AEI » Latest Content American Enterprise Institute: Freedom, Opportunity, Enterprise Thu, 29 Jan 2015 14:11:02 +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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Three takeaways from Obama’s India trip Wed, 28 Jan 2015 22:27:28 +0000 This week, President Barack Obama became the first U.S. president to preside as the chief guest at India’s annual Republic Day celebrations. What does this mean for U.S.-India relations? Coming on the heels of Indian Prime Minister Narendra Modi’s successful visit to the U.S. last September, Obama’s latest trip to New Delhi reiterates the intention of friendship on both sides. Marked by drift and disagreement less than a year ago, ties between the world’s largest democracy and the world’s oldest democracy are now on the upswing.

So what was achieved on this visit? Three signs show growing optimism for this partnership.

First, Obama’s visit was marked by strong symbolism. He is not only the first U.S. president to be the chief guest at India’s Republic Day – a grand celebration of India’s democratic constitution and military might – but also the only U.S. president to visit India twice. Obama even moved the date of his State of the Union address just so he could accept Modi’s invitation. Breaking from New Delhi’s obsolete foreign policy of nonalignment, Modi’s invitation to Obama signals that India is unafraid to show that a closer U.S.-India partnership is in India’s national interest. Dismissing protocol, Modi received Obama at the airport with a warm bear hug. Both leaders announced a string of agreements, jointly addressed the Indian masses on national radio (another first time for a U.S. president visiting India), and engaged with top business leaders. Finally, the signing of the Delhi Declaration of Friendship clearly highlighted their common goals and commitments.

Second, Obama and Modi reportedly broke the seven-year-old impasse on a civil nuclear deal. In 2008, former President George W. Bush and former Prime Minister Manmohan Singh created a landmark in U.S.-India ties by signing a civil nuclear deal that paved the way for India to buy nuclear reactors to produce fuel. With this in hand, India became the only country with nuclear weapons that wasn’t party to the nuclear Non-Proliferation Treaty to be allowed to access civilian nuclear technology from other countries. However, India’s passage of a liability law in 2010 compromised the deal by calling for foreign suppliers to shoulder all risks from potential accidents. Ending this logjam, both the U.S. and India agreed to float the notion of an insurance pool to cover liabilities, leaving the decision with partner companies to share risks.

Third, Obama and Modi renewed the U.S.-India defense framework agreement for another 10 years. For the first time since its inception in 2012, the Defense Trade and Technology Initiative is set to become fully operational with four distinct projects – including unmanned Raven drones, equipment for C-130 transport planes, and military gear – selected for codevelopment and coproduction. In the past, India complained about America’s failure to reliably supply technology parts on time and the U.S. was wary of India’s close defense relationship with Russia. However, last year, America surpassed Russia as India’s largest arms supplier. The scale of the initiative’s projects outlined above may be modest, but they will mark a concrete start to lead on to codeveloping more high-end weapons, such as jet engines.

Obama and Modi also set goals to increase two-way trade from $100 billion to $500 billion in the coming decade. Obama ended the trip by pledging to invest a total of $4 billion in India to further business ties, including $2 billion to develop the country’s renewable energy sector. In a veiled reference to rising Chinese aggression, both sides also agreed to beef up maritime security in the South China Sea.

Symbolism makes for a great start, and the potential break to the impasse on defense and civil nuclear energy cooperation is commendable. But now comes the tough part – actually following through. The U.S. and India may have identified distinct projects for codevelopment in defense. But India still needs to fix its corrupt procurement process and lengthy bureaucratic procedures. New Delhi also needs to invest more into research and development to modernize its defense industry in order to attract serious foreign capital if it desires joint development of high-end weapons to replace its Russian-supplied Soviet-era equipment. Both sides have characterized the nuclear deal as “done,” but no one has seen the fine print that will operationalize the agreement to prove it is any different from the short-lived glory of 2008. India’s local component requirements, and tough land acquisition and labor laws, stand in the way of the U.S. supplying solar energy panels or setting up factories to produce them as part of bolstering India’s renewable energy capacity. Moreover, Americans are wary of India’s policy flip-flop on investment rules and consequent economic slowdown under the previous government.

Last year, the Indians bet on Modi to revive the economy by awarding him the biggest electoral mandate in Indian history. Now he has his work cut out for him. His economic messaging shows that he wants the U.S. to be a part of his reform plan and vision for India. With economic growth starting to pick up at 6.3 percent, and the IMF predicting that India will beat China’s growth by next year, Obama is also betting on Modi’s ability to build a stronger India and forge a deeper strategic partnership with the U.S. One hopes that the symbolism from this visit matches the promises made. The world will be watching closely as these democratic giants take the leap forward, together.

