AEI » Latest Content American Enterprise Institute: Freedom, Opportunity, Enterprise Tue, 27 Jan 2015 22:06:24 +0000 en-US hourly 1 Trade in 2015: Senate Finance Committee Chairman Orrin Hatch on how America can succeed in today’s global economy Thu, 22 Jan 2015 19:38:14 +0000 Event Description

International trade and the US economy are top issues in the 114th Congress. We welcome you to join us at AEI as Senate Finance Committee Chairman Orrin Hatch (R-UT) outlines his vision for how America can succeed in today’s global economy. Sen. Hatch will speak to his longstanding efforts to renew Trade Promotion Authority and will discuss what the Obama administration must do to get ongoing trade negotiations such as the Trans-Pacific Partnership and Transatlantic Trade and Investment Partnership successfully enacted by Congress.

If you are unable to attend, we welcome you to watch the event live on this page. Full video will be posted within 24 hours.

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Tech policy 2015: The year ahead Wed, 21 Jan 2015 17:14:27 +0000 If you have trouble registering for this event, please contact

Please join AEI’s Center for Internet, Communications, and Technology Policy for a look ahead at the top tech policy issues of 2015. Senator John Thune (R-SD) will present a keynote address, and panels of AEI scholars and outside experts will discuss issues including net neutrality, the Communications Act, and municipal broadband, cybersecurity, Internet governance, and incentive auctions.

As tech policy issues move to the fore in the national debate, this conference will offer unique insights into the year ahead.

Join the conversation on Twitter using #ThuneatAEI.

If you are unable to attend, we welcome you to watch the event live on this page. Full video will be posted within 24 hours.

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Syriza is limited in the promises it will be able to keep Tue, 27 Jan 2015 20:53:57 +0000 Editor’s Note: The following is Desmond Lachman’s response to the New York Times Room for Debate question: Can Greece’s new leftist government lift the country out of its economic wreckage or, by resisting its creditors, will it only make things worse?

In the depth of an economic depression, it is perfectly understandable that Greek voters would elect a government committed to reversing the austerity policies that were imposed on Greece from abroad and that have led Greece to an economic and social disaster. But it would be fanciful to think that simply rejecting austerity and insisting on official debt relief will put the Greek economy on course for a sustainable economic recovery. Indeed, such demands risk putting Greece on a collision course with its official paymasters that could very well lead to Greece’s exit from the euro before the year is out.

While it is certainly true that both the Greek government and the German government have every interest in keeping Greece in the euro, both are highly constrained in the concessions that they can grant to make that possible. After several years promising that it would tear up the much reviled International Monetary Fund-European Union memorandum of economic policies for Greece and that it would insist on major official debt relief, it is difficult to see how Syriza can make the large U-turn needed to keep its official creditors happy. This is all the more so the case considering the lavish promises on increased social spending that it made during the electoral campaign.

For her part, it is difficult to see how Chancellor Angela Merkel of Germany can back off from her insistence that, as a condition for continued official support, Greece must honor its commitments with respect to balancing its budget as well as to streamlining its public sector and privatizing state assets. If Germany were to agree to allow Greece to substantially increase public spending and to grant it major debt relief, surely it would be forced to do the same for countries like Ireland, Italy and Portugal. Especially at a time when German voters are already incensed about the European Central Bank’s recent actions with respect to quantitative easing, Merkel would risk the wrath of her electorate were she to be seen to be too generous with Greece and with the rest of the European periphery.

All of this puts Greece’s newly elected prime minister, Alexis Tsipras, in the most unenviable of positions. Continuing with the I.M.F.-E.U. imposed budget austerity measures risks condemning Greece to several more years of economic misery. Yet opposing austerity risks having Greece’s official creditors cut it loose from the euro. And leaving the euro would almost surely result in a massive run on the Greek banks, which would plunge the country into economic and financial chaos.

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Robots on the rise: 6 key automation trends and how they will affect workers Tue, 27 Jan 2015 20:52:59 +0000 Irving Wladawsky-Berger provides a really great roundup of numbers and analysis about automation and labor markets. And I think the bottom line here at the pace of change is accelerating, which create new challenges and insecurities for workers. It also challenges policymakers who may have to rethink some long-held views. As I mention in my new The Week column:

The GOP is the party that believes “a rising tide lifts all boats,” that faster economic growth is the best path to shared prosperity. To concede otherwise is to challenge one of the modern party’s first principles. …But what is the modern GOP offering during a time when a rising tide is leaving too many Americans stuck and stranded? … What’s more important is for Republicans to recognize (a) upward economic mobility is stalled and the economic gains we do have are going almost exclusively to the top, (b) key forces behind this trend — automation, globalization — aren’t going away, and (c) boosting economic growth is necessary but perhaps not sufficient for broadly shared prosperity.

