New Report: The Essential Role of the USPS in American Daily Life

Everyone loves getting mail. Birthday cards from your grandparents, packages from favorite online retailers, life updates from dear friends, and birthday gifts from your family. Email, mobile phones, and social media have altered the way we communicate, but they are still no substitute for a handwritten thank you note sent through the mail. Despite the opinions of a few people in Congress and the White House, the Postal Service is still an extremely valuable service and an integral part of American daily life. 

Our latest report evaluates the valuable role of the United States Postal Service (USPS) to the U.S. economy, consumers, and the mail services industry. The USPS, established by the U.S. Constitution, has served the American public and its businesses for more than 200 years. The USPS is the foundation of the U.S. mailing industry and many other industries that rely on the existing USPS infrastructure to deliver their products to final destinations. 

In the last decade, the mailing services industry has entered a new era. The applications of the Internet through e-commerce businesses produce both positive and negative impacts on the mail services industry. While networked solutions have reduced the need to mail bill payments, checks, and tax payments, online shopping and auctions create an exponential demand for cheap and fast delivery. In fact, e-commerce businesses are working with the USPS, UPS, and FedEx to deliver mail and packages at lower costs and even on Sundays.

The USPS is the foundation of the U.S. mail services industry and many other industries that rely on the infrastructure to deliver their products to final destinations. In fact, the U.S. mail services industry has become highly interdependent. Both FedEx and UPS rely heavily on the USPS infrastructure for final delivery of small packages in urban and rural areas. The USPS infrastructure has been created, maintained, and expanded over the past decades to a level that no other business entity can provide. The USPS raised the cost of mailing and is proposing to cut back services. While the industry and consumers need solutions for cheaper and faster deliveries, raising prices and cutting services are counter-productive and are against the market demand. 

The USPS relies on its economies of scale and scope to create different mail segments. The current proposal of eliminating Saturday delivery would be counter-productive and ineffective. Since these mail segments share the infrastructure such as vehicles and postal carriers, the cost savings would be insignificant. The volume of mail and packages would still need to be delivered on the following days. As a result, the associated costs would still be spent and the USPS may need to hire and train additional part-time workers to handle the bottlenecks and delays in the following days. The adverse effects would be more significant when the USPS fails to satisfy their customers’ expectations and the demand for services.

New Report: Enterprising Cities -- Regulatory Climate Index 2014

Cities are the engines of economic growth and prosperity in the United States. Our urban economies thrive on innovation, expansion of small businesses, and entrepreneurship. Our economic achievement is inherently tied to a legal infrastructure and regulatory environment that is sensible for entrepreneurs and small businesses. ndp | analytics and the U.S. Chamber of Commerce Foundation are proud to release the Enterprising Cities: Regulatory Climate Index 2014 (the Index), which compares and ranks the efficiency of local regulations applying to small businesses in ten cities across the United States. 

The Index measures three components (number of procedures, time, and costs) that are required to comply with five areas of business regulation in each city. The Index assesses the areas of starting a business, dealing with construction permits, registering property, paying taxes, and enforcing contracts. The results act as a barometer for the overall business environment and point to areas where reform is necessary for competitiveness. 

The main results of the study are:

Among the 10 cities in the 2014 Index, the most efficient cities across all 5 areas of business regulation are Dallas and St. Louis. The cities of Raleigh, Boston, Atlanta, and Detroit have moderate levels of regulatory efficiency. Chicago, Los Angeles, San Francisco, and New York City have the least efficient regulatory environments.

There are sizable variations in the design, practice, and costs to fulfill basic regulatory requirements for small businesses. Geographical and historical influences seem to account for much of this variance. The basic regulatory steps for opening and operating a business remain relatively similar across the cities measured. In recent years, these places have begun to adopt smarter business regulations and to streamline bureaucracies; however, the scope for improving their business environments remains significant.

Each city evaluated has its own clear strengths and weaknesses. For example, Los Angeles and San Francisco have the best practices for opening a business, yet both cities have the highest requirements and costs to obtain construction permits. St. Louis has the best practice for the registration of properties but scores below average in enforcing contracts. Chicago ranks highly for enforcing contracts while ranking lower for starting a business. 