Hemal Shah is a researcher for India and South Asia studies at the American Enterprise Institute. Follow her on Twitter: @hemalshah_7.

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No, the feds can’t make college free for everyone using existing aid Wed, 28 Jan 2015 21:44:27 +0000 In light of President Obama’s free community college proposal, Slate’s Jordan Weissmann recently rekindled an idea he’s mentioned before: instead of just providing two years of free community college, the federal government could “zero out tuition at all of our public colleges” without spending any more than it already does on student aid. Here’s how (emphasis mine):

With what it spends on its various financial aid programs today, including money that goes to private and for-profit schools, the feds could cover the cost of tuition for every single public college student in the country. According to the State Higher Education Executive Officers, four-year state schools and community colleges took in $61.8 billion worth of tuition dollars, including money from federal loans and grants, in fiscal year 2013. Meanwhile, according to the New America Foundation, Washington currently dedicates $67.7 billion to grants, tax breaks, and work-study money. If you took the money out of the private sector and put back it into the public sector, it could cover all of today’s undergrads, and then some.

The idea that we already spend enough on higher ed to make public colleges tuition-free, at least for today’s undergrads, is a fun policy talking point… But it’s mostly just an illustration of how wildly inefficient our current system of funding higher education already is.

While I agree completely that the federal student aid system is wildly inefficient, it’s not true that redirecting those funds would be enough to make public colleges tuition free—at least not in the way that most people would interpret Weissmann’s headline.

To see why, consider that there are roughly 21 million students pursuing some form of postsecondary education. Of that total, 15 million students are enrolled at public institutions and the remainder at private institutions.

Weissmann is right that $61.8 billion is enough to pay the tuition bills of the 15 million students currently attending public institutions. Note, however, that he’s not arguing that this would be enough to provide a free education to any of the other 6 million students in the system. Nor, as he points out, would it cover students who are not currently enrolled anywhere but who might choose to pursue an education because tuition has been zeroed out. This is not how most people interpret the idea of free college, which typically means that any qualified student should be able to attend public institutions tuition free.

Worse, however, is that the money he’s using to pay for that free tuition—the $67.7 billion the federal government currently spends on student aid—goes to all 21 million students currently enrolled in a postsecondary program, public or private. Therefore, to actually do this would leave the 6 million students attending private institutions without their Pell grants, tax benefits, and other aid—and with no option for free tuition at public institutions.

To be sure, Weissmann says this is just a “fun policy talking point.” But while he is fairly careful with his language, most people who cite him aren’t. For example, a ThinkProgress piece citing his work carries the headline “How Obama Could Make College Free For Everyone Without Spending a Dime.” Writing in March 2013 for Washington Monthly and referring to an earlier piece by Weissmann on this topic, Daniel Luzer states that “while it’s true… we could…provide free public college to all…Any attempt to move all federal aid directly into state universities would result in a vast and angry outrage…from America’s private universities.”

In his 2013 book “Why Public Higher Education Should Be Free,” Robert Samuels also uses roughly the same methodology to determine “how much it would cost to make all public higher education free in the United States.”

There’s no doubt that the federal financial aid system is wildly inefficient. But taking aid from some students and using it to provide free college to others doesn’t increase the system’s efficiency—it just leaves some students out in the cold.

Follow AEIdeas on Twitter at @AEIdeas.

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Iran commends Hezbollah attack that killed 2 Israeli soldiers Wed, 28 Jan 2015 20:29:18 +0000 This blog series analyzes the most important Iran news events of the past week and provides an outlook of the regime’s strategic calculus.


Iran and Lebanese Hezbollah’s desire for additional retaliation against Israel for the airstrike that killed IRGC Quds Force Brigadier General Mohammad Ali Allah Dadi and several Lebanese Hezbollah senior officers puts Hezbollah in a difficult position. Hezbollah is focused on supporting Bashar al Assad in Syria, where it has deployed thousands of fighters, and on relieving increasing Israeli military pressure on its position and logistics in the Golan Heights. Hezbollah will attempt to limit the scale of the current operations against Israeli Defense Forces to avoid a wider conflict while still satisfying its need—and Tehran’s—for revenge.