As the Economist recently pointed out: “The modern digital revolution – with its hallmarks of computer power, connectivity and data ubiquity – has brought iPhones and the internet. … but it is disrupting and dividing the world of work on a scale not seen for more than a century. Vast wealth is being created without many workers; and for all but an elite few, work no longer guarantees a rising income.” Is it really so hard to imagine that this new state of affairs might require creative policy responses? Anyway, IWB summarizes some automation trends, which suggest the scope of the challenge:

1.) The importance of “manual” skills within jobs has decreased over time.  “Past automation has replaced routine manual tasks and can be expected to continue to do so.  Meanwhile, technology advances now allow computers to do several manual tasks that are non-routine.  Google’s autonomous car and Rethink robotics’ Baxter are two examples of relatively difficult manual tasks that can now be performed by computers.  Factory automation is transforming many other jobs, from painting automobiles to sorting mail to picking products in warehouses.”

2.) The importance of “perception” skills within jobs has decreased over time.   “An important recent change in technological capability has been in the area of perception.  There have been remarkable advances in robotic vision and perception that would have been the domain of science fiction ten or twenty years ago. For instance, computers are now are able to understand speech in ways they never could before…  Similarly, computer vision capabilities have advanced rapidly for tasks such as distinguishing objects, understanding writing, and identifying production defects on assembly lines…  Thus we expect a substitution of technology for labor in occupations that relied on routine human perception, particularly in cases that favor the machines’ inherent advantage of consistent performance over long periods without breaks.”

3.) The importance of “interpersonal” skills within jobs has increased over time.  “One important area in which computers still trail humans is interpersonal interaction…  More complex interpersonal interactions, such as those in sales, customer service, and supervision, remain the domain of human workers.  We can expect that occupations will shift toward those skills in which humans have a relative advantage over machines.  Machines have demonstrated limited ability to perform interpersonal tasks, and human customers have a preference for interacting with other humans.”

4.) The importance of workers’ facility with technology has increased over time.  “While technology can substitute for labor in many occupations, it can augment human skills in others.  Computerized systems are making workers, from call centers to factories, more productive.  Digital tools provide graphic artists and product designers with the ability to work more quickly and flexibly than ever before.  Workflow and collaboration tools improve coordination and knowledge sharing among workers.  At the high end of the skill distribution, medical diagnostics, electronic medical records, and technology- assisted surgery are improving physician productivity and patient outcomes.   As technology substitutes for some skills, it can also serve as a complement that increases the need for, and the productivity of, skills that computers cannot yet perform.”

5.) The skills that are important within jobs will change over time.  “Complementarity across skills has changed, creating an increased need for workers to be flexible in their skill development.  One striking example is that facility with technology has become such a common job requirement that it is no longer a major differentiator between jobs…  For any given skill one can think of, some computer scientist somewhere may already be trying to develop an algorithm to do it.   So, workers – especially those with many years left in their careers – need to stay flexible in focusing on new skills or finding occupations with new complementarities.”

6;) These major changes are likely to accelerate, given the continuing advances in many digital technologies.  “This suggests that the significant economic disruption  – and the large changes in the demand for skills like perception, supervision, interpersonal facility, and equipment use  – are likely to grow.  The disruption is an opportunity for organizations, but may be a threat to many workers.  Researchers, managers and policymakers need to understand these changes if they are to diagnose them correctly and ultimately prescribe effective solutions.”

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Another promising startup, regulated out of business Tue, 27 Jan 2015 20:11:30 +0000 Over at Business Insider,  James Rosenbush writes about the need for startups (a favorite topic of mine):

The private sector economy has a life blood, and it is startups. New businesses are started by inventive entrepreneurs out of economic necessity or because their new ideas won’t wait. Technology has been a boon and a barrier to job creation. In past cycles, startups were more labor intensive — requiring more people to run them. Ford Motor Company, once a startup, is a good example. Technology shies away from jobs and shifts productivity and lifestyle gains to software. We’re going to need many more startup zealots and maniacs to sustain and grow an economy where people can find and keep good jobs with growing wages.

