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Why the Jobs Crisis Is Actually an Innovation Crisis

Tuesday, March 9th, 2010
Michael Mandel


Michael Mandel, formerly chief economist at BusinessWeek, writes on innovation and growth at www.southmountaineconomics.com.

by Michael Mandel

Forget for the moment the $15 billion jobs bill moving through Congress — even its supporters admit that it’s far too paltry to make even a tiny dent in the unemployment rolls. And ignore the economic commentators who tell you that the labor market is recovering just because job loss has slowed.

No, the U.S. is having a genuine long-term jobs crisis, one which stems from a deeper problem: The Great Innovation Machine of the American economy seems to have broken down. With a few notable exceptions (think Apple and Google), this has been a period when companies have found it remarkably hard to turn promising breakthrough innovations into commercial breakthrough products. The list of “big-idea” innovations that seem tantalizingly close to market, but not quite there, just keeps getting longer and longer. Some examples: After 20 years of research, no human gene therapy has yet been approved for sale by the Food and Drug Administration; electricity generated from solar cells is still far from price-competitive with electricity from coal or natural gas; and biotech has not yet fulfilled its promise of speeding the discovery of new drugs.

The jobs crisis, in my view, is the direct result of the innovation shortfall. Since the 1990s, both Democrats and Republicans have expected the “jobs of the future” to come from the innovative, technologically advanced industries. Computers, semiconductors, internet companies, pharma, biotech, communications: all seemed to have enormous potential to create new jobs. What’s more, innovation seemed to be the only way that the U.S. could compete against low-cost producers abroad.

Many regions designed their economic development strategies around attracting biotech and infotech jobs to replace the “old-line” factory positions that had fled overseas (do a Google search for ‘biotech initiative’ and see how many hits you get). The desire to bring in pharma jobs is the reason why New London tore down homes and businesses to make room for a Pfizer research facility in 2001.

But the sad truth is that the innovative sector of the economy hasn’t generated many jobs recently. Let’s be very specific here. From the bottom of the job market in 2003 to the so-called peak in 2007, technologically advanced industries such as semiconductors, communications equipment manufacturing, and telecommunications lost thousands of jobs. Across the same period, the industry that the Bureau of Labor Statistics calls “Internet publishing and broadcasting and web search portals” — a catch-all category that includes Google, Yahoo! and all the high-profile Internet firms — added only 6,000 jobs.

Life sciences didn’t do much better. From 2003-2007, employment in pharma was stagnant, and biotech added only 16,000 jobs. Indeed, Pfizer recently pulled out of New London, leaving behind a lot of hard feelings. (For more on the jobs shortfall in the innovative sector, see my blog at www.southmountaineconomics.com.)

Turning Innovation into Jobs

So what has happened here? A big part of the jobs crisis stems from a simple fact: Commercializing innovation has taken a lot longer than people expected. Across multiple areas, from biotech to alternative energy to advanced materials to the private uses of space, both large and small companies have faced fundamental scientific and engineering problems. The best example is the sequencing of the human genome, which was announced to great fanfare in 2003. But turning that initial breakthrough into commercial products has turned out to be far more complicated and difficult than many thought. (For more on the innovation shortfall, see my June 2009 cover story, “The Failed Promise of Innovation in the U.S.,” for BusinessWeek.)

In today’s global economy, innovation makes up the main comparative advantage for the U.S. If we are not generating jobs in the innovative industries, it’s no surprise that we have a jobs crisis.

Addressing the innovation shortfall has to be a cooperative project between business and government. How? Here are three low-cost ways to foster a better climate for innovation and jobs:

  • Elevate innovation to the top of the policy agenda. President Obama needs to publicly give higher priority to innovation. In the latest Economic Report of the President, innovation is relegated to the very end of the report, and does not even get a whole chapter to itself (the chapter is called “Fostering Productivity Growth through Innovation and Trade”).

    Why is a public emphasis on innovation important? Government is much better at stopping breakthrough products and services than creating them. New ideas, by definition, are threatening to the status quo. That’s why the president has to give a clear signal to the entire government bureaucracy that innovation is important.

