 Institute for Policy Innovation (IPI) | Tom Giovanetti <$DXLocaleLongDate$> 12:25:21 AMThere are reports of Republican hand-wringing tonight. Some are wondering if perhaps they have overplayed their hand on the debt ceiling negotiations. I have to admit that, while I've been on record urging the Republicans to stand firm, you first have to decide where the firm footing is before you commit to standing firm. It's always been true that Republicans, in control of only a single House of Congress, had a fairly weak hand. In our bicameral legislative system they could stop something bad from happening, but they can't really force through major changes. Given that, my expectation was that Republicans would demand something substantial in exchange for an increase in the debt ceiling, which would accomplish three things: 1. They would get something substantial, 2. They would set a precedent that you don't get any more debt ceiling extensions unless you're prepared to give something. No more automatic extensions, and 3. They would prevent market uncertainty by increasing the debt ceiling. I never believed that not increasing the debt ceiling was a rational alternative. The "something substantial" I was hoping for could have been immediate spending cuts in this fiscal year, or dramatic spending cuts next fiscal year (the appropriations to be passed by Congress this year). It could have been much needed reform of the Budget Act, or it could have been something else, like a cut in the corporate tax rate. Or a first installment on something like Paul Ryan's long-term budget plan. When I started hearing "balanced budget amendment" my first thought was "oh, no, they've overplayed their hand." They've asked for too much, and set an unattainably high bar for success of this bit of brinksmanship. Truth is, I don't know what they've asked for, since I've not been in the room. But I thought Republicans could and should come away with something real and substantial in exchange for the debt ceiling increase. I still think they can, if their demands are proportionate. But you have to accurately appraise the strength of your position, and not overplay your hand. Senator McConnell has pretty much come out today and admitted the weakness of the Republican hand. I've never been a particular fan of Senator McConnell, but some of his comments in particular today show his grasp of the situation. He understands that the Republican hand allows them to extract some concessions but not drive major reforms. That will have to wait until after the 2012 election. McConnell further correctly understands that to die on this bridge may endanger the likely gains of 2012. Tom Giovanetti <$DXLocaleLongDate$> 10:00:34 PMSo today the Internets (intentional) are full of people complaining about Netflix's announcement that it is changing its pricing models. Of course, this move follows closely on the heel of Netflix's CEO trying to pass the blame onto broadband companies for the fact that he can't dominate the market for streaming movies at almost no cost and at fantasy pricing levels. Which is, of course, as one commentator put it, a load of hooey. Given the costs of licensing legitimate content and of occupying a significant amount of the available bandwidth in the nation, there was never any chance that Netflix was going to be able to continue to offer its service at such a ridiculously low price. It was great while it lasted, but it couldn't last. This is all somewhat amusing to me, of course. I know better than to think - That quality content is inexpensive, and that people will invest enormous amounts of capital and creativity into content and then give it away for free, so that others can build businesses off of the free content,
- That it's effortless and inexpensive to build, maintain and expand broadband networks,
- That the single easiest thing on earth is to bring more bandwidth on line,
- That the Internet somehow magically allows you to have something for nothing.