But government often erects barriers and lays down minefields in front of America’s entrepreneurs. Pacific Standard’s Susie Cagle writes about just such a situation, the story of Night School, which “just wanted to provide a modest, low-cost bus service from San Francisco to the East Bay.” It wasn’t complicated. Regular old school buses driven by insured, licensed drivers between two stops every half hour. But it was not to be:

The response to Night School’s speculative press was overwhelmingly positive. But less than two weeks later, the week of its planned launch, Night School was postponed indefinitely while its founders grappled with the [California Public Utilities Commission] which claimed the start-up was not properly licensed as a passenger carrier. If Night School had sought to operate as a service only available to members of a private club, the CPUC wouldn’t have had jurisdiction over the business. But the founders’ vision was decidedly public, from the school buses to the low fares. The CPUC has struggled to codify new rules for “transportation network companies,” shifting and changing regulations over the last three years while those companies continued to operate. Night School never got the chance to open its doors.  After months of back and forth, false starts, and moved goal posts, Night School announced its closure last December.

The CPUC, by the way, is the same regulator which has tried to fine and regulate Uber, Lyft, and other ride-sharing services.

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Your barber faces stricter licensing requirements than an EMT Tue, 27 Jan 2015 19:42:59 +0000 A new post by Brookings’s Melissa  Kearney, Brad Hershbein and David Boddy points out that almost 30% of workers in the US need a license to do their job. Occupational licensing has increased quite a bit from its 1950s level of 5%, growing to 10% in the 70s, and now affects “workers of all skill levels,” reaching many more than “doctors, lawyers, nurses, and teachers.” Kearney, Hershbein and Boddy:

It is important to realize that occupational licenses are not mere state-sponsored certificates to signal that workers have completed some level of training; occupational licensing laws forbid people from practicing in their occupation without meeting state requirements. If the rationale for licensing an electrician is to protect public safety, it is difficult to see what rationale supports licensing travel guides. Yet, twenty-one states require a license for travel guides. …

There can be an obvious disconnect between the strictness of licensing regulations and the potential harm to consumer safety. For example, Michigan requires 1,460 days of education and training to become an athletic trainer, but just 26 to be an emergency medical technician (EMT). In fact, across all states, interior designers, barbers, cosmetologists, and manicurists all face greater average licensing requirements than do EMTs.

A disconnect indeed. I’m all for basic, sensible safety precautions, but it’s just not reasonable that a barber faces stricter licensing requirements on average than an EMT. So what effect do these extremely varied regulations have?

An obvious burden of such practices falls on would-be workers looking to enter licensed occupations… This can have real consequences for job creation. By erecting a barrier to entry into an occupation, occupational licensing can slow job growth and limit employment opportunities. It can also make it harder for workers—including licensed ones—to relocate. Because requirements to obtain a license vary by state, a worker moving to a new state may need to undertake more education, training, or new examinations to work in the same occupation.

Occupational licensing can also be costly to consumers, who may pay as much as 15 percent more for services when an occupation is licensed, according to some estimates. These higher prices (and earnings of licensed practitioners) could result from licensing weeding out low-quality providers: as consumers come to perceive higher quality, they are willing to pay more, and prices rise. On the other hand, requiring extra training and qualifications may simply reflect a barrier to occupation entry that reduces market competition and allows the incumbent provider to collect profits. Given this possibility, it is perhaps not surprising that much of the push for new and expanded occupational licensing has come from occupational associations themselves, not the general public.

As I pointed out in a previous post, government regulation is the biggest barrier to innovation, according to a poll of Silicon Valley insiders. While you probably want your doctor or electrician to have a proven level of competency, regulation is getting out of hand in other areas (for instance, in Nevada a person hoping to be a travel guide must have 733 days of training and pay $1,500 for the license). Let’s be sensible and trim back the unnecessary licensing requirements.

Follow AEIdeas on Twitter at @AEIdeas, and Natalie Scholl at @Natalie_Scholl.

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Perry: Pricey carbon tax clobbers Calif. consumers, biz Tue, 27 Jan 2015 19:04:23 +0000 The most preposterous thing about a carbon tax, which California is in the process of implementing under the guise of a cap-and-trade program and which some other states are now considering, is the pretense that it will curb carbon emissions.

This notion — that states can save the planet from getting too hot — is great soap opera, but it is just a way to bring more revenue to state governments regardless of its stated intent.

