Posts Tagged ‘ Economy ’

« Older Entries

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.

Download the PDF version.

  • Share/Bookmark

Tags: , , , , , , , ,
Posted in A New Framework for Growth and Equity, Daily Fix, Policy Memo | 2 Comments »

Charting a Course for a National Infrastructure Revival

Wednesday, February 24th, 2010
Norman Anderson


Norman Anderson is the president and CEO of CG/LA Infrastructure.

by Norman Anderson

As the United States struggles to rouse itself from its economic slumber, the country is beginning to keenly feel the need to lay down a foundation for a new and vibrant economy. A concerted effort to modernize our infrastructure must top any checklist for recovery. The backbone of our economic system has suffered from years of neglect – budgetary, conceptual, institutional. With his recent request for $4 billion to create a National Infrastructure Innovation and Finance Fund, it’s encouraging that President Obama seems to understand how essential an infrastructure revival is to our prosperity.

But such a fund is not nearly enough to bring our infrastructure into the 21st century. And simply devoting money to projects will not lead to results unless we have a clear strategy for revitalizing and reinventing our roads, bridges, railroads, mass transit, and other structures and systems essential to sustaining productivity.

To put it plainly, our current infrastructure model is exhausted. We currently invest 1.3 percent of GDP in infrastructure; in 1980, we invested over three percent. Worse, we are investing in the wrong kind of infrastructure. Right now, we are barely covering replacement costs for a system designed 50 years ago — and which now badly needs updating just to keep up with the rest of the world.

For our country to be globally competitive, we will need to nearly triple our level of infrastructure investment each year over the next 10 years, from the current $150 billion level to at least $400 billion per year. And we will need to think differently about infrastructure, designing projects and promoting firms that are carbon neutral, highly innovative, and transformative.

These goals will require a fundamental shift in orientation, and a new conceptual framework for infrastructure. To see infrastructure through a new prism, we need:

  • bold leadership that inspires Americans to dream big about infrastructure again
  • an uncompromising competitiveness agenda that puts us on track to keep pace with — and lap — nations like China

From that perspective springs three specific ideas on how to get us on a course to an infrastructure revival:

  • a true National Infrastructure Bank
  • a new, NASA-equivalent agency for infrastructure
  • a new focus on the design and aesthetics of infrastructure projects

A Conceptual Framework for Infrastructure

First, the country needs a positive and unified infrastructure vision that ties together immediate job creation and long-term productivity. The last time the country had a grand vision for infrastructure was 60 years ago with the Interstate Highway System.

In a sense, we need to learn how to think about infrastructure again. Without an organizing vision, we are unmoored. In our current mindset, any project will be just as good as another. The discipline of setting priorities, and of creating and following budgets to reach toward an inspiring and ambitious vision, has disappeared. The Greatest Generation conjured up the last coherent vision for U.S. infrastructure. Now we need to create – and execute – a new vision for the next generation.

Second, we need to place the issue of competitiveness at the center of the debate. Like boiling a frog by gradually raising the temperature, the current catastrophe happened slowly, without our noticing until it was too late. For instance, China is investing $300 billion in high-speed rail through 2020, while we congratulate ourselves on a measly $8 billion down payment on a system that lacks vision, institutional support, or a budgetary glide path.

Now that we’ve noticed how far behind we’ve fallen, we have to look at infrastructure through the lens of global competitiveness. We need to be able to make, move, and deliver things much more cheaply. We need to give people better, cheaper, quicker, and cleaner options for moving themselves around the country. And we need to make sure that our water and air quality are measurably world-class. There are many ways to think about competitiveness, but having the right infrastructure, built and operated at a world-beating price, is the place to begin.

From Concept to Execution

But vision and motivation aren’t enough. We also have to execute – to get the mechanics right, and quickly. The third challenge that we need to overcome is that of funding. Specifically, we need a long-term source that will be reliable and impervious to changes in political administrations. Such an agency will also need the authority to select and seed priority infrastructure projects and systems.

A National Infrastructure Bank would fill this void. The bank would be capitalized through the sale of infrastructure bonds to middle-class Americans, who would triply benefit from their investments – contributing to better infrastructure, directly engaging in the creation of a stronger country, and individually benefiting from coupon returns on their investment.

The bank would cover all infrastructure sectors, from transportation to water to energy, and would need to be capitalized at a level of at least $400 billion over 10 years, yielding a minimum of $160 billion a year in strategic infrastructure investments. The National Infrastructure Bank would be a strategic and necessary complement to the Obama administration’s highly successful Build America Bonds program. Overall, this effort would create between two million and 2.5 million new jobs per year for the next 10 years.