Iranian regional policy encountered another complication in Yemen, where Tehran wants to ensure its allied al Houthi rebels have a dominant role in a unified state, but where the recent al Houthi coup d’état risks escalation that could damage the al Houthis’ position. Yemeni President Hadi’s January 22 resignation and the continued degeneration of the Yemeni situation could encourage southern secessionists, al Qaeda in the Arabian Peninsula, and other groups to confront the al Houthis more directly.

In Iranian domestic politics, the five-year sentence handed down to former Vice President Mohammad Reza Rahimi indicates the regime’s anti-corruption campaign may be more serious than previously assessed, although the campaign is still expected to focus on figures from President Mahmoud Ahmadinejad’s administration, rather than current senior officials. Russia will continue to use the potential delivery of the advanced S-300 air defense system to Iran as political leverage against the West, but its eventual transfer to Tehran remains doubtful.

IRGC praises Lebanese Hezbollah following attack on Israel:

The IRGC released a letter expressing support for Lebanese Hezbollah after Hezbollah claimed responsibility for an attack against Israeli Defense Forces in the Shebaa Farms region on January 28 which killed two Israeli soldiers. Tehran warned Israel, via the United States, that Israel crossed a redline with Iran by killing IRGC Quds Force Brigadier General Mohammed Ali Allah Dadi in an airstrike near Syria’s Golan Heights on January 18. Deputy IRGC Commander Brigadier General Hossein Salami vowed revenge for the attack and stated earlier that opening a new front with Israel in the West Bank would be part of its eventual retaliation. Several senior Iranian officials signaled last week that Lebanese Hezbollah will take the lead for executing any retaliation.

Tehran navigating new political vacuum in Yemen:

Foreign Ministry Spokeswoman Marzieh Afkham called on all Yemeni parties on January 21 to practice “self-restraint” and remain committed to a peace deal in which the Iranian-backed al Houthi rebels would withdraw from the capital in exchange for greater inclusion and power-sharing in the country. The al Houthis rejected former-Yemeni President Hadi’s implementation of the deal, which prompted the abrupt dissolution of the government on January 22. Rebel leader Abdel Malek al Houthi reiterated Afkham’s message on January 27, urging all factions to work together to solve the crisis, and released Hadi’s chief of staff whom they had abducted last week.

Iran putting positive spin on latest nuclear discussions:

The P5+1 partners are attempting to meet a March 24 deadline to outline the political framework for a final nuclear agreement. Deputy Iranian Foreign Minister Abbas Araghchi described a series of bilateral talks with US officials in Switzerland last week as “useful” and said the P5+1 showed seriousness during negotiations. Iranian Parliament Speaker Ali Larijani also hinted on January 26 that a nuclear agreement was not far from reach, although Western sources have not reported any progress.

Former Iranian vice president sentenced for corruption:

Former President Mahmoud Ahmadinejad’s first Vice President, Mohammad Reza Rahimi, was sentenced to five years in prison on corruption charges. He is the highest-profile current or former government official to be convicted in Iran’s current anti-corruption campaign.

Will Iran finally get the S-300 advanced air defense system?

Russian state media has reported that Moscow may finally deliver S-300 (SA-20) missile defense systems to Tehran in retaliation of Western economic and political pressure. Russia reached a deal with Iran in 2007 to provide the air defense system, which would significantly upgrade Tehran’s ability to protect key military and nuclear facilities from US or Israeli airstrikes. Moscow cancelled the contract in 2010 under pressure from the West.

J. Matthew McInnis is a resident fellow at the American Enterprise Institute. This report was produced in cooperation with the Iran Team of the Critical Threats Project. It analyzes the most important Iran news events of the past week and provides an outlook of the regime’s strategic calculus.

Follow AEIdeas on Twitter at @AEIdeas.

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Court will kick Obamacare to Congress Wed, 28 Jan 2015 20:27:39 +0000 Conservatives in Washington are increasingly confident that the Supreme Court will rule this summer that the White House has gone beyond its legal authority in implementing the Affordable Care Act. Any such decision would enrage liberals. They would accuse the Republican-appointed justices of putting a stake through Obamacare to suit their partisan preferences.

They would be wrong. The legal case against the administration is strong, and ruling accordingly won’t kill the health-care law.

Obamacare authorizes federal subsidies for health-care plans purchased on state insurance exchanges. In states that decline to establish those exchanges — 34 of them have opted out — the law says the federal government can run an exchange instead.

The hitch is that nowhere does the law authorize subsidies for plans purchased on those federally run exchanges. The Internal Revenue Service, which administers the subsidies, has acted as though it does. The court has to decide whether the IRS is acting legally.

