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Economy

Robert Gordon’s Cassandra World

The Federal Trade Commission has rules about unfair and deceptive advertising.   Too bad they don’t apply to academic papers, because if they did Robert Gordon would be facing an FTC inquiry.   His new Cassandra-like paper, “The Demise of U.S. Economic Growth”, has little to do with U.S. economic growth.   Rather it is focused on other factors like transfer payments, taxes, and income inequality.  He should have titled his missive “The Demise of Robust After-Tax Income Growth for Low and Moderate Income U.S. Workers.”   But that’s nowhere near as catchy as his chosen title.

Gordon’s new NBER paper restates his slow-growth forecasts from two years ago, which come in turn from his long tradition of dismissing the potential of technology to drive productivity. This time he is careful to label his more controversial “growth headwinds” (slower innovation and continued globalization) as “speculative”.  Still, he fails to make a more convincing argument for an overall growth slowdown. This is partly due to his reliance on assumptions about education, inequality, and globalization, coupled with a fundamental lack of understanding of the nature of 21st century innovation. But it also

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IT and the Environment: Improving Together

A new paper by two Italian economists finds links between information technology (IT) and environmentally-friendly innovation in firms. The paper, Information Technology, Environmental Innovations and Complementary Strategies, uses EU firm-level data to examine whether firms innovating in the IT space were also innovating with regard to their environmental practices. The researchers find a significant correlation between IT and environment-related innovation. They also find some evidence that IT helps drive environmental innovation in several ways.

This result fits well with the ideas put forth in ITIF’s 2008 report Digital Quality of Life, that information technologies are not only helping environmental regulators and activists do their job better, they are also helping businesses do a better job of making their impact more environmentally friendly.

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CBO Report Says Immigration Bill Benefits the Middle Class (don’t listen to those claiming otherwise)

CBO Report Says Immigration Bill Benefits the Middle Class (don’t listen to those claiming otherwise)

The recent Senate immigration bill, S. 744, passed for a reason: it’s good policy that conservatives, moderates, and liberals can all get behind. According to a recent CBO report, it will not only raise GDP but also benefit a broad swath of workers.

Unfortunately, even though the CBO report is clear about the overall benefits to the American economy and the middle class in particular, the effects of such a far-reaching economic policy are complicated enough that some people manage to misinterpret them. For example, in a recent article in The Weekly Standard Jay Cost argues that the immigration bill would cause “a decade of economic displacement.” He cites the CBO study as evidence, noting the report’s claim that “workers’ output, on average, would be lower for a time. That decline would reduce average wages relative to those under current law.”

Let’s go over the report’s major points. In the process we will see why focusing on this excerpt, and ignoring the rest of the report’s findings, is  misleading.

The first point the report

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There’s value in them numbers

Many years ago, I was the staffer for a Senate subcommittee that had jurisdiction over government data collection. When I would visit the Chairman’s home state (which staffers do a lot), I would be called upon to explain to people, mostly farmers, why they needed to fill out all this government paperwork. Why did the government need to collect all this information? It was just a useless nuisance, they would complain.

Fast forward 25 years to this story in the New York Times – “Agriculture Department Cuts Reports on Crop Inventories”. As the story points out, farm groups are not happy with the cut backs in data collection:

Farmers say such data is crucial — and not just because it helps them decide how much to plant or how many animals to raise. Potato farmers use reports on potato stocks to decide when to sell. Hops farmers use the data to persuade bankers to lend them money for costly processing facilities. Restaurant chains watch catfish numbers to anticipate price changes. With the Texas drought forcing farmers to send their sheep herds to other states, wool and lamb buyers would

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Policymakers’ Vision Must Be as Big as the Potential of Small and Mid-Sized Manufacturers

Take a look at this chart.

Sme_chart

See the plum and green sections in the ovals? That represents the medium-low and medium-high tech parts of the manufacturing sector. Germany and Japan have a lot of plum and green. The United States has too much blue—the low-tech activity.

This chart underscores yet again what my colleagues at ITIF and others have been arguing for years, particularly in the last two years as the country struggles through the ravages of the Great Recession: The United States needs to revitalize its manufacturing sector and can do so only with a coherent national strategy that harnesses national labs, private sector innovators and government.

This chart was presented by Stephen Ezell during an event this morning at ITIF on a new report, “International Benchmarking of Countries’ Policies and Programs Supporting Small and Mid-Sized (SME) Manufacturers.” The thrust of the report is that the governments of many of the United States’ formidable competitors for high-skill, high-wage manufacturing jobs put considerable effort into keeping their companies at the cutting edge of innovation. These governments make sure their SMEs know about ground-breaking research and then put it

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What the President Did Not Do in His Jobs Speech

As expected President Obama’s speech before Congress last week laid out a moderate agenda for job creation through Keynesian-style stimulus and targeted tax cuts.