We also need a high-functioning public sector – and one viewed as such by the public – if we are to rebuild our infrastructure. More than in most areas of the economy, there is a productive tension in infrastructure policy between the market’s ability to identify opportunities and the long-term wisdom the public sector can provide. Without a strong public sector, this necessary balance – identifying opportunities and creating jobs now, while ensuring benefits for the next generation – will fall out of balance. Private sector energy will never be unleashed on our infrastructure challenges unless there is a strong, high-functioning, and strategic public sector with which it can reliably and aggressively partner.

Today, the public sector – and particularly the infrastructure public sector – is neither seen nor treated as an indispensable arm of a successful state. A fretwork of agencies are involved in different fiefdoms of infrastructure, from the Federal Highway Administration to the Department of Energy to the Environmental Protection Agency. This needs to change. We need an equivalent of NASA for infrastructure, a powerful new federal agency that could drive vision and policy at all levels.

Fifth, we must bridge a design gap.  The U.S. has fallen into a budget trap in infrastructure. We are so pressured by budget issues and the threat of cost overruns that we design our projects without much attention to the inherent grandeur of infrastructure. We seem to be governed by a belief that the aesthetically pleasing is more expensive than the pedestrian, when the reverse is actually true.

Bridges, airports, subway stations, highways, and high-speed rail stations are powerful symbols that define a country and its capacities. Projects and the networks they serve say something about how a nation views itself. Crumbling infrastructure, cut-rate design, and the absence of super projects all suggest not only a lack of confidence – they saddle us with inferior infrastructure well into the future.

Conclusion

We have to establish economic priorities to get ourselves back on our feet. Making strategic decisions on our infrastructure is essential to bring vibrant and equitable growth. The Obama administration needs to fill the voids in our infrastructure policy as soon as possible. Under the right leadership, a recalibration of our infrastructure outlook and priorities can create up to five million jobs in the short run, erasing the losses of the last two years and ensuring an extraordinarily productive future for the next generation.

Editor’s note: This article has been updated since its original publication.

Download the PDF version.

  • Share/Bookmark

Tags: , , , , , ,
Posted in Clean Energy and Modern Infrastructure, Daily Fix, Policy Memo, Slider | 2 Comments »

The Beginning of the End?

Friday, February 19th, 2010
Mike Derham


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

by Mike Derham

The news yesterday that the U.S. Federal Reserve raised the discount rate 25 basis points (to 0.75 percent from 0.50 percent) is being interpreted as an indication of a fundamental change in how the Fed views our economic crisis. The hike in the discount rate could signal the beginning of the end of our economic crisis.

The discount rate is not to be confused with the more prominent Fed funds rate. The Fed funds rate is the rate at which banks lend money to each other in overnight loans for regulatory and liquidity requirements. The discount rate is the rate at which the Fed lends money to private retail banks — traditionally at a percent above the Fed funds rate — in short-term loans aimed at easing liquidity constraints. But in recent decades borrowing from the so-called discount window had been seen by large banks as the financial equivalent of pulling over to ask for directions — you can do it, but it’s seen as a sign of weakness. The aftermath of 9/11 was the last time the discount window had seen serious activity prior to the 2008 economic crisis.

The Fed met the current crisis in part by making the discount window more available to banks. The terms of loans through the discount window went from being overnight to ultimately 90 days. The discount rate was cut from being 100 basis points (one percent) above the Fed funds rate to 50 basis points. And in a move that underscored the gravity of the October 2008 liquidity crisis, Goldman Sachs and Morgan Stanley turned themselves into bank holding companies — a technical change in their operating structure that required much more oversight — in part to be able to access the discount window in case they faced a liquidity crunch.

This opening of the discount window was part of a larger project by the Fed — which involved pumping liquidity into the economy by buying up almost two trillion dollars in assets — to prevent the crisis of fall 2008 from leading to a global depression. But now that the worst seems to be over from a monetary perspective, the Fed is beginning to step away from the crash position it assumed almost two years ago.

Newly reappointed Fed Chairman Ben Bernanke laid out a plan for unwinding the Fed’s position in the economy last week, testifying to Congress that “when the times comes,” the Fed will move to sell that two trillion in assets (in an orderly fashion) to a stronger market. This would give the Fed more room to manage the economy to bring us out of recession. The raising of the discount rate would be the first step in that process.