Supporters of the IRS’s policy say that the case — King v. Burwell — makes too much of a mere drafting error. They say that Congress can’t have intended to withhold subsidies from most of the country. And they say it would be disruptive and cruel to take away people’s tax credits now that they’re counting on them.

Congress surely didn’t want the subsidies to be geographically limited. Most members of Congress who voted for the law surely wanted it to be more popular and wanted states to set up exchanges. And the vast majority of them surely had no thoughts in particular about how to treat states that didn’t go along. They’re generally not detail-oriented people when it comes to policy.

But the law Congress passed tied subsidies to a state’s behavior in a way that is not at all absurd in principle. The subsidies create an incentive for states to set up exchanges. Congress uses such incentives all the time, taking the risk that states will balk and laws will not achieve all of their ambitions. Much of Obamacare’s coverage expansion comes from enlarging Medicaid. The method of the law was to offer extra money for states that went along, and not all of them have.

It’s true that taking away the subsidies now would be disruptive, but the court can’t let itself be swayed by that argument. Otherwise, it would be saying that the more people a lawless presidential action affects, the more untouchable it should be. Congress and state legislatures are the proper forums for resolving this problem. Both will be under enormous pressure to do so if the court rules against the IRS and people lose their subsidies. That’s why a lot of the commentary about the case as a death knell for Obamacare is overstated.

Even one of the judges who ruled in favor of the administration in earlier stages of the case has noted the strength of the argument against it. Fourth Circuit Court of Appeals Judge Roger Gregory said that the administration had an “only slightly” stronger case than its critics, whose position had a “common-sense appeal.”

A lot of conservatives think the Supreme Court whiffed the last time it considered Obamacare, in 2012, when it upheld the law’s constitutionality. This time might be different, though, because this isn’t a constitutional case. In 2012, Chief Justice John Roberts argued that the court had an obligation to try to read the law in a way that made it consistent with the Constitution. That reading didn’t have to be the most natural one so long as it was plausible. In this case, though, the Constitution is not at issue and is therefore not a reason to read the law one way or the other.

The fact that it isn’t a constitutional case also makes it easier for other branches of the government to adjust their policies in reaction to a ruling. In 2012, the court was being asked to rule that the federal government had no power to mandate that individuals obtain health insurance and strike down the law entirely. If the court rules against the administration this time, it won’t be saying that Congress can’t offer subsidies in states without their own exchanges; it will just be saying that Congress did not, in fact, make that choice in writing the law. It might further ease the justices’ minds that it’s entirely possible that Congress and state governments will move to shore up Obamacare after its decision.

So the court may decide that the law simply says what it says. Ruling that way won’t doom Obamacare. It will, however, reopen the law in Congress. This time, let’s hope lawmakers pay more attention to the details.

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Apple boosts its lobbying, but the Beltway Beast will demand more Wed, 28 Jan 2015 20:25:52 +0000 Apple just reported the most profitable quarter in the history of capitalism, netting $18 billion over the last three months.

Now Washington is going to want to take a bite.

The Beltway machine — the politicians, the lobbyists and even the industry press — have been trying to teach Apple a lesson over recent years: If you’re a successful business, you have to start paying tribute to the political class. As Sen. Orrin Hatch, R-Utah, once put it, “If you want to get involved in business, you should get involved in politics.”

Apple has responded to these entreaties, “getting more involved.” But these gaudy profits only heighten the price of the protection money Washington demands.

Sen. Carl Levin, D-Mich., dragged Apple executives before an investigative committee in 2013, for supposedly not paying enough in taxes. Nobody was charging tax evasion or anything like that. It was just that Apple was expertly navigating our arcane corporate tax code.

Where Apple’s stinginess really stung lawmakers was on K Street and the campaign trail. Apple had the gall to spend only $2 million on lobbying in 2012. Worst of all, the company didn’t even have its own political action committee.

The political-industry press had been warning Apple about this for years. In 2010, Politico cautioned the tech giant that “its low-wattage approach in Washington is becoming more glaring to policymakers.” In 2012, Politico revisited the theme and quoted a revolving-door lobbyist scolding Apple, “There have been other tech companies who chose not to engage in Washington, and for the most part that strategy did not benefit them.”

This was a clear reference to Microsoft. Hatch was referring to Microsoft in his comments from 2000, to a crowd from the tech industry, about how playing politics is required once you start making money.

So Capitol Hill roughed up Microsoft and took a snapshot. The K Street-Congress axis occasionally holds up the pic of Gates’ bloodied nose as a warning to others who don’t want to pay protection money.

