Yesterday I was at Brooking on a Panel re: wireless broadband and economic growth. Audio from the event is posted on the Brookings website here and also embedded below. My notes for the opening remarks are below.
Wireless Broadband and Economic Growth
Notes for Brookings Event re: Wireless Broadband Infrastructure
J. Irons | October 17, 2011
1. Thank you for inviting me to participate in today’s forum.
2. While I am first and foremost an economist, I have also had a long-standing interest in technology and the internet. I built my first website back in the winter of 1994 when I was a graduate student at MIT – I thought it would be a good way to improve my writing skills in a place no one would ever see it. I guess I was wrong about that one.
3. When I think about the economic impact of broadband infrastructure, I tend to think about it in two ways.
Used this presentation for my presentation yesterday. Credit to Ethan Pollack for pulling much of this together.
Remarks as Prepared for Delivery
Thank you for the invitation to speak with you today about this important topic.
My organization, the Economic Policy Institute, has been a leading nongovernmental voice emphasizing the need for more jobs in this weak economy. As an economist, I am very concerned about the impact of high and prolonged levels of unemployment on families and on the long-term health of the economy.
As you know, the Interagency Working Group on Food Marketed to Children is considering a set of voluntary guidelines to improve the nutrition quality of foods marketed to children.
With the current economic weakness in the labor market, it is important to assess the economic and employment effects of the voluntary marketing guidelines.
Let me briefly outline the prime impact of the proposed guidelines on employment. In my view, to the extent that companies follow the guidelines, the impact would be primarily a shift in advertising and a shift in product sales, not necessarily a reduction overall in these industries.
First, to restate the obvious, the IWG proposed guidelines are voluntary, and thus there is no automatic reduction in advertising as a result of the guidelines.
Second, if companies do choose to adopt the voluntary IWG guidelines, a primary change that would result is a shift in consumption across food categories; for example, from foods with high levels of fats, sodium, and sugars, toward foods lower in those nutrients.
This shift—in either advertising dollars and/or sales—could occur across product lines within a single firm, or across firms within the industry. There might not be a net reduction in advertising, in sales, or in employment even within the industry.
It is also possible that advertising dollars would be shifted from marketing to children, towards advertising on other products and/or to advertising on the same products to other people, such as parents.
Over time we can expect firms and the industry to respond to the guidelines by establishing new, healthier products and product lines that could be then marketed to kids.
In fact, a surge in advertising might result as companies seek to expand product recognition for new product lines among kids and parents. For example, as the FDA was considering adopting regulations to require trans-fat labeling, many companies reformulated products to remove trans-fat and invested in marketing those reformulated products.
For example, Frito-Lay launched an advertising campaign in 2003 placing print ads in top-25 newspapers announcing “zero grams of trans-fat” in their products.
Further, industry advertising is often designed to compete with other brands, transferring market share across companies, but resulting in little to no change in final industry sales.
A report by IHS Consulting has been cited widely that claims to show that the guidelines could result in a 20% reduction in ad sales and a loss of 74,000 jobs. My submitted testimony includes a more detailed critique, but let me summarize that the assumed 20% reduction in ad sales would seem to be a significantly exaggerated response given existing advertising patterns, the voluntary nature of the guidelines, and the likely shifting of ad dollars to other products or to targeting other age groups.
Even if it were the case that an advertising reduction led to fewer sales in the food and beverage industry, consumers would simply shift some or all of those expenditures to products in other industries.
A realistic assessment is that the proposed guidelines would have, at most, a modest impact on overall advertising levels, and an even more modest impact on industry-level sales and employment. Even if there were a job impact at the industry level, then shifts to other industries would yield job increases that would offset some or all of the impact on the food and beverage industry.
As I said earlier, as an economist, I am a concerned with the health of the economy.
However, as a father, I am primarily concerned with the health of my two daughters. I am well aware of the challenges of getting a 3 year old to eat healthy – in my house fruit and vegetables too often means ketchup and french fries.
I realize that my girls will see thousands of ads while they grow up, but I would much prefer that the advertising that they do see, be for healthier products.
As an economist, I believe that the IWG guidelines would primarily result in a shift of ad dollars towards healthier products, and not a reduction in overall industry advertising, sales, or jobs.
Q: What do the following have in common? 1) advertising food to kids, 2) construction jobs, 3) deficit reduction, and 4) wireless broadband.
A: I’ll be speaking on all of these topics over the next 7 days:
Bob Solow does a good job of summarizing a couple of Keynes’ basic insights about savings, investment, and recessions. It’s worth reading the longer book review for his thoughts on some other famous economists.