Whether it’s called cap-and-trade or a carbon tax, California is now stuck with a fee on the carbon content of fuels. It’s the first of its kind in the United States, but environmental groups are urging other states to do the same.

The California Air Resources Board, whose goal is to reduce greenhouse gas emissions to 1990 levels by 2020, claims the tax is a cost for oil refineries. But that’s disingenuous.

Oil companies will simply pass the carbon tax along to California consumers in the form of higher prices. Experts estimate that the tax — which took effect at the start of this year — has the potential to increase gasoline prices by as much as 75 cents per gallon.

Guess who would pay the bill for the carbon tax? A carbon tax would disproportionately impact those who are most vulnerable in our economy — low- and middle-class families and small businesses. It would be foolish to think otherwise.

Make no mistake, the tax on transportation fuels will push gas and diesel prices upward and burden drivers, businesses, and schools, effectively erasing the economic benefits that Californians currently enjoy at the pump.

Think about its impact: To save money, some drivers may fill up at service stations in neighboring states that don’t have a carbon tax.

And companies might be tempted to relocate elsewhere in the country to save on energy costs. Other companies might have no choice but to shut down, resulting in a loss of jobs. States without a carbon tax would gain economically at the expense of those with one.

In Vermont, a coalition of environmental groups has proposed a state tax of between $50 and $150 per ton of carbon emissions to be levied on businesses that distribute gasoline, heating oil, natural gas, propane and diesel. The groups claim the tax would produce $35 million in revenue by 2017 and as much as $700 million by 2030. Of the new revenues, 10 percent would automatically go to renewable energy companies.

State government is a great milieu for “pass the buck” politics, but carbon taxation is merely a way to reduce a staggering debt and reward political allies.

What someone like California Gov. Jerry Brown might not be able to achieve through tighter controls on spending, he can certainly gain by using public concern about climate change to ratchet up taxes. And you can be sure it won’t stop at the gas pump.

The next target for carbon taxes could be electricity utilities and their customers. Environmentalists say it’s no big deal. But fossil fuels account for about 60 percent of the nation’s electricity supplies.

The irony is that the largest U.S. environmental groups oppose nuclear power, arguably the most important energy source in the battle against global warming.

The U.S. fleet of 100 nuclear plants accounts for nearly two-thirds of the nation’s zero-carbon energy. But environmentalists don’t recognize nuclear power’s environmental value or its critically important role in maintaining a diverse mix of energy sources for reliable electricity.

To my mind, the path forward begins with environmentalists recognizing the importance of keeping existing nuclear plants in operation and realizing that nuclear power can collaborate well with other forms of emission-free energy like solar and wind. If something better comes along, fine.

But carbon taxes should be the last resort — they won’t help the environment much, they’ll expand the size of government, and they’ll damage the economy.

Mark J. Perry is a professor of economics at the University of Michigan-Flint and resident scholar at the American Enterprise Institute.

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Why America is betting on Modi Tue, 27 Jan 2015 15:25:05 +0000 Barely a year ago, most foreign policy pundits would likely have agreed on one simple prediction: the election of Narendra Modi as Indian prime minister would set back relations with the United States, and by extension with the West more broadly.

Instead, the opposite has happened. Yesterday President Barack Obama shattered a symbolic taboo by becoming the first American chief guest at India’s annual Republic Day parade. Arguably, the US and India are poised to pursue a deeper and wider partnership – one whose impact will potentially be felt far beyond the two countries’ borders – than at any time before.

To be sure, the detailed mechanics of stepped up cooperation between the US and India outlined in Sunday’s joint statement and joint strategic vision for Asia and the Indian Ocean region need to be fleshed out in the months ahead.

The prudent will hold the champagne until both countries actually begin co-producing weapons, US companies break ground on new Indian nuclear reactors, and we see tangible gains against the likes of Haqqani network, Lashkar-e-Taiba and D Company. But one thing is clear: the US and India don’t lack ambition for the relationship.

Why is America betting on Modi, a man whose visa it rejected a decade ago in a public rebuke for the 2002 Gujarat riots that occurred on his watch? In a nutshell, Washington’s posture reflects a blend of hard-nosed calculation and a genuine reassessment of the Indian prime minister.

To begin with, the alleged Modi-Obama personal chemistry ought to be taken with a pinch of salt. The bookish former law professor and the fiery former RSS pracharak hardly make the most natural friends. If anything, their apparent willingness to forge a personal bond says more about their pressing national interests.