The phrase “when the time comes,” however, makes all the difference in the world, and many wiser people than I are expecting the Fed to go easy on its plan to shrink it’s balance sheet and raise rates. With unemployment hovering at 10 percent, this recession isn’t over for a lot of Americans. And, despite last quarter’s strong headline number, there is no obvious driver of GDP growth (like exports) on the horizon, so it may not be over for the rest of us, either. So it may be too soon to call the recession over and begin raising rates. The fear is that this may not be the beginning of the end, but the end of the beginning.

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

  • Share/Bookmark

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

The World Without Obama

Friday, February 19th, 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’ve been watching the cult TV show “Lost,” then you’re familiar with the concept of parallel universes. That is, alternate realities in which history turned out differently, because people made different decisions.

It’s a useful concept when it comes to thinking about President Obama’s current predicament. On a variety of fronts, the Obama administration is suffering from an inability to show Americans the parallel universe in which its past policies were not enacted — and the future that will result if its current proposals bite the dust.

That’s most obviously true with the early, fateful decisions to continue TARP and bail out the auto companies. They arguably averted the collapse of the global financial system, the virtual extinction of consumer and business credit, and 1930s levels of unemployment (especially hard-hit would have been the upper Midwest). Nevertheless, no matter how often the president tells us his actions kept a deep recession from developing into a Great Depression, it remains an abstract proposition for the people who are currently unemployed. The same is true for the 2009 economic stimulus package, which virtually all experts, public and private, credit with saving about two million jobs. The continued job losses reported each month make it hard to claim that one has succeeded by avoiding even greater unemployment.

The problem of “proving a negative” is even more daunting when it comes to prospective policy proposals. Critics savage Obama for a health care plan that doesn’t do enough to limit costs. Obama responds that health care costs are going up anyway, without a plan. But it’s not easy to convince people that the status quo is riskier than a large and complicated series of changes in how Americans obtain health insurance. That’s why the White House has made such a big deal out of Anthem Blue Cross’s gargantuan premium increases for individual policyholders in California. It is, they argue, a sign of where the status quo is headed absent reform. They do not, unfortunately, have such a convenient example that will help them explain the need for climate-change legislation, as conservatives, stupidly but effectively, cite this winter’s heavy snowstorms as disproof for the scientific consensus about global warming trends.

There is one way to deal with Obama’s dilemma. Although it’s difficult to prove that American life under the president’s policies is better than life without them, it should be easier to point to another parallel universe: life under Republican policies. But such an effort requires a basic strategic decision. Should Democrats point back to the reality of life under George W. Bush, which most people remember pretty vividly, and simply say today’s GOP wants to “turn the clock back”? Or should they focus on current Republican proposals, such as they are, which in many respects make Bush policies look pretty responsible? It’s hard to take both tacks simultaneously, since the extremism of contemporary Republican politics is in no small part motivated by a determination to separate the GOP and the conservative movement from association with that incompetent big spender, Bush, who failed because he “betrayed conservative principles.”

It appears the White House is increasingly inclined to take the second, forward-looking approach to highlighting the GOP’s desired alternate reality, rather than the first, backward-looking one. As much as some Democrats wail about the “bipartisanship” rhetoric that surrounds Obama’s outreach to Republicans, which he’s employed while challenging them to direct debate over health reform and economic recovery, the president’s main intention is clear. He wants to force the opposition to help him present voters with a choice between two specific courses of action — or simply admit that their strategy is one of pure gridlock, obstruction, and paralysis (which, as my colleage J.P. Green has pointed out, spells “G.O.P”).

The stake that Obama and the Democrats have in convincing Americans to consider these parallel universes couldn’t be much higher. This November, if voters remain fixated on the current reality, rather than the terrible alternatives, then the midterm elections really will be a referendum on the status quo and its Democratic caretakers. Explaining life as it would be without Obama, and as it could be under Republican management, is not easy. But Democrats must do it or face catastrophe at the polls.

This item is cross-posted at The Democratic Strategist.

  • Share/Bookmark

Tags: , , , , , , , , ,
Posted in Daily Fix, Fixing Our Broken Politics | No Comments »

Champion Enterprise, Not Paternalism

Thursday, February 18th, 2010
Will Marshall


Will Marshall is the president of the Progressive Policy Institute.

by Will Marshall

The following piece was written for a conference on progressive governance being held this week in London by the Policy Network, an international think tank dedicated to promoting progressive policies:

For many on the left, the near-collapse of America’s financial system during the winter of 2008-2009 was irrefutable proof of the failure of free market ideas. The new consensus — let’s call it the anti-Washington consensus — was solemnized by business and political elites in Davos last month. Fittingly enough, French President Nicolas Sarkozy delivered the eulogy for neoliberalism.