One reason why Keynes’s great book is so difficult to explain is that it is no masterpiece of clarity. There are still learned arguments about “what Keynes really meant.” I want to emphasize two of its themes, because they seem to be central to his place in the story of economic genius, and because they point directly to the reason why Keynesian economics, born in the 1930s, has become dramatically relevant again today. Back then, serious thinking about the general state of the economy was dominated by the notion that prices moved, market by market, to make supply equal to demand. Every act of production, anywhere, generates income and potential demand somewhere, and the price system would sort it all out so that supply and demand for every good would balance. Make no mistake: this is a very deep and valuable idea. Many excellent minds have worked to refine it. Much of the time it gives a good account of economic life. But Keynes saw that there would be occasions, in a complicated industrial capitalist economy, when this account of how things work would break down.
The Phase 1 Enhanced Plan incorporates the features of Phase One and gets us a step closer to Phase two.
Couple of my favorites…
The Brick and the Bentley
The owner of a 2005 Bentley Continental was unable to start his car after not driving it for several months. But with an alternative battery he managed to get it started and parked it in his driveway. He figured that the fastest way to charge the battery would be to keep the engine running at a high rpm. To do this he put a brick on the gas pedal, which would rev the engine up to its redline limits. He left it like that to take a shower. When he returned 20 minutes later, the overheated engine had seized and oil was spewing. The car was totaled, all while sitting in the driveway.
The Rube Goldberg Claim
A $50 million-plus painting fell off the wall onto a $4 million 18th-century chest of drawers, cracking the marble top. As the painting fell, it knocked a $6 million Rodin bronze and a pair of 18th-century porcelain candelabras onto the floor. The arm of the Rodin broke off, piercing a $1 million carpet and denting the floor beneath. Lesson: Position expensive stuff more wisely.
The cost of congestion to the average commuter, TTI estimates, was about $713 in 2010. That’s up from $301 per commuter in 1982, after adjusting for inflation, and it includes the price of wasted fuel (14 extra gallons per person, on average), the costs of personal delays (34 hours per year), and the increased costs of goods that delayed trucking companies pass on to consumers.
Good excuse to repost the Foo Fighters:
Of the 1,258 guest appearances during segments that discussed the issue in the month leading up to the debt deal, only 52 — or 4.1 percent — were made by economists.
UPDATE: 12/26 – Looks like the TPC has “retracted” the estimates below citing an error “which involved rollover distributions from 401(k)s and similar retirement plans, caused us to significantly overstate the income of some high-income taxpayers and thus understate the tax rates they paid.” I don’t know how much of a difference this will make, but I suspect that the overall distribution will only be moderately effected, and only at the very top. I’ll post the new results when the TPC makes their correction.
The table below, adapted from the Tax Policy Center table here, shows the effective federal tax rate people pay in different income categories. (The “effective” rate is simply the total taxes paid divided by income, and will be lower than the statutory marginal rate because there are a variety of deductions, credits, and tax preferences in the code.)
I’ve added some color to the table to help show how rates vary with income levels.
Paul Krugman (and others) have used this data to demonstrate that even though, on average, millionaires pay a higher effective rate than the average of those in the middle, there are still many millionaires that pay less than most in the middle class. For example, at least 25 percent of millionaires pay a lower effective rate (12.6 percent or below) than most people making between $40,000 and $50,000 (13.1 percent or higher).
When interpreting the Buffet principle, we need to decide what rate to use to set as a minimum rate for millionaires. For example, do we want millionaires to pay on averagemore than the middle on average? If so, we’re already there.
Or do we want to ensure that all millionaires pay more than the middle-class pays on average? If so, then we need to change the tax code so that millionaires pay something like a minimum of 13 percent, if we set the “middle-class” at the 30-75k range. This would mean an increase for about a quarter of millionaires.
Or do we want to ensure that all millionaires pay at least as much as just about anyone in the middle class? In this case, the target would be closer to a 25 percent effective tax rate, increasing taxes on about half of millionaires.
The spirit of the Buffet rule is clearly not the first category – the outrage stems from the fact that some significant fraction of millionaires do indeed pay less than a large share of the middle. This points to policy changes that would indeed increase revenue from many of those at the top (at least a quarter, and perhaps as much as half or more) that have found ways to lower their tax share to levels that are below many in the middle class.
(Cross posted at EPI’s blog)
I’ll have to give this one a try…
The International Monetary Fund (IMF) today released a new mobile application (app) allowing Apple iPad users to access a broad range of IMF statistical data. The free app, “IMF eLibrary,” is part of the Fund’s effort to make statistical data more accessible. This tool, which will soon be complemented by versions for other handheld devices (such as iPhone, iTouch, and Android), is integrated with social networking tools, enabling users to share data reports and comments with each other.
The app gives iPad users access to a broad range of statistical datasets including a selection from the International Financial Statistics. In addition, it provides access to the latest editions of non-statistical IMF publications such as the World Economic Outlook, Global Financial Stability Report, Fiscal Monitor, and Regional Economic Outlooks.