Shared concerns about China’s hegemonic ambitions in Asia and the destabilising impact of radical Islamist terrorism drive the US and India towards each other. Thanks to India’s size, democratic polity, pluralistic society and vast economic potential, Washington has placed a long-term bet on the idea that the rise of India is good for America.

But the success of this bet depends on India fulfilling its own ambition to claim a seat at the high table of global power. Simply put, Modi’s sweeping electoral mandate gives him a better shot at achieving India’s goals than any of his recent predecessors.
To be sure, Modi’s own record has helped generate these hopes. In policy circles, his reputation for no-nonsense administration and business-friendly economic policies earned in Gujarat has eclipsed misgiving generated by the 2002 riots. That Modi stressed development – not identity politics – in his campaign last year helped complete a public makeover years in the making. To the prime minister’s credit, he has remained tightly on message even after winning the election.

That Modi chose to take the high road towards the US also helped. Hardliners in BJP, and in the larger ideological family to which it belongs, would have applauded had the prime minister chosen to snub the US by downplaying ties with it, at least early on in his tenure.

Instead Modi accepted Obama’s invitation to visit Washington with alacrity. This signalled two reassuring qualities: that the prime minister is not a man to put personal peeves ahead of the national interest and that he sees the US as a vital partner in fulfilling his ambitious vision for India.

At the margins, Modi’s passionate following among Indian-Americans also helped boost his reputation in Washington. It didn’t hurt that over the years Indian-Americans have been among Obama’s fiercest supporters. A higher proportion voted for him than in most ethnic groups. When Modi filled New York’s Madison Square Garden with his fans last year, it brought him the kind of domestic political attention foreign leaders rarely enjoy in America.

Of course, just because the stars appear to have aligned at the moment for Obama and Modi does not necessarily mean that they will remain permanently aligned. At its core, the US bet on Modi is that he will revive India’s economy, deepen its engagement with fellow democracies, and steer clear of domestic strife. Beyond that, sceptics will also look for evidence of concrete progress in the many areas of cooperation suggested during Obama’s visit.

How will the US and India advance a rules-based international order in the Indian Ocean? How do shared concerns about Islamic State in Iraq and Syria translate into counterterrorism cooperation? When it comes to climate change, have the US and India really drawn closer than before?

Nonetheless, there’s no question that Modi has forced India back on Obama’s foreign policy agenda. He has raised expectations that he is a new kind of Indian leader – unafraid to break some geopolitical crockery while pursuing his goals. If Modi continues to reform the economy and revitalise Indian diplomacy, his honeymoon with Washington will only lengthen. The consequences for India, Asia and the world could be huge.

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The $2 trillion question: Is the CBO overly pessimistic about the US budget deficit? Tue, 27 Jan 2015 15:03:17 +0000 The new CBO budget projection predicts annual deficits will continue to shrink the next few years before rising again in 2018, from 2.5%  of GDP in 2017 to 4.0% in 2025. Two reasons: Higher entitlement spending (from 13.0% of GDP in 2017 to 14.2% in 2025) and interest on the national debt (from 1.7% of GDP in 2017 to 3.0% in 2025).

The almost doubling in interest costs is based on the assumption that long-term Treasury rates normalize back to prerecession levels. Yet at the same time, CBO predicts real GDP growth to average just 2.2%, below the prerecession pace. Paul Ashworth of Capital Economics finds those two predictions — interest rates and economic growth — to be “inconsistent” with their historical relationship:

The CBO assumes that the 10-year Treasury yield rebounds fairly quickly to 4.6% by the end of the decade which, assuming inflation is 2.0%, puts the real long-term rate at 2.6%. At the same time, however, the CBO also assumes that real GDP growth averages only 2.2%. As Chart 4 illustrates, the average real long-run interest rate has historically been lower than average real GDP growth. With the so-called term premium on the 10-year Treasury yield slumping over the past few months, there is a case to be made that real long rates will remain substantially below real GDP growth for quite some time yet. Under those circumstances, the Federal deficit would remain below 3% of GDP for much longer that the CBO currently believes.

