be periods of rapid employment growth. This is not meant to be an assertion of causality, but to rather argue that tech acquisitions are part of the same innovative process as employment growth.

To summarize: (1) when done correctly, acquisitions in the technology sector can and have encouraged innovation by bringing new products to market faster and more effectively; and (2) acquisitions and innovation in the technology sector are positively associated with economic growth and job creation. What’s more, mainstream economic theory associates sustainable economic growth in the long-term with constant innovation and technological progress. Looking at technology acquisitions from this perspective provides a different framework from which to assess the potential implications of excessive antitrust regulations, and current antitrust policy.

Read the entire memo.

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Regulators: Listen to Workers

Tuesday, November 29th, 2011
Will Marshall


Will Marshall is the president of the Progressive Policy Institute.

by Will Marshall

CWAAT&T is a big company, which perhaps explains why federal regulators are ganging up to block its proposed merger with T-Mobile. Big must be bad, right?

That’s certainly the view of consumer advocacy groups, which routinely oppose business mergers as threats to competition. They seem to have the ear of the Federal Communications Commission, which announced last week that it would join the Justice Department in opposing the deal, citing concerns about job losses and higher consumer prices.

But there’s another important group of stakeholders that regulators should be listening to: AT&T’s workers. They are urging the government to take a broader view of the merger’s potential impact on U.S. investment and competitiveness.

At a time of shrinking private sector union membership, it’s worth noting that the company’s 42,000 wireless workers are represented by the Communications Workers of America (CWA). The union issued a report this month strongly supporting the company’s acquisition of T-Mobile as a spur to innovation and a job-creator.

Such arguments merit attention, if only because it’s not often that you find a successful U.S. company in synch with its unionized workforce. Beyond that, however, there are compelling economic reasons for regulators to start looking at proposed mergers through the eyes of America’s producers, not just its consumers.

President Obama, fresh from a tour of the Asia-Pacific, articulated them in a recent radio address. “Over the last decade, we became a country that relied too much on what we bought and consumed,” he said. “We racked up a lot of debt, but we didn’t create many jobs at all.” Reviving U.S. competitiveness, he said, will require Americans to focus more on building things than buying them. Obama also called for “restoring America’s manufacturing might, which is what helped us build the largest middle-class in history.”

Opponents say CWA backs the merger because it has its eyes on T-Mobile’s workers, who aren’t organized. But the union’s analysis of the $39 billion deal emphasizes AT&T’s plans to boost capital investment in the wireless broadband sector. It cites think tank estimates that such investment could produce up to 96,000 new jobs, not including another 5,000 jobs the company promises to bring back to the United States from overseas.

AT&T has said it will merge its networks with those of T-Mobile, and invest an additional $8 billion to expand its 4G LTE wireless broadband infrastructure. It also has pledged to retain T-Mobile’s non-managerial workers. The CWA report asserts that, absent the merger, T-Mobile is headed toward extinction. Having been cut loose by its parent company, Deutsch Telecom, it lacks the capital to acquire spectrum and build its own 4G network.

Opponents of the merger—including AT&T’s competitors as well as consumer groups—say the merger would give the telecom giant too much market power and lead to higher prices. Regulators ought to carefully weigh such claims. But as a forthcoming PPI report argues, mergers and acquisitions among dynamic, high-tech companies often have the effect of spurring more innovation. In the fiercely competitive telecommunications sector, prices for wireless services—voice, text, and data—have been trending downward, even as quality of these services has improved dramatically.

Even so, low consumer prices aren’t the only public interest at stake here. More important is expanding investment—in technological innovation, a highly skilled workforce and world-class infrastructure. This is the only way to make U.S. companies and workers more competitive in global markets that does not entail lowering our standard of living.

As the Progressive Policy Institute has documented here, the telecom sector is leading a dynamic wave of innovation in mobile telephony and broadband that is creating good jobs in the United States. That’s no mean achievement at a time when unemployment is stuck at 9 percent—and about twice that if you take into account people who have given up looking for jobs.