Apple averaged about $1.4 million a year from 2007 through 2010. Then the Politico pieces came pouring in, Tim Cook began to take over from Steve Jobs, and the lobbying tab climbed to around $2 million in 2011 and 2012. Then in 2013, Levin had his hearings, and lobbying jumped 71 percent to $3.4 million Apple’s 2014 numbers just came in last week, and the tab was $4.1 million. That’s $7.5 million in the past two years.

And this skyrocketing lobbying spending over the past three years has occurred while the rest of the economy has reported slightly falling lobbying expenditures each of the past four years.

With its personnel changes, you can see Apple getting more intimate with Washington. In September 2013, longtime top lobbyist Cathy Novelli left Apple to join the Obama State Department. Apple replaced Novelli with Amber Cottle, hired from the very nexus of the K Street-Capitol Hill revolving door: the office of former Sen. Max Baucus, D-Mont., then-chairman of the tax-writing Finance Committee.

Apple’s other big Beltway get was hiring President Obama’s EPA Director Lisa Jackson to be corporate “vice president of Environmental Initiatives.”

New CEO Cook is a much more frequent visitor with the White House than his predecessor, visitor logs suggest. Late Apple CEO Steve Jobs doesn’t show up once in the visitor logs. Jobs famously dined with Obama in 2011 at the Silicon Valley home of venture capitalist John Doerr, but he didn’t seek audiences with politicians.

In contrast, Cook has visited the White House on at least four occasions since becoming CEO, according to visitor logs. This includes meetings with Obama, First Lady Michelle Obama (he was her guest at the State of the Union address), and with top economic advisor Gene Sperling.

The lobbying spending and Cook’s relative fondness for D.C. suggest that Apple got the message, and is playing ball.

On the other hand, Apple still lags way behind its industry cohorts in lobbying spending — Microsoft spent twice as much as Apple, and Google spent twice as much as Microsoft. Apple is larger than those two companies.

And — imagine the gall — Apple still lacks a political action committee.

Microsoft learned its lesson in the 1990s. Wal-Mart got its Washington education last decade. Apple is slowly getting there — but Washington may look at these new profit figures and say “faster, please.”

Timothy P. Carney, The Washington Examiner’s senior political columnist, can be contacted at His column appears Sunday and Wednesday on

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Economists’ foolishness about wealth Wed, 28 Jan 2015 20:03:24 +0000 I may not be an economics Ph.D., but I think I have spotted something (from a blogpost by Arnold Kling) that those more learned in that disciple have missed. In commenting on the Oxfam report on global wealth distribution, based on Credit Suisse data, which argues that the top 1 percent of the world’s richest people have half the wealth in the world, some (Branko Milanovic), top-rank economic bloggers (Felix Salmon) and an eponymous magazine (the Economist) spend much time and effort explaining why the many people in the United States and other advanced countries who have no positive net worth should not be counted as among the world’s poor, as Oxfam does.

Well, duh. Or as Felix Salmon, no right-winger, elegantly puts it, “Oxfam’s report is just as crap as the last version.” As he and the others point out, people with no positive net worth can live quite comfortably in advanced economies like the United States, off of their incomes or borrowing. Saying they are in the same economic place as very low-wage individuals in India or Bangladesh is nonsense. Wealth is not an accurate measure of current well-being.

But these sensible critiques leave out one important factor: a sizable percentage of these zero- or negative-net worth individuals are young. For even in an economically advanced nation you do not expect most young people to have positive net worths, that is, wealth. You might go so far as to say they shouldn’t have wealth, that they don’t know what to do with it. (If you spend much time listening to the personal concerns of very rich people, you may hear them sharing ideas on how to teach their children to handle their wealth intelligently.) Americans in their 20s typically have negative net worths, with credit card debt and college debt and nothing much in the way of home equity or savings yet.

Stop right there at that last word: Yet. Wealth accumulation and de-accumulation is a lifetime project. Almost all Americans age 21 to 29 have zero or negative net worth; most Americans age 55 to 64 have six- or seven-figure net worth. They spend their working lifetimes accumulating savings, building up home equity, making intelligent investments; then starting in their 60s they tend to spend some of that down.

So it’s not an indictment of a society or its economy to say that some large percentage of individuals at any given time have no wealth. The interesting questions how people at peak wealth accumulating age are doing, whether those younger are making headway in accumulating wealth and whether those older have enough wealth to spend down to meet their perceived needs. Intelligent analysis should — to use language economists might understand — disaggregate the data by age cohorts. Yet, every time the Federal Reserve releases its data on household wealth in America, we are treated to news stories about how most Americans have no wealth, even though most Americans age 55 to 64 do.