Those few tenths of a point make a big difference. If interest costs as a share of GDP stayed at 2.5% over that period, total interest costs would be about $2 trillion less, lowering the 2025 debt-GDP ratio by nearly 10 percentage points. Here is an interesting new paper by Barry Eichengreen looking at the case for low rates withing the context of the secular stagnation thesis. That being said, I certainly would not want to assume a brighter scenario if it means even less urgency to deal with our long-term entitlement spending problems.  A bit on the political implications of the improving budget picture from Potomac Research:

WE’VE BEEN VERY OUTSPOKEN ABOUT THE DEFICIT PLUNGE that CBO underestimated, but now we have to concede that the dramatic progress is slowing. Nevertheless, CBO’s prediction of $468 billion in red ink strikes us as too high; something in the $425 billion neighborhood seems likely if the economy continues to surge. That would take the deficit to under 2.5% of GDP, where it will stay for the next two or three years.

WHAT ARE THE POLICY IMPLICATIONS? In the short run, the good news on deficits will reinforce a movement to replicate the two-year budget deal hammered out by Paul Ryan and Patty Murray 15 months ago that loosened the rigid budget sequester.  A new deal — perhaps in conjunction with a debt ceiling extension late this summer — probably would waive meat-ax sequester caps for defense and perhaps allow domestic spending to stay roughly flat.
"Secular Stagnation: The Long View" by Barry Eichengreen

“Secular Stagnation: The Long View” by Barry Eichengreen


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Do we need government regulations to preserve net neutrality? Tue, 27 Jan 2015 14:46:55 +0000 Net neutrality sounds good, but it means different things to different people, making it easy for special interests to manipulate it for narrow political ends.

One definition of net neutrality is a user’s freedom to connect to any Internet content, application or service. This is uncontroversial, and Internet providers already agree to uphold this principle.

Using their own definitions, however, companies such as Netflix hijack the language of net neutrality to lobby for regulatory favors. They want the government to mandate that transit costs they pay for today become free. In the offline world, such a deal would mean that retailers could not negotiate agreements with their suppliers or even where products could be placed on shelves.

This campaign intensified when President Obama called for the Internet to be regulated under Title II of the Communications Act of 1934. Title II would effectively give control of the Internet to the federal government, allowing it to monitor networks and set prices. For starters, expect a price increase of at least $150 per year due to new federal, state, and local fees on your Internet subscription.

Regulation proponents argue that without such rules your Internet provider would speed up or slow down websites. There have never been rules against this, but Internet providers don’t do it anyway. Simply put, the business opportunity to deliver an open Internet is far greater. Failing that, antitrust laws deter discriminatory behavior, already ensuring net neutrality. Of the billions of Internet experiences every day, there are only two minor net neutrality violations on record. They were resolved swiftly with existing rules.

Many Americans oppose Internet regulation. Recently, 60 tech companies and 100 American manufacturers –including IBM, Intel, and Black & Decker – warned that Title II regulation would harm the economy and reduce investment.

Americans, just 4 percent of the world’s population, enjoy a quarter of the world’s private investment in Internet infrastructure and drive one-third of the world’s Internet traffic. This investment delivers 5 percent of gross domestic product and employs 10 percent of America’s workforce, 11 million Americans. The unregulated Internet allows almost half of America’s employed to work from home and countless companies to grow. Fifteen of the world’s top 25 Internet companies are American.

With more high-speed wireless connections than any country, the US is the hotbed of mobile innovation. Do we need government regulations to preserve net neutrality? No. The Internet in America works extraordinarily well.

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The school choice journey: A conversation featuring US Senator Tim Scott Tue, 06 Jan 2015 22:15:02 +0000 Event Summary

What factors are most important to parents choosing a school for their child, and what are the most surprising effects of the school choice process on parents? On Tuesday morning at AEI, Senator Tim Scott (R-SC), Patrick Wolf, and Kara Kerwin kicked off School Choice Week 2015 by addressing these questions and more. Inspired by “The School Choice Journey: School Vouchers and the Empowerment of Urban Families” (Palgrave Macmillan, 2014), a book coauthored by Wolf and Thomas Stewart, the event featured an in-depth discussion on the positive impacts of school choice on students and parents.

Senator Scott began by explaining how programs such as the District of Columbia Opportunity Scholarship Program (OSP) — the focus of Stewart and Wolf’s book — give disadvantaged students a viable path to a better life. He also touched on his Creating Hope and Opportunity for Individuals and Communities through Education Act, which would strengthen the OSP and provide greater options for military families and families with children with special needs.