While other corporations chase cheap labor by moving production offshore, we have dubbed communications companies like AT&T, Verizon and Comcast “Investment Heroes” because they are making huge bets on the American economy. Surely that’s something government regulators ought to factor into their decisions.

Our country needs a new model for economic growth that emphasizes production over consumption, saving over borrowing, and exports over imports. Such a shift is essential not only to rebuild the great American job machine, but also to rebalance a global economy that has become overly dependent on U.S. consumers.

It’s time once again for America to be a global center for production—and we need federal regulators to get with the program too.

Photo credit: Kat Gloor

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MEMO TO PRESIDENT OBAMA: How to Win On Foreign Policy in 2012

Wednesday, November 23rd, 2011
Jim Arkedis


Jim Arkedis is the director of PPI's National Security Project.

by Jim Arkedis

Obama as Commander in Chief

 

 

 

 

 

 

 

 

MEMO TO PRESIDENT BARACK OBAMA: How to Win On Foreign Policy in 2012

To: President Barack Obama
From: Jim Arkedis, Director of the Progressive Policy Institute’s National Security Project
RE: How to Win on Foreign Policy in 2012

Mr. President:

I hope and trust that you had better things to do than watch the GOP’s last two debates on foreign policy. I took care of that for you, and reread the transcripts just because I am a masochist.

It’s clear the Republican field is offering nothing new on foreign policy this election cycle, and that creates a real political opening. This memo serves as a guideline for how you can use the issue to your advantage on the campaign trail in 2012. In a nutshell, the public must see you as a stronger leader: Your numbers are hurting there right now, and you should trumpet your national security record to help them rebound. The trick is that if voters view you as a strong leader generally speaking, it will create a spill-over effect, bolstering their confidence in your leadership on domestic issues (read: the economy).

No matter who ends up as the Republican nominee for president, they’re not going to beat you on foreign policy substance. Most of the GOP candidates offer vague criticism that you’ve handled Iran badly, but can do no better than propose “crippling sanctions” as a solution, which are somehow better than the comprehensive ones you’ve enacted.

On areas where they actually differ with you, there still isn’t that much daylight: Michelle Bachmann tried to ding you for sending thirty, rather than forty, thousand troops to Afghanistan, and Rick Perry thinks that any withdrawal timeline from that country is a bad idea (even though Mitt Romney, in the second debate, basically agrees with your timeline for withdrawal). But you know that those are hardly winning arguments with the American public, 53 percent of whom would prefer to wash our collective hands of the whole mess. The GOP field (minus perennial laggard Rick Santorum) might get closer to broad (but confused) public sentiment to slash foreign aid, but on policy alone, this is probably their only opportunity to score political points.

The main conservative line of attack is stale, but potentially effective: They’re going to out-muscle you. I was absolutely shocked that no one critiqued you on “leading from behind” in the debate, but that phrase is sure to appear–on repeat–in ads before next November. But heck, you’ve even got Jon Huntsman — the guy you appointed to be our emissary to China — saying you “can’t lead”! It could erode the public’s confidence in your leadership abilities.

For now, the GOP seemed mostly content to insinuate this alleged weakness: Mitt Romney claimed that your re-election guarantees Iran will get a nuclear bomb; both he and Newt refuse to negotiate with terrorists (you do, in case you weren’t sure); and Herman Cain doesn’t think waterboarding is torture, which is why he’d use it. Most bizarre was Bachmann’s assertion in the first debate that America has lost the War On Terrorism under your watch. I wonder how Usama Bin Laden feels about that.

You’re no slouch when it comes to politicking, and you know that this election will be won and lost on each candidate’s ability to make a case for economic growth. It’s understandable that you might want to minimize foreign policy on the stump this year.

That’s a mistake, because your ability to make an economic case should be buoyed by your solid record on foreign and security policy. This might not be intuitive, so hear me out:

You killed Bin Laden and other al Qaeda leaders, helped oust Mohamar Qaddafi, have ended the Iraq war, and protected the country from a massive domestic attack. Voters have noticed: a November Gallup poll has your general foreign policy approval rating up five percent over disapproval, an astounding 63 percent support you on terrorism, and the numbers are good on handling Iraq and even Afghanistan.