All cities provide small businesses with information and materials to comply with their regulations. Yet the websites and publications are often disorganized, missing information, or unclear to third parties. Few cities provide detailed information on the procedures, expected waiting time, and administrative costs for construction permits. Overall, no city provides comprehensive information. 

At a time when America’s entrepreneurial dynamism is in decline, the costs of housing in our cities is soaring, and governments are challenging the existence of transformative companies, this project is more important than ever. The ease of doing business in America’s cities will help determine the future of America’s economic growth. The success of these places depends on improving existing regulatory processes, simplifying application and compliance with local laws, and trimming the barriers to entry for entrepreneurs.

Sorry, China Is Not The World’s Largest Economy

Mainstream media has the American public aghast at a recent report from the World Bank claiming China is poised to take over the United States as the world’s largest economy. Of course, this is not exactly true. Measuring economic performance goes beyond simple measures of GDP, PPP, and per capita income—something that is obviously missing from the World Bank report. China still has a ways to go to give the United States serious contention as the world’s greatest economic power.

There are considerable issues with trying to use Purchasing Power Parity (PPP) to compare the sizes of world economies. The concept of PPP is useful for domestic policymakers to evaluate the relative prices of non-tradable goods and services within their country. But, it’s not exactly a true barometer of economic prosperity. For example, as the Wall Street Journal points out, China cannot buy missiles, ships, iPhones, German cars, or any other imported goods, at PPP exchange rates. When standard GDP exchange rates are used rather than PPP, China’s economy is only half of the size of the U.S. economy. When population is taken into account and factoring PPP measures of GDP, China’s economy is only ranked 99th in the world. Most of the Chinese population is still relatively poor.

Beyond these technical problems, the future of the Chinese economy is less bright when China’s major long-term economic weaknesses are taken into account. There are many essential factors China lacks that will prevent the country from experiencing the sustained, broadly-based economic growth that developed countries such as the U.S. experience. It is well-established among economists that institutions are the fundamental determinants of long-term economic growth.

The United States and other advanced economies have well-developed, transparent, and accountable political institutions that have implemented laws and policies which favor trade, innovation, and competitiveness. For that reason, developed economies are the most connected to the global economy. While Chinese policy leaders have attempted to foster innovation to spur domestic sources of economic growth, they lack these institutions, which allow Chinese citizens to become entrepreneurs. It is this top-down approach that will ultimately limit the innovativeness of the Chinese economy, and why the U.S. economy continues to be driven by bottom-up sources of innovation

Intellectual Property is Key Economic Factor in Free Trade Deal

When IP rights are protected, companies are more confident in trading with and investing in those countries, which also increases exports and economic growth at home.

President Obama’s trip to Asia this week to promote the Trans-Pacific Partnership (TPP) has significant ramifications for the future of the U.S. and global economy. Yet, the TPP negotiations between the United States and Japan leading up to his trip have stalled with little progress in sight. This setback reveals the difficulty of negotiating a free trade treaty between two countries, let alone twelve.

In the U.S., some free trade skeptics are unconvinced of the TPP’s economic merits, particularly the provisions strengthening the enforcement of intellectual property. However, it is clear that the key economic benefits from a TPP deal come from a strong legal framework that protects innovation and IP.

Our empirical analysis shows that two-thirds of the economic gains from concluding a TPP would come from IP-intensive industries. Harmonizing IP protections creates jobs, produces more exports, attracts more direct investments from other countries, and enables the transfer of technology across countries and industries, all of which helps to raise incomes and living standards across all participating countries.

The TPP would unite 12 Pacific Rim countries, which stretch from Canada to Chile and across the globe to Japan, Australia, and east to Vietnam. These dozen nations are home to more than 800 million people and have a combined gross domestic product of more than $27 trillion, or about 40 percent of the world’s economy. According to the U.S. Trade Representative’s office, a TPP agreement could add $223 billion to global income and boost U.S. exports by $124 billion by 2025. We estimate the immediate benefits from TPP will create more than 107,000 new jobs, generate $4.8 billion in wages, produce $47.5 billion in manufacturing sector sales, and add $15.4 billion to GDP in all 12 participating countries.