    On the one hand, this shift in public priorities can be done right now, without any additional funding, so Obama wouldn’t have to fight Congress. On the other hand, Obama might have a big struggle to get support from his own economic advisors, some of whom don’t seem to place such high value on innovation.

  • Broaden out government funding for R&D beyond healthcare. To maximize the chances for innovation-related job growth, we want a broad and diverse program of federal support. However, in recent years, federal funding for R&D has increasingly focused on healthcare. Obama’s proposed FY 2011 budget continues that trend, with federal spending on health R&D projected to exceed spending on nonhealth civilian R&D by more than 30 percent. The result: Other areas of R&D are being starved for funds.
  • Improve measurement of the innovative sectors of the economy. Innovation is not as tangible as, say, a new building or a new truck. We are great at counting construction and vehicle production, but horrible at keeping track of innovative activities.

    And as management consultants say, you get what you measure. For example, we know virtually nothing on business spending on R&D in the U.S. during the downturn — a key piece of information for understanding where the economy is going. The good news is that the Bureau of Economic Analysis and the National Science Foundation have made some progress in this direction. However, a relatively small amount of money could accelerate the upgrading of the statistics, with a big impact on policy.

These proposals will not guarantee that the U.S. will suddenly experience a surge of innovation-related job growth. There’s nothing that anyone can do to ensure that commercially viable innovation will arrive on a particular schedule. But to raise the odds of good jobs in the future, we need to make innovation a priority today.

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More On ObamaCare/RomneyCare

Monday, March 8th, 2010
Ed Kilgore


Ed Kilgore is a PPI senior fellow, as well as managing editor of The Democratic Strategist, an online forum.

by Ed Kilgore

Here’s something to tuck away in your files on both health care reform and 2012 presidential aspirant Mitt Romney, from Tim Noah at Slate (via Jon Chait). Looking at Romney’s new pre-campaign book, Noah observes:

Romney’s discussion of health reform is, from a partisan perspective, comically off-message. (How could he know what today’s GOP message would be? He probably finished writing the book months ago.) Remove a little anti-Obama boilerplate and Romney’s views become indistinguishable from the president’s. They even rely on the same MIT economist! At the Massachusetts bill’s signing ceremony, Romney relates in his book, the late Sen. Ted Kennedy, D-Mass., quipped, “When Mitt Romney and Ted Kennedy are celebrating the same piece of legislation, it means only one thing: One of us didn’t read it.”

Noah goes on to mix up some Obama and Romney quotes on health care reform, and challenges the reader to say which is which. Can’t be done.

Back in January, I predicted that Romney’s sponsorship of health care reform in Massachusetts might turn out to be a disabling handicap in a 2012 presidential race, given the shrillnesss of conservative rhetoric about features in Obama’s proposal that are also in Romney’s–most notably, the individual mandate.

Something happened since then, of course, which has been of great value to Romney in protecting his highly vulnerable flank on health reform: Scott Brown, another supporter of RomneyCare in Massachusetts, became the maximum national GOP hero and set off to Washington to try to wreck Obama’s plans. That meant that not one, but two major Republican pols would be promoting ludicrous distinctions between RomneyCare and ObamaCare as though they were actually vast and principled.

But I can’t see this illogical brush-off as working forever. If the Mittster does crank up another presidential campaign, fresh media attention will be devoted to his record and “philosophy” on health care. And more importantly, Romney’s rivals in a presidential race won’t for a moment give him a mulligan on the issue the GOP has defined as all-important. Mitt’s “socialism” in Massachusetts will eventually re-emerge as a big, big problem for him, and arguments that it was just state-level “socialism” won’t quite cut it in a Republican Party that’s moved well to the Right since the last time he ran for president. Before it’s over, they’ll make it sound like he’s the reincarnation of Nelson Rockefeller, money and all.

This item is cross-posted at The Democratic Strategist.

Photo credit: http://www.flickr.com/photos/newshour/ / CC BY-NC-ND 2.0

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Pro-Reform Majority?

