Thought of the Week:
Although I typically try to offer just one thought of the week to open the blog, this week will be a little different. I’ll briefly touch on four issues that came across my desk. Based on the number of questions I received at the outset of the week, I thought I would be writing exclusively about Fox News’ decision to part ways with Tucker Carlson, the highly rated cable TV news host and mega-revenue generator. While it’s certainly surprising to see a network fire a ratings juggernaut like Carlson, it’s not unprecedented. In the past, Fox News has also let go such popular personalities as Bill O’Reilly, Glenn Beck, and Megyn Kelly—pundits who at the time were at the top of the ratings game. Despite Congressman Gaetz’s quote that he could not “overstate the importance that Tucker Carlson had on public policy and choices we made in the government,” I’ll never forget what my sister, a producer and editor at CNN in the early days, told me—once prime time hits, it isn’t news, it’s a TV show, and No. 1 TV shows come and go all the time. Second, we’ve talked about AI here before. Well, it’s back. In fact, National Journal pinpointed AI as creating “one of the most important videos of modern political history.” It’s not the video President Biden used to announce his reelection campaign but the video the Republican National Committee (RNC) released in response (links to both are below). The RNC’s ad was created using AI software and presented as reality. It demonstrates how the use of deep-fake technology may be far more dangerous, and expand political polarization even further, than the use of out-of-context images and quotes. Third, with the extreme number of ballots needed to elect the Speaker of the House and the testy behind the scenes intra-party squabbles over the debt ceiling bill, there’s been a lot of talk in Washington about whether the Republican Party suffers from something akin to a multiple personality disorder. This week, I’ll share one of the best descriptions I’ve come across explaining the current makeup of the GOP. Paraphrasing scholars at the American Enterprise Institute (AEI), the reality is not a crisis of identity, but an ill-suited marriage of two worldviews that have little to do with each other, two sides who see America and the world completely differently. One is a group of traditional conservatives who support small government, revile the growth of the administrative state, and scorn endless government interference in things such as education, private life, and small business. The other is a group of political left-behinds who would have voted for Democrats in decades past before they became the party of woke coastal elites. Working class, big on industrial policy, suspicious of free trade, hostile to immigration, tolerant of big government, skeptical of American intervention overseas—this is the Neo-GOP. Both groups voted for Donald Trump in 2016, and it was that election that spawned the Dr. Jekyll and Mr. Hyde persona that has been the Republican Party ever since. Last, in a weighty speech at Brookings, National Security Adviser Sullivan outlined the Biden administration’s international economics vision. It took direct aim at globalization and marked the Biden administration’s clearest break yet with the free trade consensus that has guided U.S. economic policy for the last half-century, under presidents of both parties. According to the White House, the old approach, which broadly advocated lower tariffs and less government influence in the market, failed to deliver on promises of inclusive economic growth. The speech was a clear signal of the administration’s intention to elevate equity of outcome over equal opportunity on a global scale.
President Biden’s Reelection Announcement: Let’s Finish the Job – YouTube
The GOP’s Response: Beat Biden – YouTube
Thought Leadership from our Consultants, Think Tanks, and Trade Associations
The Conference Board Continues to See a Recession in the U.S. The Conference Board’s Consumer Confidence Index fell in April, and its Expectations Index, based on consumers’ short-term outlook for income, business, and labor market conditions, also fell. The Expectations Index has remained below the level commonly associated with a recession within the next year every month since February 2022 (with the exception of a brief uptick in December 2022). According to Conference Board analysts, although consumers’ have a relatively favorable assessment of the current business environment, their expectations grew worse and remain below the level that often signals a recession is looming in the short-term. In fact, consumers are more pessimistic about the outlook for both business conditions and labor markets—fewer households expect business conditions to improve in the next six months and they also expect fewer jobs to be available in the short term. April’s decline in consumer confidence reflects particular deterioration in expectations for consumers under 55 years of age and for households earning more than $50,000. At the same time, consumer inflation expectations over the next year remain essentially unchanged from March at elevated levels. Bottom line: overall purchasing plans for homes, autos, appliances, and vacations all pulled back in April, a signal that consumers may be economizing amid growing pessimism.