Michael Barone is a senior political columnist for the Washington Examiner. This column is reprinted with permission from

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Tech policy 2015: The year ahead Wed, 28 Jan 2015 19:00:27 +0000 Read the PDF.

AEI’s Center for Internet, Communications, and Technology Policy is doing truly excellent work to advance the public dialogue on communications and technology issues. My staff tells me that the Center’s TechPolicyDaily blog is essential reading. The job you and AEI have done in the year and a half since establishing the Center is impressive, and I’m honored to be speaking here today.

As the new chairman of the Senate Commerce Committee, I have the great privilege and the humbling responsibility of leading one of Congress’s most powerful and far-reaching committees. My colleague John McCain, himself a former Commerce Committee chairman, describes the job as being like “a mosquito in a nudist colony” because of its broad jurisdiction. This Congress, I am looking forward to working with my colleagues to write new rail, aviation, and highway bills, and to remove obstacles for job creators. These are all incredibly important issues, but I’m here today to discuss the important work that lies ahead of Congress in the communications and technology space.

I’ll be the first to admit that, before I became the top Republican on the committee, I wasn’t all that familiar with some of the jargon that most of you speak like a second language – Title II reclassification, Big Data, ‘retrans.’ However, over the last two years I have seen firsthand just how important these policy issues are to everyday life in America and to our nation’s economy.

The last twenty years have seen incredible advancements in computing, telecommunications, and information technology. The United States has been the global epicenter for technological innovation, all of which has been made possible by a robust combination of brilliant entrepreneurs and scientists, world-class universities, massive private-sector capital investment, a culture that rewards risk-taking, and a favorable regulatory environment.

Massive computing power, diverse and self-published content, high-speed Internet access, mobile connectivity, and innovative software platforms. These have all pushed our society and economy forward – creating jobs, empowering individuals, and making the world a smaller place. For all this progress, however, our nation’s communications and technology laws are not keeping pace.

It is a testament to the ingenuity of American businesses that they have been able to adapt and succeed with laws that are increasingly out-of-date. While I do not doubt that they can and will continue to work around the growing shortcomings of our nation’s laws, American industries deserve better from our government. Congress has a responsibility to ensure that our statutes and regulations are appropriately and narrowly tailored for today’s economy and for the future.

From telecom regulations to cybersecurity, from Internet governance to spectrum policy, there is a lot of work that can and must be done to modernize our laws. Voters in November entrusted Republicans with control of the Congress. They expect us to break the partisan gridlock and get Congress back to working for the American people. My colleagues and I intend to do exactly that. We are wasting no time in tackling these important issues. Indeed, House Energy & Commerce Committee Chairman Fred Upton, House Communications Subcommittee Chairman Greg Walden, and I have begun the new Congress with a process to find a legislative solution to a problem that has vexed policymakers for more than a decade – how best to protect the open Internet.


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Obama’s ‘middle class economics': Clever politics, terribly bad economics Wed, 28 Jan 2015 18:51:28 +0000 The origins of President Obama’s “middle-class economics ” is a bit of political salesmanship called “middle-out economics” concocted by some left-wing, progressive thinkers. See, these folks faced a big problem. They had lots of ideas to reduce income inequality. Well, actually they had one big idea: Tax the 1% and give it to the 99%.

Unfortunately for them, Americans care more about economic growth and improving their own living standards than reducing someone elses. Income inequality seemed a little off point during a Great Recession and Not-So-Great Recovery. Even worse, the kinds of things most mainstream economists would suggest to boost potential GDP, such as business tax reform, seemed at odds with the progressive anti-inequality agenda (What! Cut taxes on those corporations with their record profits! But inequality!)

So progressives had to connect or intertwine  an inequality agenda with an economic growth agenda. And thus was born middle-out economics and its theory that economies grow by increasing middle-class buying power. And the best way to do that is by redistributing income from the 1% to the 99%, from those who save too much to those more likely to spend. The Unified Theory of Liberalism.

But is more consumer spending really how you generate long-term, sustainable economic growth? Maybe a short-term stimulus or a fillip. But that’s different than increasing an economy’s potential GDP. Doing that requires higher productivity. As Paul Krugman famously put it years ago: “Productivity isn’t everything, but in the long run it is almost everything. A country’s ability to improve its standard of living over time depends almost entirely on its ability to raise its output per worker.”