Friday, March 5th, 2010
Ed Kilgore


Ed Kilgore is a PPI senior fellow, as well as managing editor of The Democratic Strategist, an online forum.

by Ed Kilgore

With Republicans beating the drums incessantly for the proposition that “the American people have rejected health care reform,” it’s probably not a bad time to recall the discussion that broke out late last year over evidence that many people saying they oppose specific proposals do so because they want to take reform much farther.

Exhibit A was an Ipsos-McClatchy poll taken in November. Here was Nate Silver’s take on it:

Ipsos/McClatchy put out a health care poll two weeks ago. The topline results were nothing special: 34 percent favored “the health care reform proposals presently being discussed”, versus 46 percent opposed, and 20 percent undecided. The negative-12 net score is roughly in line with the average of other polls, although the Ipsos poll shows a higher number of undecideds than most others.Ipsos, however, did something that no other pollster has done. They asked the people who opposed the bill why they opposed it: because they are opposed to health care reform and thought the bill went too far? Or because they support health care reform but thought the bill didn’t go far enough?

It turns out that a significant minority of about 25 percent of the people who opposed the plan — or about 12 of the overall sample — did so from the left; they thought the plan didn’t go far enough.

Well, Ipsos-McClatchey is back with another poll, and it’s shows an even stronger percentage of reform “opponents” thinking current bills don’t go far enough: more than a third of the 47% of respondents opposing “the reforms being discussed” say it’s because “they don’t go far enough.” Added to the 41% of respondents who say they support “the reforms being discussed,” that’s a pretty significant majority favoring strong government action to reform the health care system.

If that’s right, then maybe a majority of Americans technically favor a “no” vote on health care reform. But it’s not at all clear that they’ll be any happier with a perpetuation of the status quo, much less the kind of “reforms” Republicans are talking about. It looks like a significant share of the public wants something with a strong public option, or perhaps a full-blown single-payer system. It’s disengenuous to pretend these are people who have linked arms with Rush Limbaugh and congressional Republican leaders to fight against serious reform.

This item is cross-posted at The Democratic Strategist.

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A Heavy Lift

Thursday, March 4th, 2010
Elbert Ventura


Elbert Ventura is the managing editor of the Progressive Policy Institute.

by Elbert Ventura

We always knew it would be a heavy lift. When Scott Brown swept away the filibuster-proof majority in the Senate – by taking Ted Kennedy’s seat no less – it seemed like a puckish and malevolent act by the legislative gods. Now, as the endgame draws near, the degree of difficulty only continues to go up.

The problem this time is not the Senate but the House. The plan is for the House to pass the bill that the Senate passed, and for both chambers to then pass a “fix” via reconciliation, which would require only a majority in the Senate.

But since the beginning of the year, Speaker Nancy Pelosi has lost several “yes” votes on health care. Rep. Robert Wexler (D-FL), a liberal stalwart, resigned January 3; Rep. John Murtha (D-PA) passed away February 8; Rep. Neil Abercrombie (D-HI) stepped down on February 28. On top of that, Rep. Joseph Cao (R-LA), the only Republican in either chamber to vote for reform, has come out and said he would not be voting for the bill this time around. Add on the Stupak bloc, the group of representatives led by Rep. Bart Stupak (D-MI) who reject the Senate bill on the grounds that its anti-abortion provisions are less strict than in the bill the House passed, and the bill’s prospects become even dimmer.

Just today, more bad news. Initially, with all the departures from the House, including that of Rep. Nathan Deal (R-GA), the magic number for Pelosi had at least shrunk to 216. But Deal today said he would stick around until the vote, raising the threshold to 217 again. But there’s more! There have been reports of other previous “yes” votes now wavering as the GOP ramps up its anti-health reform campaign to “spook” Dems: Rep. Shelley Berkley (NV), Rep. Michael Arcuri (NY), Rep. Kurt Schrader (OR).

But anyone expecting less than a full-on blitzkrieg from the right to sway quaking Dems has not been paying attention. The question is: Does that include the White House?

Too Much Inside Baseball

One of the ironies of health reform legislation has been its declining popularity with the public even as it progressed up the legislative chain. As it passed each new congressional hurdle, public opinion dipped. By the time 2010 rolled around (and before Scott Brown), health reform was on the brink of passing, but the victory seemed like it wouldn’t be quite the rout its supporters had hoped, with the bill so damaged in the public’s eyes.

