Bolstering Free Enterprise and Innovation

“Especially over longer time horizons, the most important driver of growth is innovation. And fundamentally, innovation is driven by letting loose the creative power of individuals. Avoiding excessively high tax rates, reducing regulation and other barriers to technological progress, and maintaining a posture of openness to the rest of the world through international trade are just some of the ways public policy can support innovation.”

Michael R. Strain, Director, Economic Policy Studies;
John G. Searle Scholar

Since AEI’s founding, our scholars have sought to advance free enterprise and encourage innovation to maximize prosperity for the greatest number of people. They focus on issues including monetary policy, financial markets, taxes, health care, entitlement reform, and international trade and finance. Over the past year, our scholars’ efforts called particular attention to the developments in US trade policy, the threats of overregulation and burdensome government mandates in the housing finance system, the market distorting nature of programs contained in the nation’s farm bill, the need for creative destruction in the technology sector, and the importance of transparency in tax policy. Across these and other areas, AEI scholars have significantly influenced policy debates.

Unpacking US Trade Policy

US trade policy featured prominently in the policy debates in 2018, with the announcement of US tariffs of 10–25 percent on $250 billion worth of Chinese imports, a new trade agreement with Mexico and Canada (USMCA), and the opening of trade negotiations with the United Kingdom, the European Union, and Japan.

Claude Barfield, Mark Perry, James Pethokoukis, Derek Scissors, and Michael Strain wrote and commented extensively on US trade policy, robustly calling for free trade and offering their analysis on the range of tools the US government can use to achieve its aims and the effects of such tools on US businesses, workers, and consumers.

   In September, Scissors and Strain filmed a long form AEI “Viewpoint” video in which they debated free trade and US policy in the Trump administration. Strain also addressed various aspects of US trade policy in his regular Bloomberg column.

   Pethokoukis launched a daily “Trade War Diary” on AEIdeas. He appeared frequently on television to discuss the continual developments on shows such as CNBC’s Squawk on the Street, Power Lunch, Closing Bell, and Worldwide Exchange. Perry wrote regularly on his widely read blog, Carpe Diem, about the effects of the new steel and aluminum tariffs on US producers, in particular.

   Derek Scissors conducted numerous high-profile media interviews on US China economic relations. Derek Scissors’ television appearances included CNN’s New Day, Fox Business’ Countdown to the Closing Bell, CNBC World’s The Rundown, CNBC’s Squawk Box, and Bloomberg’s Daybreak Asia. Scissors also produced two AEI “In 60 Seconds” videos in March and July. In one, he argued that President Trump’s initial tariffs against China would not have much impact. In the other, he proposed an alternative to tariffs to push back on China’s infringements of intellectual property. He suggested punitive action in the form of sanctions on state-owned enterprises that have demonstrably benefited from stolen intellectual property. The videos garnered 9,680 views combined, as of November 2018.

Derek Scissors discussed the US trade deal with China on CNN’s ‘New Day.’

  The Chinese Embassy sought Claude Barfield’s expertise on Sino-US trade relations. Claude Barfield participated in a seminar organized by the Chinese Embassy where American trade experts and Chinese trade officials discussed Sino-US trade relations. Topics included the trade war, future trade relations between China and the United States, and Chinese industrial policy. In July, he appeared on Bloomberg’s Bloomberg Daybreak to discuss the trade war.

  South Korea’s minister for trade requested AEI thought leadership on US trade policy. Claude Barfield hosted South Korean Minister for Trade Kim Hyun-chong at AEI for a private roundtable with experts from other think tanks about the Trump administration’s trade policy and US Korea trade issues.

To learn more, visit aei.org/tradepolicy.

  AEI’s “Agriculture Policy in Disarray” series attracted the attention of hundreds of congressional staff members. Vincent Smith released Agricultural Policy in Disarray (AEI Press, December 2018), a two-volume compilation of 19 reports on agriculture policy in the context of the 2018 Farm Bill. The volumes evaluate how farm programs affect farm incomes, US food security, rural communities and poverty, the environment, and US trade relations. They explore how farm-oriented programs authorized by the existing farm bill funnel federal funds to households with above-average incomes and how such programs incentivize farms to operate in ways that waste economic resources. Staff from more than 350 Senate and House congressional offices attended one of the program’s 20-plus briefing sessions and meetings throughout the course of the project.