The Anglo-American model is dead. Long live state capitalism!

Not so fast. In America at least, popular attitudes have not lurched in a more interventionist or social democratic direction. If anything, there’s been a backlash against the emergency measures the Obama administration has undertaken to unlock credit, bail out big banks holding worthless securities, reduce home foreclosures, and keep big U.S. auto companies afloat.

That has perplexed and frustrated Democrats, who believe the government should get more credit for again saving capitalism from the capitalists, just as it did in Franklin Roosevelt’s day. But Wall Street’s fall from grace doesn’t automatically translate into rising public receptivity to a more active state. Anti-business and anti-government attitudes can and do co-exist easily in the American mind.

President Obama maintains, quite plausibly, that Washington’s decisive intervention kept the economy from tumbling into the abyss. But unprecedented public deficits, the government’s effective takeover of large finance and auto companies, and, yes, Obama’s push for comprehensive health care reform, also seem to have resurrected old fears about “big government.”

One likely reason is the sheer, pharaonic scale of government spending to rescue the economy: nearly $4 trillion when you add the Federal Reserve’s efforts to pump liquidity into financial markets, aid for failing banks, last year’s $787 billion “stimulus” plan, and another $100 billion jobs bill for this year. And many in middle America are barking mad that political elites have used tax dollars to shield economic elites from the consequences of their own greed and ineptitude. This is especially true of the independent voters who helped Obama to win a solid majority in 2008, but whose defection over the past year has fueled Republican victories in elections in Virginia, New Jersey, and, most shockingly, the liberal bastion of Massachusetts.

Meanwhile, the U.S. economy is growing again, by a gaudy 5.7 percent of GDP in the last quarter of 2009. There’s been little crowing at the White House, however, not when many small businesses still can’t get credit, people continue to lose their homes, and unemployment remains stuck in double digits.

For Obama and the Democrats, the central economic challenge is not to sell some new model of state-managed capitalism to a public already worried about government spending and overreach. It’s to rebuild the American economy’s capacities for brisk innovation and job creation. That will require striking a careful balance between new regulation and entrepreneurial risk-taking.

With Wall Street again reaping huge profits (and dishing out fat bonuses), some sort of financial regulation likely will pass soon. The key tasks here are reducing moral hazard by ensuring that no financial institution becomes too big or interconnected to fail, raising capital requirements to curb excessively leveraged speculation, and creating transparency in the trading of exotic financial products like derivatives.

But what the country needs even more is a progressive opportunity agenda that emphasizes technological innovation, small business creation, American competitiveness, fiscal discipline, better schools, and middle-class jobs. Such an agenda would include the following elements:

An aggressive infrastructure initiative. Washington must reverse decades of neglect and double or triple spending aimed at modernizing America’s aging and inadequate public infrastructure. Even that, however, won’t be nearly enough, which is why progressives are calling for a National Infrastructure Bank to leverage private investment in high-speed rail, intelligent transportation systems, a smart electricity grid, and next-generation broadband.

A big boost for clean and efficient energy. The United States needs to put a price on carbon, which would raise billions to invest in developing clean fuels and technologies. Unfortunately, Obama’s “cap and trade” proposal is languishing in Congress, a victim of Republican obscurantism on climate change.

More exports. Obama wants to double U.S. exports, but the White House has not pushed Congress hard to pass the U.S.-Korea trade pact. Nor has it confronted China and other Asian nations whose currency manipulations keep U.S. (and European) goods at a competitive disadvantaged.

Fiscal restraint. America’s heavy borrowing from abroad weakens the dollar and deepens our reliance on foreign creditors. To maintain the nation’s fiscal integrity and independence, Obama must walk a fine line between winding down our enormous public deficits and debts and continuing to pump up domestic demand. The key is to reduce the unsustainable growth of public health care costs, which is why Obama is right not to give up on health care reform this year.

An entrepreneurial climate. Over the last three decades, firms less than five years old have accounted for nearly all net job creation in the United States. U.S. progressives should embrace policies that foster innovation and entrepreneurship: more public spending on research, a light-handed approach to regulating and taxing new enterprises, fiscal discipline to keep capital costs low, dramatic improvements in education and preferences for skilled immigrants.

In the ideological hothouse of Washington, it’s natural for Democrats to argue that the financial crisis has discredited market fundamentalism. But the antidote isn’t more government, it’s a progressive model for innovation-led growth that champions individual enterprise and middle class aspiration.