Certainly there is much to be lauded in the speech, so let’s start by addressing what he did do. The opening portion compellingly described an America where the social compact that said “you can succeed if only you work hard” has eroded. He went on to add that America’s deteriorating infrastructure (which receives an overall grade of “D” from the American Civil Society of Engineers), and crumbling schools are hampering our competitiveness. He did talk about investments we need to make and protections we need to keep. He did talk about priorities.

But the president missed an opportunity to elevate the narrative. He failed to decisively, crisply, and compellingly spell out an answer to his own question: “what’s the best way to grow the economy and create jobs?” The president could have used the question to pivot to a principled discussion of the progressive vision of economic prosperity. He could have drawn a stark contrast between his progressive values and the importance of “building up” the

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Progress Report: Revisiting “Rules of the Road” for a New Economy

When PPI established its New Economy Task Force 11 years ago, its first product was a pamphlet entitled “Rules of the Road: Governing Principles for the New Economy.” In Internet time, 11 years is a lifetime. But that short but powerful statement still holds up — and, I would argue, is just as relevant today as it was in 1999. This seems as good a time as any to revisit what we said and take stock of how far — or not — we’ve come.

The pamphlet started off with this statement:

The U.S. economy has undergone a profound structural transformation in the last decade and a half. The information technology revolution has expanded well beyond the cutting-edge high-tech sector. It has shaken the very foundations of the old industrial and occupational order, redefined the rules of entrepreneurship and competition, and created an increasingly global marketplace for a myriad of new goods and services.

I would venture to say that it’s even truer today than when we first wrote it. The introduction went on to state:

Yet while economic reality is fundamentally changing, much of our public policy framework remains

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The Atlantic Century: Benchmarking EU & U.S. Innovation and Competitiveness

Five countries—Singapore, Sweden, Luxembourg, Denmark, and South Korea—outperform the United States in international competitiveness and innovation, according to The Atlantic Century: Benchmarking EU & U.S. Innovation and Competitiveness released on February 24th by the Information Technology and Innovation Foundation (ITIF) and the European-American Business Council (EABC).

Several developing nations are lagging behind in the transition into globally competitive, innovative economies with India, Mexico, and Brazil the bottom three ranked countries of those analyzed, in reverse order. Although economic competitiveness is not a given for Europe with Cyprus and Greece finishing 4th and 5th from the bottom, respectively.
The unprecedented geographical freedom afforded to firms due to advanced transportation and communication technologies and the corresponding rise of global competition is well known. Less well known is which countries have taken advantage of these technologies and global opportunities and which have fallen behind.

The Atlantic Century assesses global competitiveness and innovation by ranking 36 countries along with the European Union and NAFTA region based on economic structure, policy and performance across 16 indicators. Although it is by no means an exhaustive study, the report shines a light on high-performing countries in diverse

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A Stimulus Package We Can Believe In

President-elect Obama made his campaign about change and promises to do the same with government. One area to start is with the proposed stimulus package.

Already he has said this one will be different. His transition team released a statement yesterday that they were going to ban all earmarks from the proposed stimulus package.

But with the stimulus package having a proposed price tag of around $775 billion, of which approximately $300 billion is in tax breaks for low- and middle-income earners, we also need change in how the money is spent.

In the past, to the extent stimulus packages did more than spur additional consumer demand, they usually included some investments in traditional infrastructure — building or improving roads, bridges and sewers — to create jobs, and quite literally, dig our way out of a recession. Given America’s decaying infrastructure, these projects are also needed today and will help cash-strapped states move forward with projects that have been stalled.

But the fact is that investing in physical infrastructure will not have the same short-term impact on American jobs, or long-term impact on U.S. competitiveness, productivity, and quality of life

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It’s the Digital Economy, Stupid

While a variety of reasons exist for why President Clinton defeated President Bush, Sr. in 1992, a primary reason was his focus on the economy.  We saw a replay of this scenario in 2008 with President-elect Obama defeating his rival, in part, because of the high marks he received from voters on the economy in the days leading up to the election.  Indeed, he emphasized in debate after debate that not only would he make the economy a top priority in his administration, but that he would also invest in areas such as broadband, health IT and developing green technology, like alternative fuels and the smart grid.

In fact, President-elect Obama is correct to recognize that these areas will drive long-term economic growth and be the basis for future prosperity and American competiveness.  And investing in these sectors will also boost employment in the short-term.  These are exactly the reasons why the proposed $775 billion stimulus package should include, at least in part, investment in digital infrastructure.

In the past, stimulus packages targeted traditional infrastructure projects—building more roads, bridges and sewers—to create jobs, and quite literally, dig our way out

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