  The Senate Foreign Relations Committee website featured AEI scholars’ work on emergency aid reforms. Vincent Smith’s coauthored op-ed with Christopher Barrett (Cornell University), Stephanie Mercier (Agricultural Perspectives), and Erin Lentz (University of Texas at Austin) on how the Food for Peace Modernization Act would help address critical problems with current food aid policies was featured in March on the committee’s website. Smith advised the Senate Foreign Relations Committee and House Foreign Affairs Committee on critical reforms to the US emergency aid program.

  Chairman of the House Agriculture Committee spoke at AEI about proposed changes to the Supplemental Nutrition Assistance Program (SNAP). Robert Doar and former AEI Research Fellow Angela Rachidi hosted House Committee on Agriculture Chairman Mike Conaway (R-TX) to discuss proposed changes to SNAP and what they could mean for SNAP recipients. Over the year, Doar and Rachidi wrote extensively about the proposed changes to SNAP. Doar also testified before the House Committee on Education and the Workforce, emphasizing the need to include employment requirements in benefit programs.

  The administration is using AEI’s housing market data to assess risk. AEI’s Center on Housing Markets and Finance, codirected by Lynn Fisher and Edward Pinto, with Stephen Oliner, produced indexes of mortgage and collateral risk, which introduce for the first time ever a measure of transparency to housing finance by tracking these risks in nearly real time. The US Department of Housing and Urban Development, the Federal Housing Administration, and the US Treasury Department are using the center’s data and findings to assess risk.

Roslyn Layton testified on the competitive impact of the T-Mobile–Sprint transaction for the Senate Subcommittee on Antitrust, Competition Policy, and Consumer Rights.

   The “Facebook Hearings” on Capitol Hill drew on AEI’s technology policy work. Mark Jamison testified before the Senate Judiciary Committee, and his work was used by the House Energy and Commerce Committee in its Facebook oversight hearings. Throughout the year, other AEI scholars testified before Congress on issues of technology, regulation, and economic growth, including Michael Strain before the Joint Economic Committee and Roslyn Layton before the Senate Judiciary Subcommittee on Antitrust, Competition Policy, and Consumer Rights on examining the competitive impact of the T-Mobile–Sprint transaction. Among those testifying alongside Layton were the CEO of T-Mobile and the executive chairman of Sprint. In September Jeff Eisenach and Shane Tews participated in a 5G wireless summit at the White House.

  An AEI video explaining cryptocurrency was among the leading user searches on Google Videos on this topic. Throughout the year, AEI scholars used the Institute’s video platforms to offer their opinions about technology and innovation, covering topics such as bitcoin, cryptocurrency, blockchain, and Big Tech. Of these videos, “What Is Cryptocurrency?” with Mark Jamison was one of the highest ranked links on a Google Videos search for “what is cryptocurrency” between April and August. Additionally, Paul Kupiec hosted a public event with industry experts to discuss the economic and political issues associated with cryptocurrencies. He also published a series of op-eds on the issue.

  The US Supreme Court ruled along the lines of an amicus brief submitted by AEI scholars for the case South Dakota v. Wayfair, Inc. In March, Alex Brill and Alan Viard, along with Michael Knoll (University of Pennsylvania) and Ruth Mason (University of Virginia), filed an amicus brief with the US Supreme Court in support of the petitioner in South Dakota v. Wayfair, Inc. They attested that South Dakota’s sales and use tax regime promotes neutral treatment of in-state and interstate commerce and is not excessively burdensome on remote sellers. Following the Court’s 5-4 ruling in June, Brill and Viard published an article in the Hill, “Supreme Court Ruling on Online Sales Tax Sets Level Playing Field”, explaining that, as a result of the ruling, American businesses will compete based on the quality of the goods and services they provide and the prices they charge. They were interviewed and cited by several outlets, including National Journal, the Los Angeles Times, CNBC, and SiriusXM.