More importantly, if you sell your foreign policy achievements in the right way, it will paint you as a strong leader. That’s critical: Americans want their president to project an image of strength, and you’re hurting there right now. Between May (when Usama Bin Laden was killed) and August, the percentage of Americans who viewed you as a strong leader slipped from 55 to 44 percent. Here’s the kicker: If you’re seen as a credible, effective Commander-in-Chief, voters are more likely to believe that your leadership can pull them out of the economic slump.

I realize that you’re not the type of guy who wants to pound the podium and out-flex your opponent. That’s okay. However, you still have to keep in mind that foreign policy is an emotional issue for voters, and that you have to connect with their gut subconscious before you can lead them elsewhere. Below, I offer four ways you can use foreign policy to increase your leadership credentials in 2012.

1. Explain your vision and your values. Having a good track record isn’t worth a damn if you don’t connect with voters. They’ve got to feel you on these issues. Even assuming the GOP nominee is the shape-shifting Mitt Romney, he’ll sell a consistent, militaristic vision of American exceptionalism that might resonate with America’s gut.

Don’t cede that ground, just tell your own version. You might not make a major foreign policy campaign address, but your stump speech absolutely must include your vision of America’s leading place in the world in the 21st century. It doesn’t have to be “rah-rah”. It does have to be convey some emotion using two frames: “strong and smart.”

Explain that you know that the threats facing America have changed since the end of the Cold War, and we must rise to meet the challenge. That requires strong American leadership, complemented by strong alliances and backed the world’s strongest military.

But it also requires a laser-focus on the long term: American strength in the 21st century means being smart, too. Safety at home is enhanced by spreading American values abroad, and that requires more robust diplomacy to expand economic and political opportunity for all. That’s a great way to connect on the economy, too: Economic strength is what drives American power, and that means we need to out-innovate, out-produce, and out-think our challenges.

2. Tell a us a story (often). Specifically, tell us the story of how you decided to send SEAL Team Six to kill Bin Laden. Voters remember stories, not policies. So give them the best you got, because it will reinforce your image as a substantive Commander-in-Chief. You could recount the version you gave CBS’ 60 Minutes in May. It doesn’t have to be overly dramatic: just calmly recount the facts and remember that details are good. The story sells itself, and shows America that you made a bold, gutsy, strong decision. Most importantly, the country, not your administration, was successful.

3. Use military veterans as surrogates: Your campaign should have the most robust veterans surrogate network in the history of American politics. In an age when Congressional approval languishes in the single digits (and yours are in the 40s), guess who the public believes? The military. A September 2011 poll reinforces a standing trend: 92 percent of Americans are confident in the military and hence, its veterans.

Remember the Swiftboat Veterans who sunk John Kerry’s campaign? They tipped the balance because they were credible messengers. This year, you’ve got to get out ahead of the game. A few days ago, I received a campaign-sponsored email from Rob Diamond, who runs “Veterans and Military Families for Obama” (full disclosure: Rob is a friend). You need to give him every resource he asks for because he needs to pack cable news, campaign rallies, and small-town newspapers in military-heavy swing-states like Virginia, North Carolina, Ohio, and Colorado with veterans supporting you as the Commander-in-Chief they were proud to serve.

4. Attack Republicans as reckless. You have to make the public’s decision on national security a binary choice. If you’re to be a strong leader and a tough, competent Commander-in-Chief, you need to define (presumptively) Mitt Romney is reckless and out-of-touch. A poll from back in 2008 found this to be an effective attack against Republicans on foreign policy, and I sense that it would continue to work in 2012.

Why? Well, Romney’s rhetoric isn’t that different from George W. Bush’s. In an October speech at the Citadel, Romney promised to reverse proposed defense cuts, resurrect the neocon missile-defense shield, and build six more navy ships per year, even though America’s wars are coming to a close and the country faces a massive debt issue. Does that sound smart, efficient and strong in the 21st century, or does it echo the reckless George Bush, a playground bully who fights but doesn’t think and remains stuck in the Cold War?

