Thought of the Week:
This past weekend, I stood in the middle of the third fairway and found myself facing golf’s equivalent of a microeconomic dilemma. A friend had invited several of us out to the Naval Academy’s golf course in Annapolis; a course I hadn’t played since my college days more than thirty years ago. Sitting at two-over par after a sloppy bogey on one and a three-putt bogey on two, I needed to decide whether to go for the par 5’s green in two or layup to a reasonable yardage, setting myself up to hit the green in regulation. Going for the green in two held the prospect of making an unlikely eagle or easy two-putt birdie (it also brought several difficult sand traps into play from which even a par would be difficult to make), but due to the difficult pin position, laying up took eagle out of play, made birdie unlikely, but reasonably assured myself of making my first par of the day. Before it was my turn to play, I needed to realistically calculate the potential “opportunity cost” of going for the green in two vs. laying up and hitting the green in regulation. An opportunity cost is simply a representation of the potential benefits one—whether a business, investor, consumer, or in this case golfer—misses out on when choosing one alternative over another. Said another way, an opportunity cost is the foregone benefit that would have been derived from an option other than the one chosen. The formula for calculating an opportunity cost is:
Opportunity Cost = RMPIC – RAIC
RMPIC = return of most profitable investment; RICP = return on alternative investment choice.
In my case the formula was: eagle (3) – par (5) = -2 stroke difference.
Businesses face opportunity cost considerations all the time. Corporations decide between investing in company A or company B, purchasing new equipment or hiring additional workers, or choosing one city over another to locate a new plant or facility. Although opportunity costs cannot be predicted with total certainty, taking them into consideration can lead to more profitable decision making. This presidential election cycle, surveys regularly show that the overall economy and inflation are among the most important issues for voters. And why not, over the past three years, Americans have gone from the highest level of household savings ever recorded to among the lowest levels. At the same time, they have accumulated the highest level of personal debt ever recorded. With Vice President Harris and former president Trump offering two vastly different strategies for addressing the nation’s economy, in making their ballot choice, voters are likely to consider the various economic opportunity costs inherent in the policy positions of each candidate. So, what did I do? Went for the green in two, pushed my 3-wood into a bunker short of the green, hit a very average sand shot, hit a so-so chip, but made a six foot knee-knocker putt for par. That’s golf.
Thought Leadership from our Consultants, Think Tanks, and Trade Associations
Eurasia Group Believes Successful DNC Leaves VP Harris in a Strong Position Heading into September. The Democratic National Convention has gone about as well as it could have. While this is no guarantee of a smooth campaign post-convention, the shows of party unity and voter enthusiasm leave Vice President Harris in a strong position to maintain her polling lead over former president Trump past the Labor Day holiday and into September. Beyond enthusiasm and party unity, Democrats’ goal this past week was to make the case to persuadable voters that the Democratic Party is a big tent that welcomes moderates. Done specifically to minimize potential division with moderate, policy rollouts were intentionally non-detailed or largely kept to Biden-era policy positions and speeches were drafted to emphasize positive vibes for the future. However, a convention that plays well on TV does not mean Democrats will win in November. Democrats had successful conventions in 2004 and 2016 but lost both elections. The difference this year is a lack of obvious intraparty division—a point that was front and center in planning for the 2016 convention. The move away from the Biden campaign’s strategy of emphasizing Trump’s threat to democracy toward optimism for the future direction of the country was an effort to position Harris as a change candidate separate from the Biden era, a message that seems to have found some traction based on Harris’ improvement in top issue polling relative to Biden.
Inside EPA Reports that Environmentalists are Already Detailing Policy Asks for Potential Harris Presidency. Environmentalists are increasingly detailing their policy priorities for chemicals, fossil fuels, and environmental justice (EJ) that they hope to advance if Vice President Harris prevails in the Nov. 5 election against former president Trump. The advocacy comes amid broad expectations that Harris would build on the climate and environmental record of President Biden’s four-year term, although her campaign has yet to release any detailed policy proposals. While it is not clear if she would seek to put a greater influence on any given issue, observers expect that Harris would make EJ protections her “core” environmental issue should she become the nation’s first Black female president. Even though Harris has not detailed her campaign’s environmental policy proposals, analysts cite her record as being the “face” of EJ in the Biden administration, her EJ-focused legislation as a senator, and her establishment of the first environmental crimes division focused on EJ when she was California’s attorney general. What’s more, the Democratic Party’s 2024 platform pledges to “continue to implement the President’s Executive Order on Environmental Justice for All and seek legislative options to further advance environmental justice.” With respect to chemical regulations, environmental groups are beginning to outline areas where they would like to see tougher standards. For example, they hope that Harris’ selection of Minnesota Gov. Walz (D) as her running mate signals a stronger approach to per- and polyfluoroalkyl substances (PFAS). And in the climate change arena, environmentalists are pressing a potential Harris administration to conclude that additional approvals to export liquefied natural gas (LNG) are not in the “public interest” and should be rejected.