I always thought that this was the result of an overcorrection on the White House’s part from the mistakes of the Clinton administration. The Clinton health care plan floundered because the administration was so ham-handed when it came to dealing with Congress. This White House adjusted accordingly, and played the beltway game to perfection.

But it never learned from another Clinton mistake, which is that it’s not all about the beltway – the ground game matters, too. With a highly mobilized right wing getting its message out to congressional districts, hardcore opponents – the town hall screamers of last summer – came out of the woodwork, inevitably coloring the impressions of the casual political observer. Phone calls started coming in to congressional offices opposing the bill.  Poll numbers dropped.

Meanwhile, the White House, with both eyes on Congress, failed to fire up its own base. Obama held events here and there, but nothing like a sustained campaign to mold public opinion. Without that leadership, the progressives and moderates who knocked on doors for Obama simply weren’t there this time around to match the other side’s intensity. By the time Scott Brown showed up, some lawmakers were all but ready to be done with health care.

And so here we are. President Obama has gone all in, even going so far as to set a date for when he wants the House to vote. He has also assiduously courted iffy Democrats, inviting them over to the White House and no doubt seeking to buck them up. And with news that he’s about to embark on a barnstorming tour to stump for health care, it’s clear that the White House sees the importance of aggressively shaping public opinion and the media narrative.

But will it be enough? Or is it too little too late? And will the progressive grassroots that helped Obama win the presidency be there to neutralize motivated right-wing foot soldiers and Astroturf groups? Or will those GOP robocalls and conservative vehemence ultimately topple unsteady Democrats? It’s a real test of leadership for the president. And as others have rightly pointed out, it’s a test of the progressive base, too.

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The Bunning Blockade Ends

Wednesday, March 3rd, 2010
Elbert Ventura


Elbert Ventura is the managing editor of the Progressive Policy Institute.

by Elbert Ventura

Sen. Jim Bunning (R-KY), who had held up Senate passage of a $10 billion short-term benefits extension for days, finally relented yesterday and allowed the measure to come for a vote. Bunning’s objection to unanimous consent to pass the package resulted in the elapsing of funding for a host of federal programs, including infrastructure projects, unemployment benefits, and Medicare payments.

The Kentucky senator, who is retiring after this year (with a helpful nudge from his fellow Republicans), had demanded that Democrats find offsets in the budget for the legislation. Democrats retorted that the bill was a short-term emergency measure that did not fall under “pay-go” rules. (Democrats, on a party-line vote, reinstituted “pay-as-you-go” rules in January.)

The Bunning blockade proved to be a heaven-sent illustration of Republican obstructionism and heartlessness. McClatchy came up with a handy graphic depicting its state-by-state effects:

Even as the blockade stretched over the first couple of days of this week – leaving about 1.2 million unemployed people high and dry, 2,000 Department of Transportation workers furloughed, and numerous projects halted – some of Bunning’s colleagues actually voiced their support for his actions. Sen. John Cornyn (TX) said:

It’s not fun to be accused of having no compassion for the people who are out of work, the people for who these benefits should be forthcoming, and I believe will be forthcoming. But somebody has to stand up, finally, and say enough is enough, no more inter-generational theft from our children and grandchildren by not meeting our responsibilities today.

Meanwhile, Sen. Jon Kyl (AZ), in response to Bunning’s filibuster of unemployment compensation, helpfully noted: “In fact, if anything, continuing to pay people unemployment compensation is a disincentive for them to seek new work.” Even newly minted Sen. Scott Brown gave Bunning’s efforts a thumbs-up:

The perception in Massachusetts and other parts of the country is that Washington is broken. And if it takes one guy to get up and make a stand, to point out that we need a funding source to pay for everything that’s being pushed here, I think that speaks for itself.