But apparently the idea that there is something magical about the Internet that will give us abundance for nothing has infected a sizeable portion of the population--or at least that of the Internet population. Hence tonight's whining. I blame three different sources for this stupid idea. First, of course, is my nemesis the free culture movement, which overtly proclaims that information products "want to be free," proudly defends online piracy, and opposes the protection of knowledge products through intellectual property rights. What they really are are parasites, only they have deluded themselves into thinking they are symbionts or even the truly creative. Second is the David Isenberg "just bring tons more bandwidth on line. It's easy and cheap!" crowd. (in fairness, he doesn't like me, either. Though some others had some nice things to say about my op/ed.) It actually takes a ton of innovation, a lot of engineering, and a lot of expense to add more bandwidth. And third is the techno-utopian crowd, among which are some right-leaning, market-oriented folks who should know better. Notice the subtitle of this book, by George Gilder whom I largely respect. "Infinite bandwidth"? Give me a break. There is no such thing as infinite bandwidth. I knew it then, and Gilder should have known it as well. Gilder's book was written before YouTube, before Netflix, before Facebook, before streaming video. Before IPTV. Gilder's economics should have trumped his techno-utopianism. Gilder is very familiar with Say's Law, which states that supply creates its own demand. The Internet is not somehow magically immune from the laws of economics, and if you give free people an abundant supply of something like bandwidth, they will find all sorts of interesting ways to use it up. So bandwidth will never be infinite, it will always be scarce (in the economic sense of the word), it will always have to be managed for its most efficient use (hence network management and hence anti-net neutrality mandates), and desirable, quality products and services will always cost something, even over the Internet. Sorry. Merrill Matthews Jr. <$DXLocaleLongDate$> 04:01:12 PMYou’ve heard of the “October surprise,” when politicians pull some stunt right before an election to try and salvage it. Well, this year we may see a “Christmas surprise.” The Wall Street Journal’s John Fund recently explained that Democrats are considering an ambitious lame-duck session when Congress returns after the November elections. If Democrats lose control of the House and maybe even the Senate, their congressional leaders could return in early December with plans to tax and spend like there’s no tomorrow -- which, for them, there wouldn’t be. If a number of Democratic incumbents has been defeated, why not “go for the gold” -- your gold, that is -- and ram through their Christmas wish list? New taxes, new spending, maybe “card check” for the unions. But it may not be that easy. The most vulnerable Democratic seats are in red-leaning or “purple” districts. Democrats who campaigned as fiscal conservatives, like the Blue Dogs, may see this election as a temporary correction, with a strong possibility of recapturing their seats in 2012, when President Obama will almost certainly be on the ticket again. Breaking every campaign pledge of fiscal responsibility in a lame-duck session could come back to bite them in two years. The second reason a tax-and-spend spree could be thwarted is that some of the so-called moderate Democrats may actually be moderate. They may really be concerned about the current levels of debt and don’t want to double down. And since they’re on their way out, the leadership couldn’t hurt them. Finally, a Christmas Surprise could be stopped if Republicans, who hold a filibuster-proof 41 seats in the Senate, stick together. And they might get a little help from a few Democratic senators like Ben Nelson of Nebraska, who is still trying to live down his Christmas Surprise from last year, when he traded his vote for Obamacare for the now-infamous “Cornhusker kickback.” But just because the free-spenders can’t push through a Christmas Surprise doesn’t mean the fiscally responsible should let down their guard. Because there’s one thing every fiscally responsible person knows: Christmas spending sprees are always followed by January bills. Merrill Matthew Jr. <$DXLocaleLongDate$> 10:18:36 AMThere is at least one bright spot in the recently passed health care reform legislation. Well, sort of. The Patient Protection and Affordable Care Act finally established a much-needed regulatory pathway for “biosimilars.” Those are the generic versions of “biologics,” complex drugs made from living (or products of living) organisms, such as vaccines, insulin, human growth hormones and many others. Innovator companies will get: - 12 years of data exclusivity for their products, providing reasonable intellectual property protection;
- An arbitration mechanism to settle patent disputes; and
- A transition pathway to approve biosimilars, which have been regulated like traditional drugs despite their greater complexity.