  • Share/Bookmark

Tags: , , , , , , , , , , , ,
Posted in A New Framework for Growth and Equity, Daily Fix, Fiscal Responsibility | 1 Comment »

China and the Cyber Threat

Wednesday, February 17th, 2010
Jim Arkedis


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

by Jim Arkedis

James Fallows of The Atlantic has an excellent piece on China and the cyber threat (as well as some other points on the Chinese military). A few excerpts about cybersecurity:

China has hundreds of millions of Internet users, mostly young. In any culture, this would mean a large hacker population; in China, where tight control and near chaos often coexist, it means an Internet with plenty of potential outlaws and with carefully directed government efforts, too. In a report for the U.S.-China Economic and Security Review Commission late last year, Northrop Grumman prepared a time line of electronic intrusions and disruptions coming from sites inside China since 1999. In most cases it was impossible to tell whether the activity was amateur or government-planned, the report said. But whatever their source, the disruptions were a problem. And in some instances, the “depth of resources” and the “extremely focused targeting of defense engineering data, US military operational information, and China-related policy information” suggested an effort that would be “difficult at best without some type of state-sponsorship.”

[...]

[Cyber authorities] stressed that Chinese organizations and individuals were a serious source of electronic threats—but far from the only one, or perhaps even the main one. You could take this as good news about U.S.-China relations, but it was usually meant as bad news about the problem as a whole.

[...]

This led to another, more surprising theme: that the main damage done to date through cyberwar has involved not theft of military secrets nor acts of electronic sabotage but rather business-versus-business spying. Some military secrets have indeed leaked out, the most consequential probably being those that would help the Chinese navy develop a modern submarine fleet. And many people said that if the United States someday ended up at war against China—or Russia, or some other country—then each side would certainly use electronic tools to attack the other’s military and perhaps its civilian infrastructure. But short of outright war, the main losses have come through economic espionage. “You could think of it as taking a shortcut on the ‘D’ of R&D,” research and development, one former government official said.

And Fallows adds one general extraordinarily striking cautionary note that has little to do with China, but that all policy makers should pay attention to:

[N]early everyone in the business believes that we are living in, yes, a pre-9/11 era when it comes to the security and resilience of electronic information systems. Something very big—bigger than the Google-China case—is likely to go wrong, they said, and once it does, everyone will ask how we could have been so complacent for so long. Electronic-commerce systems are already in a constant war against online fraud. [emphasis added]

The entire piece is worth your time, but those are the big highlights. From my perspective, I’ve seen first-hand how the Pentagon is well-aware of the threat and is devoting substantial assets to detect and disrupt the intrusions. I’m not just talking about the NSA’s new cyber command either — cyber is the hot, new frontier and that creates incentives for every agency under the sun to grab a few million smackers from the budget for working the issue. But where’s the line between effective cyber defense and too many agencies tripping over one another?

  • Share/Bookmark

Tags: , , , , , , , ,
Posted in A Progressive Security Strategy, Clean Energy and Modern Infrastructure, Daily Fix | No Comments »

Euro-zoned Out

Thursday, February 11th, 2010
Mike Derham


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

by Mike Derham

Things in Europe are looking grimmer than my chances of getting a taxi in blizzard-slammed New York City.

Today’s announcement that Germany and France are going to provide financial aid to Greece — with stringent IMF oversight — caps off weeks of speculation that the EU would have to bail out the Hellenic Republic. The newly elected left-wing government in Greece has come clean with what the previous conservative government had been hiding — Greece’s budget deficit for last year was a whopping almost 14 percent of GDP, and this year’s is looking not better. The new government, in a bid to reassure the markets — and the other members of the Eurozone that have all sworn to adhere to the deficit limits of the founding Maastricht Treaty — has promised to get government deficits down to three percent of GDP by 2012. Seeing the coming of severe austerity measures in the wake of what wags have been desperately trying to tag the “ouzo crisis,” Greek civil servants have unsurprisingly gone on strike.

The news is no better outside the Eurozone, where, to take the most latest example, Latvia is putting up numbers that are even grimmer. The Latvian economy shrank by 18 percent the past year, and it’s not likely to rebound anytime soon. (To put that in perspective, U.S. GDP fell by 30 percent over four years at the start of the Great Depression.) Latvia has pegged its currency, the Lat, to the Euro through the Exchange Rate Mechanism (ERM), in hopes of joining the Eurozone like Slovakia did last year, and like its neighbor to the north, Estonia, might do as soon as this July. The Baltic countries want to join the Euro, as adopting a strong currency is a surefire way to control inflation and make it easier for the government to borrow on the international markets (this is why several small economies have unilaterally adopted the Euro or the U.S. Dollar as their currency).