Here’s the best part: Bunning, along with every Republican in the Senate, voted against “pay-as-you-go” legislation. Republicans had thundered that the pay-go bill was a political fig leaf and that Democrats weren’t really serious about budget sanity. Considering that previous pay-go rules elapsed in 2002 under the Republicans’ watch, and that they also presided over the ballooning of the deficit, I suppose they’re experts on the subject.

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President Obama’s Letter: Setting up the Final Push

Tuesday, March 2nd, 2010
Elbert Ventura


Elbert Ventura is the managing editor of the Progressive Policy Institute.

by Elbert Ventura

The White House today released a letter from President Obama pointing a way forward for passing health care reform. True to the course that he set at the Blair House summit last week, he stressed the areas of agreement between the two parties, even as he acknowledged some unbridgeable differences.

A considerable portion of the letter — and the part that has gotten everyone’s attention — goes into detail about four GOP ideas that the president said he would like to see in any final package. The president writes:

1. Although the proposal I released last week included a comprehensive set of initiatives to combat fraud, waste, and abuse, Senator Coburn had an interesting suggestion that we engage medical professionals to conduct random undercover investigations of health care providers that receive reimbursements from Medicare, Medicaid, and other Federal programs.

2. My proposal also included a provision from the Senate health reform bill that authorizes funding to states for demonstrations of alternatives to resolving medical malpractice disputes, including health courts. Last Thursday, we discussed the provision in the bills cosponsored by Senators Coburn and Burr and Representatives Ryan and Nunes (S. 1099) that provides a similar program of grants to states for demonstration projects. Senator Enzi offered a similar proposal in a health insurance reform bill he sponsored in the last Congress. As we discussed, my Administration is already moving forward in funding demonstration projects through the Department of Health and Human Services, and Secretary Sebelius will be awarding $23 million for these grants in the near future. However, in order to advance our shared interest in incentivizing states to explore what works in this arena, I am open to including an appropriation of $50 million in my proposal for additional grants. Currently there is only an authorization, which does not guarantee that the grants will be funded.

3. At the meeting, Senator Grassley raised a concern, shared by many Democrats, that Medicaid reimbursements to doctors are inadequate in many states, and that if Medicaid is expanded to cover more people, we should consider increasing doctor reimbursement. I’m open to exploring ways to address this issue in a fiscally responsible manner.

4. Senator Barrasso raised a suggestion that we expand Health Savings Accounts (HSAs). I know many Republicans believe that HSAs, when used in conjunction with high-deductible health plans, are a good vehicle to encourage more cost-consciousness in consumers’ use of health care services. I believe that high-deductible health plans could be offered in the exchange under my proposal, and I’m open to including language to ensure that is clear. This could help to encourage more people to take advantage of HSAs.

None of those suggestions should surprise anyone who saw the summit or has been paying attention to the president on health care the last few months. Three of the four touch on cost control, which is also not a surprise considering that’s the one area that both sides agree needs to be addressed (although only one party seems to be willing to actually pass legislation to do something about it). As TNR’s Jonathan Cohn rightly points out, the fraud and Medicaid payment proposals should win Democratic support, while the other two might have more trouble.

The key part of the letter, however, comes at the end:

I also believe that piecemeal reform is not the best way to effectively reduce premiums, end the exclusion of people with pre-existing conditions or offer Americans the security of knowing that they will never lose coverage, even if they lose or change jobs.

The president, who is scheduled to speak tomorrow to chart his way forward for passing reform, here seems like he’s laying the groundwork for Congress to go down the path everyone has already discussed: passage by the House of the comprehensive bill that the Senate has passed, and a sidecar reconciliation bill to “fix” parts of the bill that House members find objectionable.

What’s important, too, is the language that he uses to justify the continued push. If cost control was the issue on which he could reach out to Republicans, coverage and affordability for ordinary families are the talking points as far as selling reform to the public and to the Democratic caucus. Ending exclusions based on pre-existing conditions, lowering out-of-pocket costs, keeping coverage even after losing your job: these are all hugely popular and marketable ideas. The Democrats have thus far done a poor job of explaining the kitchen-table benefits of reform. But those benefits are real, and they will redound to the benefit of the party who can make reform happen, something Obama seems to understand.