That’s all good as far as it goes, but the legislation doesn’t address a number of issues. For example, the legislation did very little to address safety concerns in the approval of the biosimilars, leaving much of that up to the discretion of the Food and Drug Administration. And the question is, will the FDA require clinical trials for biosimilars? For a traditional drug, generic versions have to demonstrate “bioequivalence” with the drug they are copying, meaning they will have a similar therapeutic effect. That’s a relatively easy process given the simple molecules used in traditional drugs. Not so with biologics. Thus, in order to assure the safety of biosimilars, some level of clinical trials should be required. Those trials can be smaller than the original trials sponsored by the innovator company, and that means less time consuming and expensive -- an important factor since the whole point of allowing a generic version of a drug or a biologic is to provide patients with a much-less expensive alternative. That’s what the European Medicines Agency does, and it’s what the U.S. should do. Biologics are the next wave of medical miracles -- and they are at our doorstep. Ensuring innovator companies have the necessary intellectual property protection to encourage them to invest in new biologic products was a major step forward. Now let’s hope the FDA takes the necessary steps to ensure that biosimilars will be as safe as the medical miracles they are copying. Merrill Matthews Jr. <$DXLocaleLongDate$> 01:06:10 PMPresident Obama and the Democratic leadership, as well as many of the Washington chattering class, seem to agree: Failure to throw even more money at the economy will prove disastrous for Democrats in November. Politico quotes Howard Gleckman of the Urban Institute as saying, “The question is, can [Democrats] create the perception that they have done all these things to create jobs, or that they tried but the dastardly Republicans prevented them from creating jobs?” Rather than blaming Republicans, Democrats ought to thank them. Had Republicans been able to stop the Democrats’ uber-spending spree even earlier, the economy might have come back quicker and unemployment might be trending down. According to the government’s website that tracks stimulus spending, Recovery.gov, the government has spent $417 billion in tax benefits, contracts, grants, loans and entitlements. Mind you, that’s just the stimulus money. Others estimate that the administration has added about $1 trillion in debt in the past 18 months. And yet unemployment has actually gone up since Obama made this his economy, from 13 million to 15 million Americans, for a net loss of 2 million jobs. So, just counting stimulus money, we’ve spent about $208,000 per job lost. Maybe that’s why a new Rasmussen poll says that only 25 percent of voters nationwide believe the stimulus package created jobs. And 43 percent say it hurt the economy. Now, seeing inverse relationships is always tricky in economics. But if Democrats have spent so much money with only increasing unemployment to show for it, why not try the opposite approach: Stop spending money and see what happens. Or go one step further: If government spending can be positively correlated with lost jobs, maybe cutting spending would result in more jobs. Since it doesn’t look like Democrats can get more stimulus spending passed, why not flip and embrace the alternative? They can still blame Republicans for stopping more stimulus spending—a criticism I suspect most Republicans would be happy to accept. And if cutting spending begins perking up the economy, the president and his party could truthfully, and finally, claim his policies worked. Merrill Matthews Jr. <$DXLocaleLongDate$> 07:44:58 AMAfter President Obama’s election, conservatives were afraid he would drag the U.S. down into European socialism. We underestimated his vision. A mere 18 months later not even the European socialists want to go where the president wants to lead—ever more government spending. Indeed, most of Europe is headed in the opposite direction. - The U.K. has announced new austerity measures, including 25 percent budget cuts and a two-year public-sector pay freeze. Even the queen’s allotment will be frozen next year.
- Germany has said it will cut its budget by nearly $100 billion over the next four years.
- And France wants to cut its budget deficit from 8 percent of GDP this year to 3 percent by 2013.