Mr. President, it’s going to be a tough election. But used correctly, you can turn a solid record on matters of foreign policy and national security into a real asset this year, and just maybe tip the balance in a few key states. And how’s this for a bonus? The GOP isn’t expecting that you’d dare try.

If you’ve read this far, you might follow me on Twitter @JimArkedis

Photo credit here.

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Policy Brief: How a Competitiveness Audit Can Help Create Jobs

Friday, November 18th, 2011
Michael Mandel


Michael Mandel is the chief economic strategist at the Progressive Policy Institute and the founder of Visible Economy LLC, a New York-based news and education company.

Diana G Carew


Diana G. Carew is an Economist at the Progressive Policy Institute.

by Michael Mandel and Diana G Carew

America is deep in a jobs crisis. The unemployment rate is stuck around 9 percent nationally, with states such as Florida, Nevada and South Carolina in double digits. Real wages for educated workers are still plunging, while new college graduates are squeezed between rising student loans and the toughest labor market in recent memory.

Against this backdrop, the global economy looms large as both threat and promise. There’s a justifiable fear that America has lost its competitiveness, that our jobs are being siphoned to China and India, that the wages of our young people are being depressed by a global education glut. At the same time, the rapidly growing markets of the developing world could be a potent target for U.S. exports of goods, services, and intellectual capital, creating good jobs here.

In this global economy, we need to know which industries are internationally competitive, which ones aren’t, and whether the gaps are closing or widening. Unfortunately, the reality is this data currently does not exist. And what we don’t know hurts us, because it prevents us from pursuing effective strategies for boosting US jobs.

Although the government collects reams of economic data, it doesn’t measure what’s most vital to our ability to reverse America’s jobs decline: how our goods and services stack up against those of China and other competitors in terms of price.

You can’t fix what you can’t measure. We need a new national jobs strategy that begins with an accurate way of measuring America’s competitive prowess, on an industry-by-industry basis.

This policy brief proposes that the Bureau of Labor Statistics undertake a “Competitiveness Audit.” The Competitiveness Audit will compare the price of selected imports with the comparable domestically produced goods and services. That will tell us the size of the ‘price gap’ between imports and domestic production.

Read the entire brief.

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Posted in A New Framework for Growth and Equity, Daily Fix | No Comments »

Italy Boots Berlusconi

Monday, November 14th, 2011
Will Marshall


Will Marshall is the president of the Progressive Policy Institute.

by Will Marshall

BerlusconiA funny thing happened on my way to an international forum on democracy and human rights in Rome last week: the Italian government fell. It was hard to concentrate on the business at hand with crowds gathering in piazzas to demand the head, figuratively speaking, of the man who has dominated Italian politics since 1994—Silvio Berlusconi.

What sparked the crisis was a sharp spike last week in Italian bond yields, which raised doubts about Italy’s ability to service its $2.6 trillion debt. The prospect of a default by Europe’s fourth-largest economy sent tremors throughout the euro zone. Forget about Greece: If big countries like Italy and Spain can’t pay their debts, European banks that hold all that sovereign debt will fail. Then someone—most likely Germany—will have to finance a massive bank bailout just like the United States did in 2007. Otherwise, a financial collapse would likely throw Europe, and probably the United States, into a bona fide depression.

Fortunately, this prospect seems to have concentrated minds in Italy. Arriving in Rome on Thursday, I found its usually fractious political class galvanized by the crisis and resolved to put a new government in place before the markets open today.

On Friday, the Italian Senate passed a budget with an initial set of reforms (including a hike in the retirement age) tailored to European Union specifications. On Saturday, Berulsconi resigned, as gleeful crowds chanted “Bye Bye Silvio” and sang the “Hallelujah” chorus outside the Quirinal palace. And on Sunday, Mario Monti, a widely respected technocrat, agreed to form a unity government.