Observatory Group Predicts Which Party Wins Congress. While all the attention is on Harris vs. Trump, which party controls Congress will have an outsized influence on policy in 2025 and beyond. The odds of a divided Congress are the most likely scenario but with a flip from the current makeup of Congress to a Republican Senate and Democratic House. There is a non-trivial chance of a Republican sweep. However, the odds of a Democratic sweep, while possible, remain fairly low because of the difficulty Dems have in keeping a majority in the Senate, which is driven as much by structural factors as by politics. The makeup of Congress will have a significant impact on fiscal policy, especially tax policy in 2025. A divided Congress (chances about even) will likely mean the status quo, or close to it, with an expanded deficit due to unpaid-for extensions of expiring tax provisions; a GOP Congress (odds about 1/3) will likely mean reduced taxes but a larger expanded deficit due to unpaid-for tax cuts; and a Democratic Congress (unlikely) would likely mean increased taxes and an increased deficit due to expansive fiscal policy outdistancing any revenue gains from increased taxes on businesses and higher earners. To retain control of the Senate, Democrats need to win the White House and ALL seven battleground Senate seats. Republicans only need to win the White House or just one of the seven battleground Senate seats. Thus, there is a 70% chance that Republicans will control the Senate next year—regardless of who wins the White House. Historically, the president’s party won control of the House in approximately 70% of the elections where they also won the presidency. In 2024, it is nearly certain the House will be Democratic if Harris wins the White House; and about a 55% probability that Republicans will retain their slim House majority if Trump wins. With a divided Congress, many presidents look to executive action to advance their agendas. This should continue under divided government in 2025. However, there will be a much more administrative state-skeptical judiciary in 2025 than in the previous 40 years. Thus, the success of legislating by executive authority will be more difficult for the next president
“Inside Baseball”
It’s only August, but Things are Looking Good for Democrats at the Moment. There’s no disputing that take. Yet, think back to just one month ago. Former president Trump had just survived an assassination attempt. The images of the bloodied former president pumping his fist in the air led many political prognosticators to believe there was no way he would lose in November. Republicans gathered for the Republican National Convention in Milwaukee confident of gains in the House and Senate. Then President Biden dropped out of the race following his disastrous debate performance and everything changed. Punchbowl News says it’s a lesson that the political climate could—and likely will—shift again between now and November 5. There will be at least one Harris-Trump debate; there could be an escalation in the ongoing war in the Middle East; and any post-DNC bump for Democrats could certainly fade. No one knows what developments lie in store between now and Election Day. Consider that Republicans are more trusted on key issues. Recent polling has shown the GOP with an edge when voters are asked what party they trust to handle the overall economy, immigration, and inflation, the top issues this year. Of course, Democrats retain the edge on abortion rights. So, expect that message to be repeated over and over and over again in competitive House races.
In Other Words
“We got it up to 48, but, of course, Sinema and Manchin voted no; that’s why we couldn’t change the rules. Well, they’re both gone,” Senator Schumer (D-NY) suggesting that eliminating the filibuster would be on the table if Democrats achieve unified government in November.
Did You Know
Although the office of vice president seems like a good launching pad for attaining the nation’s highest office, relatively few vice presidents—just 15 of the 49 who served between 1789 and 2021—became president. Eight of those did it by taking over after the death of a president, while another, Gerald R. Ford, rose to the office when his predecessor, Richard M. Nixon, resigned. Only six vice presidents have managed to get elected president on their own.
Graph of the Week
Consumer Price Index Supports September Rate Cut. Both total and core Consumer Price Indices (CPI) continued to cool in July, supporting the narrative for a Fed rate cut in September. Although total CPI rose by 0.2% in July, it slowed from 3.0% year-over-year to 2.9%. This is significantly lower than the peak of 9% y/y reached in June 2022. At the same time, core inflation, which excludes food and energy prices, also rose by 0.2% in the month, but slowed year-over-year from 3.3% to 3.2%. In short, marketers should prepare to capitalize on consumers’ relief from sticker shock. With the economy cooling but still positive, and interest rates set fall in September, companies will need to pivot toward competing on price and value.