While free trade agreements have traditionally sought to reduce tariff barriers to trade between countries, these barriers have been mostly eliminated among TPP countries. However, nontariff barriers to trade are still a problem. The TPP focuses on the reduction of these nontariff barriers to trade, particularly weak or inconsistent IP protection, which is the most significant nontariff trade barrier in the 21st century global economy.

When IP rights are protected, companies are more confident in trading with and investing in those countries, which also increases exports and economic growth at home. Therefore, strong legal frameworks for protecting IP rights leads to higher economic growth and standards of living across the globe.

The TPP also creates considerable economic benefits to the U.S. We estimate that IP supports more than 55 million American jobs, creates $5.8 trillion in gross output, pays workers 30.5 percent higher wages, and drives more than two-thirds of U.S. exports to global markets. In a time of persistently low economic growth, a TPP that strengthens IP rights would also considerably bolster the U.S. economy and job market through increased innovation. Innovation is the fundamental source of economic growth, and the benefits of IP have been demonstrated in the U.S., other developed countries, and developing countries.

But IP is only as robust as the laws that protect the copyrights, patents, regulatory data, trademarks, and trade secrets that safeguard a business’ intangibles. The economic incentive to spend billions of dollars and as long as a decade funding costly experimental trials rapidly disappears if the originality and novelty of the product can be freely copied as soon as the innovative product is introduced to the market. Thus, the goal of treaties such as the TPP is to protect these investments in IP, giving innovators the confidence to bring their products and services to market in developing countries.

A TPP agreement that upholds the highest standards of IP protection in each country and more closely harmonizes its legal and regulatory framework creates more efficient markets unencumbered by the uncertainty that ideas will be protected one way in one country and a different way in another.

The stronger the protection of IP rights under the TPP, the greater the value of trade and investment in IP-intensive industries, the engines of economic growth, higher wages and more jobs across all TPP member economies. We cannot invest in our future and grow our economies without them.

Dr. Nam D. Pham is Managing Partner of ndp | analytics, an economic research firm and an adjunct professor at George Washington University in Washington, D.C. This piece first appeared on Ideas Laboratory

The Adverse Effects of Reducing the Mortgage Interest Deduction

Tax reform is on the table, again. The mortgage-interest deduction (MID), as expected, continues to be a contentious issue for policymakers. In his latest proposal, Rep. Dave Camp (R-MI) calls to reduce the limit on qualified home mortgages for MID to $500,000 of principal from the current level of $1 million. While the prospects for a complete overhaul of the tax system are unlikely before the 2014 midterm elections, understanding issues like the MID are important for future debates.

The Wall Street Journal’s recent piece on the MID helps explain the divergent policy perspectives on the deduction as a policy instrument. The Brookings Institution argues that the MID needs to be revamped or replaced. Brookings argues that homeownership in the U.S. is not higher than those in other developed countries who do not have the MID. On the opposite side, the Hudson Institute provides another perspective that supports the benefits of the MID. The Hudson Institute points out that it’s incomplete to just compare the MID in the U.S. and other developed economies to analyze the homeownership. For example, while the United Kingdom and Canada do not specifically have the MID, they do have specific policies that encourage overall homeownership.

While the jury is still out on the magnitude of the impacts of the MID, the elimination or reduction of the MID will affect the real estate markets, millions of American homeowners and renters, and ultimately the health of the U.S. economy. The elimination or reduction of the MID is an equivalence of a tax hike policy that will affect the purchasing power of homeowners and renters negatively. When the component of housing expenditure increases, the negative income effects will reduce purchases of other items across all income groups.

Since housing expenditures make up a larger share of total household expenditures of the middle-income than higher-income groups, the relative values of the MID are in fact larger for the middle-income groups. Under the current U.S. tax code, the MID can only be claimed if a taxpayer itemizes their deductions. The limit of the mortgage principal might need to be expanded, and not reduced, to benefit the lower-income groups who do not itemize their tax filings. Policymakers must understand and measure the potential short- and long-term impacts of the elimination of the MID on the housing market and broader economy before tax reform passes through Congress.