And here is center-right economist Casey Mulligan the importance of investment in boosting productivity:

Economists have been investigating the determinants of economic growth for decades, and conclude that investment is crucial for an economy to grow. High rates of investment in the present make possible future consumer spending. The debate continues as to the type of investment that is most important, and whether specific types of investment might be counterproductive (think of Stalin’s five-year plans).

A number of economists have emphasized physical investment: that is, the accumulation of structures, business plant and equipment and other tangible assets. J. Bradford De Long and Lawrence H. Summers found that “machinery and equipment investment has a strong association with growth,” adding that it was “much stronger than found between growth and any of the other components of investment.” (see also this paper in The Quarterly Journal of Economics by N. Gregory Mankiw, David Romer and David N. Weil)

Other economists, including Theodore Schultz and Gary Becker, have emphasized the accumulation of human capital through schooling and other kinds of training and learning. Arguably even machinery and equipment investment is not possible or effective unless the work force is skilled enough to install and use the new equipment.

A third school of thought points to investment in ideas and new technologies that outlast their inventors (the economist Paul Romer has made some major contributions here). This approach tends to be pro-population and pro-city, because ideas and technologies have economies of scale.

Economists are also unsure about the public policies that might promote investment. Should college educations get heavy subsidies? Should government enterprises be doing the basic research? Should tax rates on capital income be low? Should the financial industry be regulated? But we do largely agree that investment, rather than consumer spending, is the means to achieving the high growth. High growth can sustain consumer spending in the future.

One other point: Guess what was an amazingly productive and innovative decade? The 1930s, probably not a great decade for American consumers. Economist Alexander Field:

In 1941, the U.S. economy produced almost 40 percent more output than it had in 1929, with virtually no increase in labor hours or private-sector capital input. Almost all of the increase in output per hour is attributable to technological and organizational advance. As I said in the title of my 2003 American Economic Review article, the 1930s were indeed the most technologically progressive decade of the century.

The conventional wisdom is that the war somehow magically transformed the doom and gloom of the Depression into the U.S. standing like a colossus astride the world in 1948. My counterargument is that potential output expanded by leaps and bounds between 1929 and 1941, and it was this expansion in capacity that both helped us win the war and established the foundations for postwar prosperity.

Among the key innovation: the DC-3 airplane, television, improved highways, reliable refrigerators, key automobile refinements such power steering and V-8 engines, and four-wheel hydraulic brakes. Field:

The bottom line: If a country wants its standard of living to rise over the long run, its labor productivity has to go up. And for that to happen, it either has to save more or innovate.

And yet President Obama wants to raise taxes on savings and investment. That’s an anti-growth way to pay for his middle class economics. I am all for a broad agenda to help the middle at time of stagnant incomes, including tax relief. Economic growth may not be sufficient for a stronger, more prosperous middle class — but it is necessary. And let’s not forget how economic growth happens.

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Tech policy 2015: The year ahead Wed, 21 Jan 2015 17:14:27 +0000 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.

Read Chairman Thune’s prepared remarks here.

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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Greece’s rapid move to the brink Wed, 28 Jan 2015 16:25:08 +0000 Prior to Sunday’s Greek parliamentary election, there was the hope that once elected, Alexis Tsipras, Greece’s new prime minister, would soften his stance on economic policy with a view to reaching a compromise with Greece’s official creditors. Sadly, everything that he has done since the elections suggests that this will not be the case. Indeed, far from seeking to mollify his official creditors, he appears to have gone out of his way to antagonize them. Against the backdrop of a bank run that now appears to be underway in Greece, it appears that Greece is well on its way to a full-blown economic and financial crisis. This will soon prove to be a baptism by fire for Greece’s inexperienced government.

In his first three days as prime minister, it is difficult to see how Alexis Tsipras could have done more than he has done to sour relations with his official creditors in general and with Germany in particular. First, he chose as his coalition partner the extreme-right Independent Greeks, whose only point in common with the far-left Syriza party is its anti-European stance. Second, he chose as his Minister of Finance Yanis Varoufakis, a self-avowed “Marxist-libertarian” who is not known for restraint in his outspoken views on Germany. Third, in a remarkable display of poor timing, he chose to side with Russia rather than with his European partners over the issue of European sanctions. And fourth, as his first economic measures, he chose to roll back key reforms requested by the troika in the area of public sector employment reform and privatization policy as well as to hike the minimum wage.