   AEI’s Open Source Policy Center (OSPC) is transforming tax policy analysis at the highest levels of government. AEI’s OSPC, directed by Matt Jensen, developed a cutting edge platform for universal basic income policy making and policy analysis. These capabilities became the most popular features on OSPC’s PolicyBrain and received significant attention from high level users, including congressional staff and White House economic staff.

 Major new AEI study helped track prescription drug affordability and called for an increase in competition. Joseph Antos and James Capretta released an AEI Economic Perspectives report in July analyzing the major factors that affect the prices of prescription drugs for patients and purchasers. In “Prescription Drug Pricing: An Overview of the Legal, Regulatory, and Market Environment,” Antos and Capretta attest that policymakers should study the existing arrangements carefully and consider what can be done to promote more supply competition (thus minimizing monopolistic pricing) in all drug categories.

   Congress and the media called on AEI scholars for their analysis during the tax reform debate. AEI scholars, particularly Alex Brill, Michael Strain, Stan Veuger, and Alan Viard, were on the front lines of the tax reform debate leading up to the December 2017 Tax Cuts and Jobs Act, with frequent commentary and analysis, media appearances, and briefings with policymakers. In June, Brill and AEI Research Assistant Derrick Choe discussed the impact of the tax cuts on charitable giving in their AEI Economic Perspectives report. They found that the new tax law could reduce charitable giving by $17.2 billion in 2018. Their work sparked media interest, including notable mentions from Politico, Bloomberg, CNBC, and Tax Notes.

Alex Brill discussed South Dakota v. Wayfair on on CNBC’s ‘Closing Bell.’

  James Capretta’s thoughtful work on entitlement reform helped draw Americans’ attention to the crisis now at our doorstep. James Capretta’s spring 2018 National Affairs essay “Rethinking Medicare” explains why the United States needs a new approach to rein in runaway entitlement spending, outlining the problems with the current structure of Medicare and offering long-term solutions to keep the program solvent. His June essay in RealClearPolicy explains that, at the current rate, Social Security and Medicare will run out of reserves in 2034 and 2026, respectively.

   Former Fed Chairman Ben Bernanke discussed at AEI the success of quantitative easing programs. On June 7, Desmond Lachman interviewed former Chairman of the Board of Governors of the Federal Reserve System Ben Bernanke to discuss whether quantitative easing programs have successfully stimulated the US economy in the 10 years since the Federal Reserve launched its first program. Following their conversation, a panel of economic policy experts discussed the success of economic policy reforms in recent years. Video of the event on AEI’s YouTube channel has more than 10,000 views.

  Counterintuitive research findings on medical debt drew attention from Capitol Hill and the media. Benedic Ippolito’s coauthored July study in Health Affairs found that medical spending increases with age but that young people actually have much more medical debt in collections than older generations. This finding proved counterintuitive to many people, and the paper was featured in Axios, the Associated Press, Healthcare Dive, and the Advisory Board Daily Briefing, among other sources. Ippolito was quoted in the New York Times and PBS NewsHour. The research findings also garnered attention on Twitter and Capitol Hill from relevant committee and subcommittee staff.

  Andrew Biggs has been implementing reforms to fix Puerto Rico’s insolvent public pension system and improve its economy. Since September 2016, Andrew Biggs has served on the Financial Oversight and Management Board for Puerto Rico, tasked with restructuring the bankrupt Puerto Rican government’s debt and implementing reforms to increase long-term economic growth. On the board, Biggs has primary responsibility for Puerto Rico’s insolvent public pension system; the board’s plan to shift all employees to defined contribution retirement accounts is the most far-reaching public pension reform in the US to date. Biggs has also been the board’s leader on policies to improve the island’s sub-40 percent labor force participation rate,which for three decades has been nearly the worst in the world. Reform policies include a local earned income tax credit, work requirements for food stamps,and steps to make the island’s rigid labor market more flexible. As part of these efforts, he has engaged in face to face negotiations with the island’s governor and his top officials.

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