By contrast, Obama tried to convince countries at the G-20 meeting to, lemming like, follow us off the economic cliff. They declined en masse. Many of them may be European socialists, but they aren’t fiscal idiots. The U.S. will have that “honor” all to ourselves. Yes, the U.S. agreed to go along with the other countries in stressing deficit reduction. But that’s a sop to give the appearance of unity. There will be no budget this year because a budget requires deficit projections, and deficit projections like those facing the U.S. produce headlines. And headlines would force—finally—the administration to explain why spending even more money the country doesn’t have will create prosperity. This may be the most deluded fiscal-policy administration we’ve ever witnessed. Everyone knew ObamaCare was going to cost significantly more than what the Congressional Budget Office predicted. And yet the Obama administration persevered. Most economists knew the Obama stimulus bill would do little to reduce unemployment or increase economic growth. And yet that hasn’t stopped the president from asking for even more stimulus spending—and encouraging other countries to follow our misguided lead. But when even the European socialists blush at our overspending, you know the American people see through the nonsense. Tom Giovanetti <$DXLocaleLongDate$> 12:08:23 AMThis week Victoria Espinel, the U.S. Intellectual Property Enforcement Coordinator, submitted her long-anticipated 2010 Joint Strategic Plan on Intellectual Property Enforcement to the President and to Congress (PDF, 65 pages). Intellectual property (IP) has become a controversial topic in the past few years, but thankfully there was very little controversy in the Joint Strategic Plan. It seems that one of the few truly non-partisan policy issues today is the recognition of the importance of intellectual property protection to our nation’s economy. The job of enforcement of IP laws rightly falls to government. It’s not really the job of government to “protect” intellectual property products—under the law the owner of the work has to protect his own property rights. But it’s the government’s job to create a legal environment that makes it possible for rights holders to protect their property, and it’s the government’s job to enforce the law. And enforcement ends up cutting across a surprisingly wide swath of government. Agencies involved in IP enforcement include not only the obvious ones, like the United States Patent Office (USPTO), but also the Department of Agriculture, the Department of Commerce, the Food and Drug Administration, the Department of Homeland Security, the Department of Justice, the Department of State, the United States Trade Representative, and the Copyright Office. You can see why a “coordinator” is necessary! IPI long ago realized the importance of IP to the continued and expanded growth of the U.S. economy, which is why intellectual property policy is one of our key areas of policy concentration. And we were delighted to see our research on the impact of piracy and counterfeiting on the U.S. economy referenced several times in the 2010 Joint Strategic Plan. In fact, according to the Plan: “The most frequently cited studies [on the loss of jobs and revenue to the U.S. economy due to intellectual property theft] were those from the Institute for Policy Innovation (IPI) . . .” (p. 52). It’s important work, and it’s a not-terribly sexy way of defending jobs and economic growth in the U.S. economy. In fact, that’s why earlier this year IPI co-sponsored a conference in (of all places) Tanzania on counterfeiting, and will be co-sponsoring similar conferences later this year in the Caribbean and in Indonesia. You can access IPI’s work on intellectual property policy through this link, or simply by going to www.ipi.org. Your job may depend on it—IP intensive industries account for nearly 60 percent of total U.S. exports. Merrill Matthews Jr. <$DXLocaleLongDate$> 05:58:48 PMWhen a child wastes his allowance on foolish things, wise and prudent parents will be reluctant to hand over more money if that child comes begging. And that’s just how taxpayers should feel about a new effort to bailout labor union pensions. Pennsylvania Senator Bob Casey has introduced the “Create Jobs and Save Benefits Act,” otherwise known as the “Buy Union Votes and Boost My 2012 Reelection Chances” bill. In essence, the bill would transfer billions of dollars in unfunded pension liabilities from mostly union-managed multi-employer pension plans to the Pension Benefit Guaranty Corporation (PBGC), which is backed by taxpayers. But even as unions push for taxpayers to fill the gap in their underfunded and mismanaged pension plans, they drop millions of dollars in union dues on political causes. Just last week we learned that unions spent $10 million trying to defeat incumbent Arkansas Senator Blanche Lincoln in the state’s Democratic primary. The White House apparently thought the money was wasted; the unions responded that even though they lost the money was well spent. In addition, several groups, including unions, are contributing to a $125 million, five-year White House project to convince Americans they really do want ObamaCare. How much money do unions spend on political activities? No one knows for sure because the unions do their best to mislead or hide it. UnionFacts.com reports, “[T]he National Institute for Labor Relations Research estimated that total