Users can easily access key indicators from a range of databases the IMF maintains, including International Financial Statistics, Direction of Trade Statistics, Government Finance Statistics, International Reserves, Coordinated Portfolio Investment Survey, Currency Composition of Official Foreign Exchange Reserves, Coordinated Direct Investment Survey and Financial Soundness Indicators. Data access is available in the form of standard reports and can be presented as tables and visualizations.
Here’s some more details on the “twist” from the NY Fed. Link has more info on the specific maturities to be traded.
On September 21, 2011, the Federal Open Market Committee FOMC directed the Open Market Trading Desk the Desk at the Federal Reserve Bank of New York to purchase, by the end of June 2012, $400 billion in par value of Treasury securities with remaining maturities of 6 years to 30 years and to sell, over the same period, an equal par value of Treasury securities with remaining maturities of 3 years or less.The FOMC also directed the Desk to reinvest principal payments from its holdings of agency debt and agency mortgage-backed securities MBS in agency MBS.
Republican leaders in Congress are trying to push the fed towards inaction (and simultaneously demonstrating why the Fed was designed to be somewhat independent from Congress) via a stern letter to Chairman Bernanke and the rest of the FOMC (full text below).
In an effort to help my former colleagues at the Fed, I’ve put together some quick pointers to answer the demands from the letter, namely the following:
“Respectfully, we submit that the board should resist further extraordinary intervention in the U.S. economy, particularly without a clear articulation of the goals of such a policy, direction for success, ample data proving a case for economic action and quantifiable benefits to the American people.”
Obviously, they should feel free to elaborate…
1. “Goal:” To increase the growth rate of GDP, reduce unemployment, and prevent a deflationary spiral that would damage the recovery or create a double-dip recession.
2. “Direction for success:” Not sure what the heck this means. But the theory is that monetary intervention — through an interest rate channel or other — will lead to greater business investment and consumer spending, yielding more demand, higher GDP, and lower unemployment consistent with the overall goals in #1.
3. “Ample data proving a case for economic action:” 14 million people unemployed and the unemployment rate at 9.1%; Payroll employment growth: 0 in august; 11 million jobs gap; GDP growth 1% in 2011Q2; 0.4% in 2012Q1. Employment/population at 58%. 4.3 unemployed workers for every job opening. 15% poverty, median incomes fell by over $1,000 in 2010, fell by over $3,000 since 2007, and are lower than they were in 1997. Shall I go on?
4. “Quantifiable benefits to the American People:” More jobs, higher incomes, lower poverty, more innovation and investments, higher corporate profits, more hot dogs consumed at baseball games, lower mortgage rates. The Fed’s got better macro models, I’ll let them do the actual quantification.
Full text of letter below.
The wildcard in the Obama deficit reduction mix is the so-called Buffett rule which says that people with incomes over $1 million should pay a higher share of taxes than middle-class families. There are a range of design questions that need to be addressed in taking this rule from principle to policy. Here are some quick/early thoughts…
Bill Gale over at Brookings has several similar (and better articulated) thoughts on the Buffet rule:
8 The Buffett rule
As a guideline for future tax reform but not as a specific proposal now, the President described “the Buffett rule,” named with reference to Warren Buffett, who has commented that he faces a lower average tax rate than many of his employees as implying that no one with income over $1 million should pay a smaller share of his income in taxes than middle class families pay.
–The notion that people with income above $1 million should pay higher average tax rates than those in the middle class should not be a controversial proposition in principle. It is simply an extremely mild form of progressive taxation.
–However, the guidelines say “no household” with income above $1 million, which might create issues.
–The mild form of progressivity may not hold in the current system because different income types have different tax rates. These income types are concentrated in certain income groups more than others. For example, wages and salaries, which are a big share of low- and middle-income households’ income but not of high-income households’ income, are taxed at a flat payroll tax rate up to a maximum and graduated income tax rates. Capital gains and dividends are taxed at very low rates 15 percent maximum under the individual income tax; these constitute less than 1 percent of the income of the bottom 80 percent of the income distribution, but more than 30 percent of the top 1 percent of households in 2007, the figure will vary from year to year. According to Tax Policy Center estimates, the top one-tenth of one percent of households receive almost half of the benefits from preferential rates on capital gains and dividends. Low- and middle-income households cannot benefit from these tax breaks like millionaires, nor can they exploit other tax loopholes and deductions like high-income households.
–The Buffett Rule could be implemented in different ways: via a surtax on those whose income exceeds $1 million; via a reformed Alternative Minimum Tax which would ensure that high-income, not middle-income, households are primarily affected; or via elimination or reduction of preferential rates for dividends and capital gains. The goal of a progressive tax system is laudable and should be pursued, especially as the greatest income gains have benefitted the top while median incomes have stagnated.