Eurasia Group Says Biden 2024 will be a Sequel of Biden 2020—He’s 2 Threatening 2 Democracy. President Biden launched his reelection campaign with a video focusing on democracy and freedom; the same issues that formed the centerpiece of his 2020 campaign. The theme is not surprising: recent polls found “Preserving Democracy” to be the second most important issue for American voters behind the economy, and the most important issue for Democrats. The Biden team’s decision to highlight these issues for 2024 indicates that they still see the president’s strongest appeal to voters as being the anti-Trump. The aim is to create an early contrast with what Democrats argue are anti-democratic elements in the Republican Party. At present, President Biden is a modest early favorite in next year’s election. Despite high inflation, his advanced age, and the economy, the likelihood of a splintered Republican party next year helps Biden’s odds. The Eurasia Group currently sees Trump as the most likely Republican nominee with 55% odds.
Eurasia Group Sees the Republican Passed Debt Limit Bill Leading to Negotiations with President Biden. House Republicans passed a debt limit bill, increasing the odds that the U.S. will move to the brink of default later this year (now 55%). A major question is timing: while the X-date is set at early August, the risks around it arriving earlier are starting to fade as non-withheld tax receipts hold up. For now, the White House has ignored the GOP proposal, but Republicans expect the president to negotiate with them in May and June. If he holds out into June, the risks of the U.S. going beyond the X-date (currently 15%) will rise. A key variable is what external conditions will allow House Speaker McCarthy (R-CA) to keep his job after cutting a deal with Biden and passing it with Democratic votes—the inevitable outcome of any spending showdown. Significant and broad-based market disruption will likely be needed to force an agreement; current premiums in short-term money markets show rising concern but are unlikely to be sufficient to force negotiators to agree. A broader disruption that spills over to credit and equity markets, even beyond the 2011-13 experience, is likely, although expect an agreement ahead of Treasury’s need to prioritize payments. Analysts should watch for a softening economic outlook that could pressure Republicans to compromise, the timing of when Biden decides to negotiate with McCarthy, whether Republicans insist on political impossibilities for Biden, and an announcement from Treasury on when the X-date will be, which could signal a short-term punt of the ceiling in June.
“Off the Record”
A coalition of strange political bedfellows have proposed new social media regulations. Sens. Cotton (R-AR), Murphy (D-CT), Schatz (D-HI), and Britt (R-AL) unveiled a proposal to protect kids on social media. This is likely the only issue on which these four lawmakers agree; however, each has young children and the proposal sets an age minimum for the use of social media. Children under 13 would be barred from using social media, while children 13-17 could use it with parental consent. The bill further regulates algorithms that tech companies use to target minors.
At last night’s state dinner at the White House, President Biden gave South Korean President Yoon a guitar signed by Don McLean. Yoon shocked the audience by bringing down the house with a rendition of “American Pie.”
In Other Words
“The question we are facing is whether in the years ahead we have more freedom or less freedom, more rights or fewer. I know what I want the answer to be. This is not a time to be complacent. That’s why I’m running for reelection,” President Biden in his reelection video.
“I think it’s going to come down to me and Donald Trump very soon in this race. I know that may sound odd to folks like you who are tracking the present, but if you’re going to see where the puck is going, there’s a hunger for an outsider,” Venture capitalist and presidential candidate Vivek Ramaswamy (R).
“I’ve been involved in state politics for a long time. I lost one race in 1996. I made a vow that I’ll never lose another race. And I won’t,” Senator Manchin (D-WV) on reports that Governor Justice (R) will challenge him for his Senate seat in 2024.
Did You Know
The most popular college major for current members of Congress was…Political Science.
Graph of the Week
The CATO Institute holds that the trade deficit is an often misunderstood symbol of economic strength and influence. The deficit is not driven by unfair trade abroad or industrial weakness at home, and it cannot be “fixed” through higher tariffs. The trade deficit is driven by a persistent net inflow of foreign capital, which reduces interest rates and fuels economic output. Contrary to myth, the trade deficit is not a cause of deindustrialization or a loss of manufacturing jobs. In fact, the current trade balance points to the U.S.’s continuing influence in global affairs—a haven for global investment, a producer and buyer of goods and services, and a dollar that remains at the center of the global economy. Policymakers should reject measures that restrict trade and foreign investment and expand commercial ties to the rest of the world.