These two cases are emblematic of the issues facing several European countries. Greece has been lumped in with Portugal, Italy, and Spain to form the “PIGS,” southern Europe’s sluggish economies (Ireland is occasionally added to the group as a second “I”: “PIIGS”). Latvia’s problems are similar to those seen all over Eastern Europe, with Lithuania, Poland, the Czech Republic, and Hungary all facing similar — if less dire — straits. But while it looks difficult all over the EU, if I were a small business owner (or finance minister), I’d rather be in Latvia than in Greece.

Why? Because it could be a lot easier for Latvia to get out of its situation than Greece’s. Latvia has been facing a choice: aim for the Eurozone or faster recovery. While the benefits of a small country joining the monetary union make sense over the long term, when faced with a recession a currency devaluation might make more sense. This would immediately make domestic products — now cheaper to make — more competitive, stoking exports and, with them, job and GDP growth. Leaving the ERM would postpone joining the Euro for several years, which could make inflation a problem, but other countries, notably the UK, have been forced to leave the ERM before, and in the UK’s case it helped fuel a strong decade of growth in the 1990s.

The alternative to devaluation is deflation, a painful process where you ratchet down the prices of everything in your economy, from raw materials to salaries, to the point where they become competitive. This is the prospect that Greece is facing. In the Eurozone, Greece cannot lower it’s exchange rate against the markets it exports to — they all use the Euro. Devaluation also makes local currency-denominated debt much easier to pay. And this is where Greece is also getting hammered. As it looks increasingly unlikely to be able to pay its obligations, the yield on Greek debt has jumped. Greek debt is trading for less in the secondary market because investors are less sure that the government will be able to meet it’s obligations. As Greek banks hold significant amounts of Greek government debt, they are teetering on the edge of bankruptcy.

In the end, why should these issues in Europe be a concern to the U.S.? Surely problems in Athens will have limited impact on the largest economy in the world. Well, it’s worth remembering that the bankrupcty of Creditanstalt in Austria following the crash of 1929 was one of the sparks that turned a recession into the Great Depression.

  • Share/Bookmark

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

A Fiscal Dr. Strangelove

Friday, February 5th, 2010
Will Marshall


Will Marshall is the president of the Progressive Policy Institute.

by Will Marshall

Paul Krugman wants Americans to stop worrying and learn how to love the bomb – the fiscal bomb that is.

Just as Dr. Strangelove in the eponymous film classic assures the president that America can survive thermonuclear war, Krugman professes blithe disregard for the impact of massive government borrowing on U.S. fiscal stability.

The public and a good many economists may beg to differ, but what do they know? Voter concern about deficits has grown salient over the past year, as Washington has spent trillions to prop up the economy. Last March, a slight majority approved of President Obama’s handling of the federal budget deficit; in January, a CNN/Opinion Research poll found that 62 percent disapprove.

Krugman dismisses such concerns as “hysteria” and puts them down to a combination of economic ignorance and Republican propaganda.

On one point, the intensely partisan Krugman is dead right: GOP credibility on fiscal discipline is shot to pieces. The Bush Republicans squandered the budget surplus President Clinton bequeathed them on tax cuts and profligate spending. In 2003, they rammed through Congress a trillion-dollar prescription drug benefit for Medicare recipients but somehow forgot to pay for it. Quite a contrast to President Obama, who took pains to insist that Congress fully offset the costs of his health reform plan – with Republicans all the while hooting inanely about “socialism” from the peanut gallery.

But on the fundamental question – whether progressives should ignore America’s huge and growing fiscal imbalances – Krugman is flat wrong. GOP hypocrisy aside, plenty of progressive economists are sounding the fiscal alarm.

Jeff Garten, for example, believes America’s ballooning national debt will lead to “the slow but inexorable decline of the U.S. dollar,” undermining a key source of U.S. prosperity and influence in the world.

In a compelling Time essay, Jeffrey Sachs argues that the mounting public debt is symptomatic of a breakdown in political responsibility in Washington that stymies the nation’s progress. Republicans won’t abandon their anti-tax fetish, Democrats won’t rein in spending, especially on fast-growing entitlements, and the result is paralysis. “Until both political parties make a serious effort to improve the performance of government while shrinking its swelling deficits, Americans will watch both their quality of life and their country’s standing in the world erode,” he maintains.

Liberals, says Sachs, are wrong to cite deficit spending during the New Deal as proof that Americans shouldn’t worry about government borrowing today. During the height of the Depression, he notes, the federal government was running deficits of around about 5 percent of GDP as opposed to 10 percent today. Back then, he notes, we financed our debts domestically. Today about half of our national debt is held by foreign creditors, especially China and Japan.