Wolf followed Scott’s remarks with a discussion of the empowering potential of school choice that is highlighted in his book, including how parents of OSP students fought to keep the program when it was challenged in 2009 and became politically active in the process. AEI’s Rick Hess and the Center for Education Reform’s Kara Kerwin echoed other findings in Wolf’s presentation, emphasizing that school choice is truly a journey that transforms parents into advocates for their child’s education and their own political interests.
–Elizabeth English

Event Description

The impact of school choice in America is about more than improved student test scores. School choice has the potential to inspire political activism among low- and moderate-income parents and families. In their thought-provoking new book, “The School Choice Journey: School Vouchers and the Empowerment of Urban Families” (Palgrave Macmillan, 2014), researchers Thomas Stewart and Patrick Wolf track the experiences of families participating in the DC Opportunity Scholarship Program, the first federally funded school voucher program based in the District of Columbia. They find that parents look to several factors when choosing a school for their child, and the impacts of school choice on parents and families go far beyond anything that can be measured by a standardized test.

We welcome you to join us at AEI during School Choice Week as US Senator Tim Scott (R-SC), Stewart, and Wolf discuss “The School Choice Journey” and why promoting school choice is important to expanding the range of education opportunities for every student in the United States, regardless of zip code.

We invite you to follow the event and comment on Twitter with #ScottatAEI.

If you are unable to attend, we welcome you to watch the event live on this page. Full video will be posted within 24 hours.

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Improving education requires hard choices and sustained leadership Tue, 27 Jan 2015 13:22:57 +0000 ...]]]>

The education policy world is buzzing. Universal pre-k for all 4 year olds. Free community college to anyone who wants to attend. Major changes to the No Child Left Behind Act. National School Choice Week.

Attention is warranted: education is a key to economic mobility in America. An additional year of schooling raises earnings by between 6 and 10 percent per year. According to Bureau of Labor Statistics data, the unemployment rate for those without a high school diploma is 8.6 percent. For college graduates? 2.9 percent.

Few things prevent poverty more effectively than does educational attainment. And there’s universal agreement that we should do better.

But what exactly is “better?” And how do we get there?

A series of four talks out this month featuring D.C. Public Schools chancellor Kaya Henderson, former Milwaukee Public Schools superintendent Howard Fuller, and AEI’s Frederick Hess and Arthur Brooks tackle these tough questions and should inform the debate.

All seem to agree on common themes: That our educational system should provide children with the opportunity to grow their unique gifts and talents—not just the ones that are easiest to measure; that no silver bullet policy has solved or will solve America’s education challenge; and that the process of reform—and the way it is communicated—must involve the communities, parents, and students affected by that change.

More specifically, each cautions against a key notion circulating in public debate.

First, we shouldn’t limit what education can or should do with the rhetoric we employ to spur change. Al Sharpton and Ted Cruz seem to agree on one thing (and possibly only one thing): That education is a civil right. But as Rick Hess argues, terming education a “civil right” implies that its primary goal is to boost the achievement of students who aren’t proficient and fix schools that are failing.

That’s a limiting notion, says Hess. Education’s goals should be expansive, fostering excellence for all students of all backgrounds and talent sets. Focusing on failures didn’t work well in No Child Left Behind. And such rhetoric ignores the reality that while attending school may be a right, educational advancement requires a handshake of commitment between teachers, students, and parents. Students who overcome problems associated with poverty and unstable families should be celebrated, but schools can’t be expected to solve those problems on a large scale—and policy that expects them to do so isn’t realistic.

Second, measure and focus on what parents and kids really desire—not just what policy wonks and bureaucrats think they should want. According to Henderson, “Parents like me want to know that their kids are going to go on to something amazing. Not that their kids have scored X on the CAS or Y on the NAEP. They don’t care about international competition. They don’t care about spending.” They care that when their kids are done with their education, they don’t come back to live in the basement.

While measures of math and reading proficiency are important, Henderson contends, the pursuit of scores shouldn’t drain every educational resource from other enriching activities—like music, social studies, and athletics—that serve as gateways to better life outcomes for many students.

And just as a narrow focus on a limited number of outcomes can be counterproductive, a limited focus on policy levers can be, too. When Henderson joined DCPS, she was convinced that if the system had the right teachers and administrators, its problems would be solved. Others argued that if 50 percent of DC’s students attended charters, outcomes would skyrocket. Neither proved to be a silver bullet. Success at scale requires sustained, dedicated leadership at the local level and a wide range of innovative policy efforts—not belief in a magic elixir.

Third, those effected by educational change must define and participate in that change. While Howard Fuller defends the value of school choice in empowering low-income families to attend better schools, he notes that the school choice movement is run by rich white people and primarily affects poor black and brown kids. If school choice is to succeed in the long term, he argues, those affected most by school choice must both buy in to its proposition and have agency in making it happen.