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What We Talk About When We Talk About Health Care

Monday, March 1st, 2010
Elbert Ventura


Elbert Ventura is the managing editor of the Progressive Policy Institute.

by Elbert Ventura

Regardless of the outcome of the Democratic health reform push, one point is obvious: at every turn, they lost the messaging battle to Republicans and the Tea Party. The latest reminder came this morning, as the umpteenth story on budget reconciliation came on the radio. These days, to talk about health care reform is to talk about process — exactly where the GOP wants the conversation to be.

Over the last few weeks, a new narrative has taken hold in health care news: that of a partisan Democratic Party determined to “ram” a bill through Congress. It’s a frame that the GOP has been relentless and disciplined in perpetuating. Some have even taken to calling it the “nuclear option,” which in its previous political incarnation was the name Trent Lott gave the Republican effort in 2005 to change filibuster rules for judicial nominations.

The “nuclear option” as shorthand for budget reconciliation is not only a misnomer, it’s flat-out misleading. Hardly unprecedented, budget reconciliation has been used 22 times since the process was established in 1974. As Jackie Calmes wrote in the New York Times last week, 16 of those times, it was the Republican Party that used it to “ram legislation through on a one-party vote” (at least that’s how House GOP Leader John Boehner describes its use today).

Moreover, reconciliation has been used several times to pass health care legislation. NPR’s Julie Rovner, who has done superb work on the health care story, pointed out that health care provisions ranging from COBRA (it even says so in the name — COBRA stands for Consolidated Omnibus Budget Reconciliation Act) to the Children’s Health Insurance Program (CHIP) to changes in Medicare and Medicaid have come via reconciliation.

But efforts by reporters like Rovner notwithstanding, the Democrats have already lost this battle as the media have taken the GOP’s cue and fixated on process. The unwarranted magnification of reconciliation is not unlike the media frenzy over Sen. Ben Nelson’s “Cornhusker Kickback,” a bit of horse-trading that was hardly unusual in writing bills, but somehow became the equivalent of a legislative high crime by the time the GOP and the media were done with it.

More than any other piece of legislation in recent memory, health care reform has been debated, negotiated, and written under the unforgiving attention of the 24-hour cycle. This is as close a view as the American public has had to the sausage-making in Washington. They don’t like what they see. Republicans are well aware of this, and continue to point the spotlight on the frequently ugly process.

And so we are now at the current pass. One party has made unprecedented use of the filibuster to prevent anything from being done. The other party is now thinking of using a procedural tactic used nearly two dozen times since 1980, including to pass health care legislation, to break the impasse. While there certainly has been more attention on the abuse of the filibuster of late, that the use of reconciliation is even a story is a problem for Democrats. That Democrats are playing defense on a matter of process speaks volumes about their PR ineptitude, the Republicans’ messaging cohesion, and the media’s ongoing failure to go beyond stenography.

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All in on Health Reform

Friday, February 26th, 2010
Will Marshall


Will Marshall is the president of the Progressive Policy Institute.

by Will Marshall

There’s something poignant about President Obama’s attempts to reason with congressional Republicans. He keeps hoping that facts, evidence, and logic somehow can penetrate the depleted-uranium armor of conservative ideology. As yesterday’s health summit showed, it hasn’t worked, but a public frustrated with Washington’s tribal politics will probably appreciate the effort anyway.

The summit nonetheless achieved its real purpose, which was not composing differences but illuminating the two parties’ starkly contrasting visions for health care reform so that the voters can make a real comparison. For the past year, Republicans have had the advantage of attacking (often dishonestly) Democrats’ plans without anyone paying much attention to what they have to offer.

The summit put them on the spot, and the clear answer was: not much. Here’s what we learned about what Republicans mean by reform:

First, they don’t much care about health care’s “have nots” – 45 million Americans without coverage. Sure, they favor a modest expansion of coverage to about three million people, but that only begs the question of why the lucky few and not everyone? The answer is that Republicans don’t really believe it’s government’s responsibility to make sure everyone can get access to affordable coverage.