Now, Sachs is neither an economic ignoramus nor a Republican stooge. He believes, as Krugman does, that public investment is an imperative to create jobs, rebuild U.S. infrastructure, and restore shared prosperity. But unlike Krugman, he recognizes that Washington’s unwillingness to defuse the public debt bomb is relentlessly squeezing out fiscal space for such investment.

President Obama gets it too. He is trying to strike a balance between massive, short-term spending (although not massive enough for Krugman) to stimulate the economy, and the need to restore fiscal discipline over the long haul by freezing domestic spending and creating a bipartisan commission to tackle entitlement reform.

That’s not easy, and he deserves more help than he is getting from liberals like Krugman who pose a false choice between progressive reform and fiscal responsibility.

  • Share/Bookmark

Tags: , , , , , , , , ,
Posted in Daily Fix, Fiscal Responsibility | 3 Comments »

Obama’s Budget: Recognizing the Link Between Food Systems and Jobs

Tuesday, February 2nd, 2010
Elbert Ventura


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

by Elbert Ventura

President Obama’s 2011 budget contains a few notable things for progressives to cheer. One of the items that jumped out at us was its support for an intertwined effort to boost healthy foods and food jobs – an idea that we championed in a December policy paper.

The budget includes $400 million for the Departments of Agriculture, Health and Human Services, and Treasury to finance community development institutions, nonprofits, public agencies, and businesses with strategies for tackling the healthy food needs of communities. Funds will also be available for expanding retail outlets and increasing availability of local foods.

But even more impressive is the language that the administration uses to describe its food initiatives. In summary after summary, the link between food and jobs keeps popping up.

From the “Spur Job Creation and Revitalize Rural America” fact sheet:

The Budget helps lay the foundation for job creation and expanded economic opportunities throughout rural America by…[n]urturing local and regional food systems and expanding access to healthy foods for low-income Americans in rural and urban food deserts.

From an OMB paper on job creation:

First, to support the Rural Innovation Initiative, the Department of Agriculture (USDA) plans to set aside funding to foster rural revitalization through a competitive grant program. Second, the Budget supports local and regional food systems through many USDA programs including the Business and Industry guaranteed loan program and the Federal State Marketing Improvement Program.

From an OMB summary of the USDA budget:

Promotes economic and job creation opportunities for rural America by focusing on five core areas: access to broadband services, innovative local and regional food systems, renewable energy programs, climate change, and rural recreation.

Taken together, these spending decisions on food systems and job creation reveal an administration in tune with the idea of a holistic approach to our economic, social, and health problems. Following a glum January for progressives, the budget offers compelling reminders of the progressive governance that we expected from the administration.

  • Share/Bookmark

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

Translating Growth into Jobs

Monday, February 1st, 2010
Will Marshall


Will Marshall is the president of the Progressive Policy Institute.

by Will Marshall

The U.S. economy ended 2009 with a bang, growing at a torrid pace of 5.7 percent in the final quarter of the year. That’s an impressive number at any time, but the Obama administration isn’t popping corks because, with at least 10 percent of Americans out of work, the nation’s mood is still in recession.

Many economists attribute the expansion to a one-time surge in business purchases of goods and equipment. Take away this “inventory bounce,” and growth was only around 2.2 percent, the same as the third quarter. And they worry that growth will sag when the government runs out of stimulus money this year.

In normal times, economic growth eventually translates into more jobs. But these are not normal times, and with the midterm election looming on the horizon, President Obama wants to goose the pace of recovery. His new budget for 2010 includes $100 billion to stimulate job creation.

In his State of the Union address, the president outlined a bundle of sensible if modest steps to induce community banks to lend to small business, speed up business investment in new plant and equipment, and encourage U.S. companies to create jobs at home instead of shifting operations overseas. All this could help on the margins, but in reality there is little that this or any president can do to plug the jobs gap.

According to Brookings Institute economist Gary Burtless, we need more than eight million more jobs to bring the unemployment rate down to 4.5 percent, or close to what economists define as “full employment.” Given the scale of the challenge, and the risk of a “double dip recession” as federal spending ebbs, some liberals are clamoring for another big stimulus package.

But the White House also has to keep an eye on America’s unprecedented run-up of debt. That’s why the president has called for freezing domestic spending in 2011 and endorsed a bipartisan commission to tackle entitlement reform.

Unlike his critics, Obama has to balance competing national priorities, not simply pick one at the expense of another. Given the economy’s hopeful trajectory, his decision to tweak job creation rather than massively expand government spending is the right one, and it deserves progressives’ support.