Finally, as Arthur Brooks argues, the debate should focus on the people policy aims to help rather than the things people oppose—not unions, as the right tends to do, or charters, as the left tends to do. That forces a connection between the aspirations of parents for their children and the leaders charged with creating an environment for them to realize those dreams. If arguments aren’t moral, aren’t people-focused, and aren’t succinct, they’re won’t be effective. Comparing Atlanta’s test scores to those of the Finns won’t do it.

In short, improving education isn’t simple. Having more of it doesn’t make it more effective. And making education “better” is misleading if advancement is limited to two metrics. It is vital to rethink the structures and practices that are no longer suited to today’s students or the futures they have ahead of them. But change also requires a holistic understanding of the goals and aspirations that parents have for their students, hard choices and sustained leadership, and an acknowledgment that silver bullets don’t work.

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On the power and importance of the ruthless consumer – ‘they make poor men rich and rich men poor’ Tue, 27 Jan 2015 00:38:13 +0000 ...]]]> In his 1944 book “Bureaucracy,” legendary economist Ludwig Von Mises explained the important and supreme role of the ruthless consumer in the market economy (emphasis added):

The real bosses, in the capitalist system of market economy, are the consumers. They, by their buying and by their abstention from buying, decide who should own the capital and run the plants. They determine what should be produced and in what quantity and quality. Their attitudes result either in profit or in loss for the enterpriser. They make poor men rich and rich men poor.

The consumers are merciless. They never buy in order to benefit a less efficient producer and to protect him against the consequences of his failure to manage better. They want to be served as well as possible. And the working of the capitalist system forces the entrepreneur to obey the orders issued by the consumers.

The consumers are no easy bosses. They are full of whims and fancies, changeable and unpredictable. They do not care a whit for past merit. As soon as something is offered to them that they like better or that is cheaper, they desert their old purveyors. With them nothing counts more than their own satisfaction. They bother neither about the vested interests of capitalists nor about the fate of the workers who lose their jobs if as consumers they no longer buy what they used to buy.

Here’s how I explained the role of ruthless consumers and the concept of “consumer greed” in a 2002 article for the Mackinac Center:

Here’s a dirty little secret about capitalism: consumers, not corporations, run the show. If you find something about the marketplace objectionable, it would be more appropriate to blame those who actually call the shots: the ruthless, cutthroat, and disloyal American consumers.
Consumers are the kings and queens of the market economy, and ultimately they reign supreme over corporations and their employees. When corporations make mistakes and introduce products that consumers don’t want, which happens frequently, you can count on consumers voicing their opinions forcefully and immediately by their lack of spending.
In a market economy, it is consumers, not businesses, who ultimately make all of the decisions. When they vote in the marketplace with their dollars, consumers decide which products, businesses, and industries survive—and which ones fail. It is therefore consumers who indirectly but ultimately make the hiring and firing decisions, not corporations. After all, corporations can make no money, hire no people, and pay no taxes unless somebody, sooner or later, buys their products.
What consumer sovereignty in a free marketplace translates into is each person husbanding his resources for the greatest benefit to himself and his family, which in turn translates into the greatest efficiency in the consumption of the world’s scarce resources. If you don’t like the message of the marketplace, don’t assume that corporations and greed are to blame while consumer behavior and consumer greed play no role in the outcome. We should be thankful, in fact, that the marketplace puts consumers on such a powerful pedestal.

Bottom Line: Consumers ultimately run the market economy, and for that we should be thankful. Because what’s the alternative? The alternative is allow producers to run the economy, inevitably with the assistance of their government enablers who help erect barriers to entry and restrict competition for producers in the form of occupational licensing, protectionist trade barriers, artificial limits on the number of firms allowed to operate (e.g. taxi cartels), etc. In other words, the alternative to consumers running a capitalist market economy, is to have producers running an economy based on the corrupt, anti-consumer principles of “crony capitalism.”

Further, we typically assume that “greedy” behavior is practiced exclusively by business owners and corporate executives, and never by consumers. But consumers, especially when spending their own money on goods and services for themselves and their families, are frequently the very epitome and apotheosis of greed. As Mises observed, “With them [consumers] nothing counts more than their own satisfaction,” and for that we should be thankful. Because in a market economy, the ruthless consumers provide the discipline that guarantees that producers will operate efficiently and offer the best products and services at the lowest prices.
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