union political expenditures reached $925 million in the 2004 cycle.” It has surely gone up significantly in the last few cycles. Of course, union members have a constitutional right to support the candidates of their choice. But when union pensions are underfunded, then dues money should be diverted to the pensions first, not political activities. True, redirecting roughly $1 billion from political activities to shoring up their pensions may not be enough. Senator Casey estimates that about $8 billion would do the trick; Moody’s puts it around $165 billon, according to the Wall Street Journal. But it would be a start, and a better economy could help fill the gaps. Just like that foolish, wasteful child, when unions waste their money and then beg for bailouts somebody has to act like the wise and prudent adults. Bartlett Cleland <$DXLocaleLongDate$> 02:27:44 PMLast week the FCC released a report showing that 91 percent of US residents are pleased with their broadband connection speed, even if they do not know exactly what that speed is. In response, the FCC expressed bewilderment that this could be true, demanding that customers must know the speed so that they could carefully shop. Really? Can most people rattle off the horsepower of their car or their lawnmower? Can most people even tell you what “horsepower” means? (Horsepower is a measurement of work over time. Move 33,000 pounds one foot in a minute and that is one horsepower). What about their furnace? Can they opine on how many BTUs it produces? (BTU stands for British thermal unit. Heat one pound of 60 degree water by one degree at a pressure equal to one atmosphere and you have one BTU). Most people can tell you whether their vehicle can pull their trailer effectively or accelerate fast enough when needed. They know whether their riding mower can pair back the spring thickets or whether the family room is warm enough in January. The FCC should not have been the least bit surprised by the results, much less now trying to make such technical knowledge, or lack thereof, proof of some failing of US broadband. What the FCC should do is learn the obvious lesson—consumers are not interested in speed as a number, they are interested in whether they can do online what they need to do. A year ago IPI made this point to the FCC directly. “Defining a broadband goal in terms of a numerical standard may be interesting for international data compilation, and perhaps appealing to those who think that Americans want to emulate Korea and live in tiny apartments in what are little more than giant concrete bunkers with government broadband pipes on which they can play computer games and otherwise interact with ‘real life.’ “But measuring speed is simply the wrong approach. The question that needs to be asked is not ‘How fast is it?’ but rather ‘Does the system perform to meet the needs of users/consumers/taxpayers in this case?,’ or ‘Are we meeting the goals and vision as laid out by our public officials—have we made it to the Moon?’” Now having been told by IPI and 91 percent of the public, maybe the FCC will get off the speed track. Merrill Matthews, Jr. <$DXLocaleLongDate$> 03:21:00 PMIt’s not that often we get to praise the Obama administration, so when we get a chance we take it—which is what we’re doing here … sort of. Anyone who knows Washington knows there is a fundamental flaw in the budget process. If an agency or department doesn’t spend all of its budget, the excess funds go back to the federal government. Moreover, that agency may see its future budget cut by a similar amount, as the money gets redirected in the next budget cycle to the squeakier wheels. So agencies, reacting to the established economic incentives, routinely find ways to spend their allotments, whether they really need the funds or not. Back in the 1990s, stories emerged that one of the defense department agencies found it had some $900,000 left at the end of the year and wasted it all on magazine subscriptions. That problem was fixed; the Pentagon can now shift leftover dollars around to other agencies. The White House is proposing a similar measure for the rest of the federal government. Departments that don’t spend all of their funds would be able to redirect up to half of the excess to other departments. The rest would go back to the budget for deficit reduction. White House officials think the change might save $25 billion, which it laments isn’t big. Of course, old-timers may recall when Washington considered $25 billion a lot of money—like back in 2008. But if the government really wants federal employees to cut back on spending, then it needs to create the right economic incentives by letting employees benefit from those reductions—personally. If money is left over at year’s end, let the employees who had a hand (broadly construed) in controlling costs get a bonus from the leftover funds, with the rest going to deficit reduction. The bonus can’t be so big that it becomes detrimental or corrupting—i.e., people refusing to spend needed funds just to get a bigger bonus. But it should be big enough so that employees make rational economic tradeoffs. Of course, the best approach for reducing the budget deficit is greatly reduced spending. This approach simply recognizes economist Gerald Musgrave’s Iron Law of Economics: if you want people to economize, then the economizer must benefit from the economizing. |
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