Second, Republicans do care about restraining rising health care costs for those with coverage. But their preferred solutions — medical savings accounts, and allowing people to buy cheaper insurance policies out-of-state — are tilted toward the healthy. The former takes healthy people out of insurance pools, raising premiums for those who remain. The latter allows people to end-run state mandates on the medical services insurance companies must offer. That’s fine for healthy people who can get by with bare-bones coverage, but it doesn’t help the sick. In fact, Republicans generally oppose the insurance market reforms that would prevent companies from cherry-picking healthy customers or dropping people when they get sick.

Third, the GOP has no intention of helping Obama and the Democrats improve their plans, let alone pass them. They feel little pressure to do so, because they think they have the public on their side.

It’s true that polls show majorities are leery of the Democrats’ reform proposals, even if Americans still want Obama to “do something” about health care costs and coverage. Rather than crumble in the face of public skepticism, Obama adroitly used the summit to reframe the health care debate as a choice between action or inaction on one of the nation’s most vexing problems.

The spotlight now shifts to his party. Will liberals torpedo health reform because it doesn’t include the public option? Will moderates play it safe or take a risk for the larger good of their party and their country? Will health care reform be a casualty of that hardy perennial of the culture wars, abortion?

Can congressional Democrats, in short, summon the will and discipline to rise above their own centripetal forces and govern? It should be obvious that failure would reinforce the Republican narrative: the bill was misbegotten in the first place, an overly ambitious, big-government monster that couldn’t even pass muster with Democrats.

Obama has gone all in; now his party needs to follow.

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Grumpy Old Party

Friday, February 26th, 2010
Ed Kilgore


Ed Kilgore is a PPI senior fellow, as well as managing editor of The Democratic Strategist, an online forum.

by Ed Kilgore

If you are unemployed, or if you are one of the millions of people hanging on to cancelled employer-sponsored health insurance via COBRA, your life will take a turn for the more insecure on Sunday, thanks to Sen. Jim Bunning (R-KY), who wants to make a symbolic gesture about federal spending. Bunning is refusing to let the Senate vote on totally noncontroversial extenders for these provisions, which will probably force a cloture vote and at least a week’s delay in restoring unemployment insurance and COBRA.

What makes this weird is that Bunning is taking this action not to secure any concessions on present or future legislation, but to express his grumpiness about something that’s already happened: Senate passage of the first chunk of jobs legislation by a 70-28 vote.

Now you have to appreciate that Bunning is a very angry old man. Never a very genial soul, he was pushed into retirement by his own party because it looked like he would be defeated even in a good Republican year, in part because he’s exhibited some signs of being a few bricks shy of a load. So he’s mad at his colleagues, and maybe even mad at his constituents, for their failure to let him serve in the Senate into his ninth decade of walking the earth.

The most appropriate response to Bunning’s grievances is probably the words the senator himself contemptuously uttered yesterday to Sens. Dick Durbin and Jeff Merkley when they cited the plight of the unemployed and soon-to-be-uninsured in asking him to let the extenders come to a vote: “Tough s__t!” The people he’s affecting with his little fit of pique have a lot more to complain about than Bunning, who’s largely wasted twelve years in the Senate being a grumpy old man. But he is a fitting symbol of the obstructionism of his party in Congress, which knows no bounds and feels no shame.

This item is cross-posted at The Democratic Strategist.

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Evening Fix

Thursday, February 25th, 2010
Elbert Ventura


Elbert Ventura is the managing editor of the Progressive Policy Institute.

by Elbert Ventura

Some of the day’s best reads:

  • Peter Beinart urges Democrats to pass health reform through reconciliation: “The GOP actually has a point here: There is something undemocratic about passing laws that a majority of Americans oppose. We just don’t happen to live in a democracy; we live in a democratic republic.”
  • The Hill on Charlie Crist sounding more and more like an independent: “The campaign is definitely headed in a different direction, which is to be understood, what with its declining poll numbers. The question is what kind of direction.”
  • Politico on the left’s suspicions over a deficit reduction commission: “Liberals aren’t entirely enthralled by the concept of a deficit commission, let alone one that gives a voice to a prominent conservative such as former Wyoming Sen. Alan Simpson.”
  • Political scientist John Sides on conservatives and government spending: “Conservatives agree that the government spends too much. But ask them what to cut…”
  • A Denver Post photo essay on the U.S. offensive in Marjah.
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Financial Regulation Is Good — But Consumer Financial Protection Is Better