  • Share/Bookmark

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

State of the Union: A Litany of Solid, Progressive Proposals

Thursday, January 28th, 2010
Mike Derham


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

by Mike Derham

Facing almost as much uncertainty about the economy one year into his mandate as he did at the outset, President Obama gave his State of the Union address the way we’ve come to expect him to – sticking to his guns with cool determination while acknowledging that not everyone agrees with him. His speech highlighted what he has accomplished and promised to the American people, but didn’t propose any sweeping new changes.

With unemployment at 10 percent and Wall Street banks handing out record bonuses (Goldman Sachs’ bonuses are reported to match 2007’s record levels), and pundits reading doom for the administration in the tea leaves of the Massachusetts election, the political temptation to go populist would be strong. But Obama decided instead to reassert his progressive program for addressing the economy. Obama highlighted not grand industrial policy, but accomplishments that have helped the American people face a truly global recession. The stimulus bill helped us avoid falling off the economic precipice, and unemployment protection and COBRA extensions make a meaningful difference to people looking for work in a changing economy.

Obama’s call to Democrats to not “run for the hills” on issues such as health care suggests that the talk of that reform’s demise was premature. The embrace of centrist – and even Republican – proposals on energy, including nuclear power and offshore drilling, might offer some hope on a climate change bill making it’s way through the Senate. But until politicians spell out what sacrifices will come with addressing climate change, it may be a campaign promise that remains unfulfilled.

Disappointingly, the president soft-pedalled trade and immigration priorities. While they were mentioned, it’s notable that the president didn’t call on Congress to pass free trade agreements with South Korea, Panama and Colombia. And the reference to the Doha global trade round and immigration reform were pro forma at best, not promising any results.

Obama was laying the foundation for significant payoff from his education initiatives, however. Student loan subsidies to banks are an easily overlooked handout to Wall Street that the president was smart to put an end to. The investment in K-12 education reform, community colleges, and Pell grants will help prepare the next generation of Americans for the 21st-century economy. Incentives for debt forgiveness for public sector workers will mean that our best and brightest — who go to very expensive colleges and graduate schools — can now afford to look at public service, and can be used to limit some of the demand for a revolving door between the public and private sectors.

The president didn’t break new ground, or lay out a visionary mandate for change. But he reassured us that he was going to govern as he was elected, looking for progressive solutions to the challenges the country faces.

One last point — at last week’s “banking limits” announcement, beltway Kremlinologists were reading volumes into the fact that Treasury Secretary Tim Geithner was off to one side, while presidential economic adviser Paul Volcker was front and center. (Simon Johnson said: “Where you stand at major White House announcements is never an accident.”) Last night was Geithner’s chance to stand front-and-center — shoulder to shoulder with Bob Gates. With Larry Summers way off to the right — and I didn’t see Volcker in the audience — the handshake the president gave Geithner on his way in would seem to be sending the message that the secretary continues to be the president’s man.

  • Share/Bookmark

Tags: , , , , , , , , , , , , , , ,
Posted in A New Framework for Growth and Equity, Clean Energy and Modern Infrastructure, Daily Fix, New Schools for the 21st Century | 1 Comment »

Putting High-speed Rail on the Right Track

Wednesday, January 27th, 2010
Mark Reutter


PPI Fellow Mark Reutter is the former editor of Railroad History and author of Making Steel: Sparrows Point and the Rise and Ruin of American Industrial Might (2005, rev. ed.).

by Mark Reutter

The following is an excerpt from Mark Reutter’s op-ed in today’s Tampa Tribune:

The Obama administration will soon be announcing which states will be awarded funds from the $8 billion stimulus pot dedicated for high-speed rail (HSR) development.

Right now, 259 applications valued at $57 billion are chasing the recovery plan money. The administration’s decision to devote considerable resources to developing HSR underscores its commitment to bring bullet trains to the United States. But unless it makes the right decisions about where to put the money and what policies to follow, the new enthusiasm for HSR could be frittered away.

The choice that the Obama administration and Congress face is simple: modest incrementalism versus a truly transformative vision. The core problem is the apparent willingness of Obama transportation officials to use stimulus money to finance many small projects, such as adding sidings to existing railroad lines, to permit somewhat faster speeds by conventional Amtrak trains.

Read the full column at The Tampa Tribune.

  • Share/Bookmark

Tags: , , , , ,
Posted in Clean Energy and Modern Infrastructure, Daily Fix, PPI in the News | 3 Comments »

« Older Entries