The only rational explanation of the Tsipras government’s actions to date is that it truly believes that Greece can act with impunity and that its official creditors will continue to finance it. Sadly, this is all too likely to prove to be a gross miscalculation that will cost both Greece and the rest of the Eurozone dearly, since it overlooks the fact that German Chancellor Angela Merkel risks the wrath of her electorate if Germany is seen to be caving in to Greece’s extravagant demands. It also overlooks the fact that Mrs. Merkel will be highly reluctant to make generous concessions to Greece, as she well knows she would then be forced to concede to Ireland, Italy, Portugal, and Spain. Ominously, Wolfgang Schauble, Germany’s Minister of Finance, keeps reminding Greece that Europe is in a very much better position today than it was in 2012 to withstand a Greek exit from the Euro.

Judging by the 25% plunge in Greek bank share prices over the last few days, Greece does not have the luxury of time on its side. Indeed, if Greece wishes to stay in the Euro its government not only needs to do a major U-turn, but it needs to do so before a full-scale bank run gets underway. Hopefully, the Greek government’s initial missteps will soon be corrected. However, I am not holding my breath.

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Look out, middle class, Obama’s 529 U-turn reveals the budget truth that Democrats know but avoid Wed, 28 Jan 2015 16:24:33 +0000 The Obama White House’s decision to abandon its controversial plan to, as the New York Times puts it, “effectively end the popular college savings accounts known as 529s” is what the left likes to call a “teachable moment.” For middle-income America, it should again teach (a) Democrats don’t really believe all tax hikes should be borne by the 1-2%, and (b) Democrat’s long-term budget plan is to pay for an ever-expanding welfare state though some sort of massive middle-class tax hike. I think the Wall Street Journal editorial page gets this one correct:

It’s a shame there won’t be a vote, because the 529 tax increase is a rare example of the President’s policy sincerity. Liberals sooner or later must raise taxes on the middle class because taxing the rich alone can’t possibly finance all of the Democratic Party’s entitlement schemes. The middle class is where the real money is. So while taxing 529s may die for now, it’s only a matter of time before liberals are back with a carbon tax or value-added tax or something. That’s the real meaning of “middle-class economics.”

Right, Democrats will eventually have to admit that raising taxes on high-income earners and business, while of course necessary, is insufficient. At some point, middle-class families will have to start sending bigger checks to Uncle Sam. In 2013, the  NYT’s editorial board admitted that a main reason for Obama’s continued demand for higher taxes on the rich is that such increases “are a necessary precondition to what in time will have to be tax increases on the middle class.”

Indeed, recall that back 2009, Democrats, such as House speaker Nancy Pelosi and former Clinton chief of staff John Podesta, openly spoke about the need for a value-added tax to pay for Obamacare. Former Clinton administration Deputy Treasury Secretary Roger Altman helpfully suggested an opening bid of $400 billion a year.

If Obama ever offered a multi-decade budget the way Paul Ryan has, the “tax the rich” charade would become transparent. You would either see ridiculously high taxes on the rich and business or a VAT on everyone or massive budget deficits. A 2011 plan from the left-wing Economic Policy Institute had all of the above: 2035 revenues at 24% of GDP (vs. a postwar average of 17%, nearly 4% annual deficits, and a debt-GDP ratio higher than today. Among its tax hikes: a 5.4% “millionaire’s” surcharge, taxing capital gains and dividends as ordinary income, enacting a carbon tax or a cap-and-trade program, instituting a financial transaction tax, taxes on beverages sweetened with sugar or high-fructose corn syrup. As you can see, the plan would end up taxing everyone. Despite all those taxes, you could argue the plan really needed even more to make fiscal sense.

Let me end by repeating this analysis by Lane Kenworthy, an academic who favors the US going the full Sweden and raising total US federal spending by about 10 percentage points, or $1.5 trillion:

As a technical matter, revising the U.S. tax code to raise the additional funds would be relatively simple. The first and most important step would be to introduce a national consumption tax in the form of a value-added tax (VAT), which the government would levy on goods and services at each stage of their production and distribution. …  Relying heavily on a consumption tax is anathema to some progressives, who believe additional tax revenues should come mainly — perhaps entirely — from the wealthiest households. Washington, however, cannot realistically squeeze an additional ten percent of GDP in tax revenues solely from those at the top, even though the well-off are receiving a steadily larger share of the country’s pretax income.

It’s the truth everyone in Washington knows, even progressive Democrats. Oh, and if Republicans want to avoid a giant VAT, they better get serious about entitlement reform. And even then US tax burden will probably need to creep  above its historical average — which is even true in the Ryan plan.  Keeping that increase to minimum will take hard work, and the sooner the better.

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