Thursday, February 25th, 2010
Mike Derham


Mike Derham is chair of PPI's Innovative Economy Project.

by Mike Derham

Paul Volcker, vanquisher of inflation in the early ’80s as chairman of the Federal Reserve System and now the chairman of President Obama’s Economic Recovery Advisory Board, said, “[T]he most important financial innovation that I have seen the past 20 years is the automatic teller machine.” While he qualified the comment as a “wiseacre remark,” he stood by it, going on to say, “Indeed, it was quite good in the 1980s without credit-default swaps and without securitization and without CDOs.”

Our friend Bob Litan has a new report out from the Brookings Institution on the benefits from financial innovation over the past thirty years. The report is worth reading in full, but a quick summary of his findings is found in a chart at the beginning of the paper (condensed into one image by Kevin Drum):

Given attitudes like Volcker’s, it might be surprising to see so many “+”s, connoting relative benefits, relative to “-”s, connoting developments that did not improve that part of the economy. (“0″ indicates the innovation was a wash.) But that is the reality of innovative financial instruments — they are, by and large, designed to be beneficial, but unmonitored can cause more harm than good. Innovations like credit scoring, collateralized debt obligations (CDOs), and inflation-protected Treasury bonds (TIPS) — all were developed since Volcker was Fed chair. But the benefits from these innovations (increased access to credit, which allows for consumption smoothing) can also lead to abuses of the system (crushing credit card debt, NINA mortgages, balloon payment mortgages) and asset bubbles. These abuses can be swept under the rug if the underlying assets in a CDO are not transparent, and that CDO is sold to an unsuspecting client by an investment bank trading desk.

The status quo is unsustainable, but attempts to ban some of these activities are problematic as well. Proclamations like the Volcker rule – limiting the scope of bank activity — are either too tightly defined to be effective or are so broad they throw out the above benefits with the bathwater. What would be better is to provide transparency in these activities — through clearing credit default swaps (CDS) and other derivatives on exchanges, providing credit terms in an easily understood manner upfront, and eliminating hidden fees — so that all involved know what they are getting into.

Litan also points out one key fact at the end of his paper: we’re not done with financial innovation. He argues that despite the headlines, not all innovation is bad, and there is more to come. He cites the work of Robert Schiller, the Yale professor who has pioneered work in housing price markets — designed to give homeowners protection they currently don’t have against a fall in the value of their home — and counter-cyclical tax policy, as an obvious source of financial innovation that is for the good.

But Litan concludes by noting that the market — not government — will continue to drive innovation, but “policymakers must be better prepared in the future than they were before the financial crisis to step in — first with disclosure standards and possibly later with more prescriptive rules” to prevent crises like the most recent one from happening again. The one area where he sees a more active government role is in consumer finance, an area in which a robust Consumer Financial Protection Agency will be key.

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Summit Spectacle

Thursday, February 25th, 2010
Ed Kilgore


Ed Kilgore is a PPI senior fellow, as well as managing editor of The Democratic Strategist, an online forum.

by Ed Kilgore

Like many of you, I’ve been watching the health care summit, and can’t decide just yet if it’s a spectacle of complex drama, or just one of the longest congressional hearings to be broadcast in a long time. For those unfamiliar with congressional events, the preliminary throat-clearing and personal preening must be excrutiating.

The Republican strategy for this event is pretty clear already: act like the administration is doing something really outrageous by using reconciliation to finalize the health care legislation already passed by both Houses. As I mentioned yesterday, this is factually ludicrous, but repeating talking points does sometimes work.

It’s pretty interesting that tea partiers are protesting the very existence of the event outside Blair House. Appointing themselves representatives of the people, and making unconditional demands on their behalf, has been a hallmark of their movement all along.

Editor’s note: The summit is being webcast live on C-SPAN.

This item is cross-posted at The Democratic Strategist.

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