As our own Congress dithers endlessly over debt reduction, it was nice to see democratic politicians somewhere acting purposefully and with dispatch. How long the Monti government will last, however, is anyone’s guess, especially since it must pass painful reforms aimed at paring down bloated state bureaucracies and stimulating private enterprise. But Rome’s tumultuous weekend seems to have made several things clear.

First, Italy’s sovereign debt crisis probably has driven a stake through the political heart of Berlusconi. In recent years, he has presided more than governed as Italy’s once-vibrant economy slowed down and its borrowing soared. Like a latter-day Nero, the 75-year-old Berlusconi, Italy’s richest man, seemed more interested in fiddling with underage girls in “bunga-bunga” parties than tackling structural reform of Italy’s economy.

Second, Berlusconi’s fall and Monti’s government of national unity have the potential to rescramble Italian politics in useful ways. Beneath a top layer of supposedly apolitical technocrats, Monti is expected to fill key sub-cabinet level posts with leaders from the center and center-left, shutting out the right-wing Northern League as well as the left’s unreconstructed Communists and Socialists. This could spur the emergence of a new coalition of the progressive center dedicated to reviving Italy’s global competitiveness rather than rehearsing old ideological arguments. Such a coalition might include pragmatic progressives like Rome’s former Mayor, Francesco Rutelli and Gianni Vernetti, whose Alliance of Democrats organized a fascinating, if overshadowed, conference featuring democracy activists from the Middle East, North Africa, China, and elsewhere.

Third, the imbalance between the power of global markets and the weakness of European governance has reached a sort of tipping point. The markets are now punishing spendthrift governments like Greece and Italy that have borrowed massively to cover the growing gap between public spending and anemic private sector growth. For these and other European countries, joining the euro-zone in 2002 was an opportunity to relax fiscal constraints, because such profligacy would no longer lead to currency devaluations. It turns out, however, that a common monetary union also requires common fiscal policies, and the 17 members of the euro-zone have no institutions for setting or enforcing such policies.

At its heart, then, the euro crisis is really a political crisis. I heard many Italian political leaders over the weekend argue that the salvation of the euro lies in “more Europe.” This means a resumption of the stalled march toward more comprehensive economic and political integration, which of course means EU members must surrender more sovereignty. This won’t be easy, especially if to average Europeans it means the pain and sacrifice of a thorough-going fiscal retrenchment, or bailouts for countries that have evaded the consequences of irresponsible policies by free-riding on the euro.

Italians, nonetheless, seem ready to cast their lot with Europe, even as they search for more effective political leadership to revitalize their economy.

Photo credit: Downing Street

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It’s About (the) Time: Ending the Nonstop Campaign

Monday, October 31st, 2011
Lindsay Mark Lewis


Lindsay Mark Lewis is Executive Director of the Progressive Policy Institute.

by Lindsay Mark Lewis

Somewhere in the last two decades, politicians began to believe that the way to win an electoral majority is not to prove that you can govern well, but to prove that you can campaign.

Today, politicians are caught in an ever-escalating, never-ending, 24-hour, 365-day campaign cycle dominated by the burden of raising enough money to wage a campaign creditably. For incumbents, the heft of a candidate’s war chest is what keeps potential challengers at bay—which means that even the safest members need the insurance of a sizeable sum of cash on hand. And for every candidate, last quarter’s results are just about the only proxy by which a candidate’s viability is judged.

The constant horserace over money (not ideas) has taken its toll on the quality of governance. For example, the Rasmussen report released a poll in July finding that 85 percent of Americans view members of Congress as “just out for their own careers.” Almost every poll finds Congress’s approval rating in the single digits.

Second, serious debate about any issue—e.g., the federal budget or taxes—is virtually impossible because there is no “safe period” in which an issue can’t be turned into a political football. Moreover, politicians simply have no time to devote to learning the arcana of policy. They are too busy attending fundraisers.  As Republican freshman Richard Nugent said, “As soon as I got to Congress, people started asking me if I had started fund-raising,” Nugent said. “I was amazed at that. It seems to me that a person ought to get some results first before you start getting too focused on re-election. Otherwise, what on earth are the voters sending you to Washington to do?”

Read the entire policy brief.

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