January 21, 2022

Thought of the Week:

I used to love the Winter Olympics. I’ll never forget Franz Klammer’s gold medal run during the 1976 Innsbruck Olympics. A 10 year old at the time, the dramatic downhill race was what inspired me to learn how to ski. I’ll also never forget exactly where I was for the “Miracle on Ice,” the 1980 U.S. Olympic hockey team’s stunning victory over the heavily favored Soviet Union at Lake Placid. So many moments have left an indelible impact—the Jamaican Bobsled Team; Shaun White, the “Flying Tomato;” Herman Maier; and countless others. As a kid, I believed in the Olympic motto of “Faster, Higher, Stronger—Together,” and to me, the Olympic Games were about a love of sport, rather than a love of money. Naïve, I suppose. The former chairman of the International Olympic Committee (IOC) once said, “We can only rely on the support of those who believe in the principles of fair play and sportsmanship embodied in the amateur code in our efforts to prevent the Games from being used by individuals, organizations, or nations for ulterior motives.” With the award of the 2022 Games to Beijing, how far we’ve fallen from that ideal. Although the IOC contends that the Games remain apolitical, how can this be when anyone, athletes included, attending the Winter Olympics is required to download an app allowing Beijing to track their every movement, the cover story being, of course, to help coronavirus contact tracing. The truth is that the same software includes encryption codes that make it easier for authorities to snoop on those in attendance and a special file of banned words that could trigger the nation’s censorship network. Among the banned terms are references to Taiwan, Hong Kong, Uyghur Muslims, Tibetan Buddhists and the Dalai Lama, Tiananmen Square, and the Falun Gong. Scary, considering that just this week a member of China’s organizing committee warned that foreign athletes may face punishment for speech at the 2022 Games that violates Chinese law concerning the country’s restrictions on political expression. So, what does this mean, if anything, for SCOA or any company for that matter? Earlier this week, BlackRock CEO Larry Fink sought to defend shareholder movements focused on putting the interests of wider society ahead of profits, saying stakeholder capitalism is neither political nor “woke.” In his widely read annual letter, Fink pushed back on those saying the firm was using its influence to support a politically correct or progressive agenda. According to Fink, “Stakeholder capitalism is not about politics. It is not a social or ideological agenda. It is not ‘woke.’ It is capitalism, driven by the mutually beneficial relationships between the company and its employees, customers, suppliers, and the communities in which the firm relies on to prosper. This is the power of capitalism.” In essence, this year’s missive was meant to outline the priorities BlackRock sees as crucial to helping its clients achieve “durable” long-term returns. Released within a week of Fink’s letter, a Conference Board report says that the stakeholder environment companies will face in 2022 will only become more challenging. The report noted that over three quarters (77%) of respondents cited the frequent emergence of social/political issues on which companies faced pressure to take a public stance as a driver that will make 2022 even more challenging than 2021. For SCOA this should mean a continuation of defining corporate values, communicating those values both internally and externally, and then most importantly demonstrating them to the communities we serve.

Thought Leadership—from our Associations, Think Tanks, and Consultants:

The Best Laid Plans…Bloomberg Government. On the one-year timeline imagined by the White House when President Biden first took office, vaccines would end the Covid-19 pandemic; the economy would be growing strongly; and a narrowly divided Congress would have passed the bulk of the administration’s agenda. With missions accomplished, the White House was to spend 2022 focusing on voting rights, cutting ribbons on infrastructure projects, and telling Americans what the president had done to make their lives better—think vaccines, stimulus checks, and Great Society-scale investments in social programs. It’s just not how things played out. On the heels of the delta variant, omicron is roiling the country. School closures and shortages are fueling Americans’ frustration and despair. The Build Back Better (BBB) bill stalled over Sen. Manchin’ (D-WV) objections, leaving the president’s agenda stuck in neutral at best. Now, soaring inflation; Russia massing troops on Ukraine’s border; and progressives’ fury at the president over a too little, too late push for voting rights have forced the Biden administration into reactive mode. The president’s approval ratings have slumped with the most generous polls showing that 50% of people disapprove of the way President Biden is handling his job, while 45% approve; and the most recent Gallup poll found that 40% of Americans approve of Biden’s job performance while 56% disapprove—the 16-percentage-point gap is the largest of his presidency.  

It’s Now Build Back Smaller, Says Capital Alpha. When President Biden admitted during a press conference that he was ready to break up the Build Back Better (BBB) Act, he probably meant to say that he was willing to break pieces off his original proposal. In fact, Congress is widely expected to break up the still-not-well-defined package that is currently on the table. While it remains more likely than not that some version of the Triple-B will pass, congressional staffers have begun to structure it as a healthcare-focused reconciliation vehicle that includes a clean energy package and possibly some pre-kindergarten components. But just one ill will emerge, not several as time and space on the legislative calendar is sparse.  Triple-B, assuming it does pass in April, will be the last train out. In fact, although Congress has the ability to pass full-year appropriations before April, the jury remains out on whether they can move these “must-pass” bills. Following appropriations, there will likely be no legislation on any significant scale until Congress takes up a possible year-end tax extenders bill during a lame duck session. The chance that Congress once had to raise the corporate tax rate has come and gone.  

Eurasia Group: While Forcing Damage Control on Ukraine, the President’s Press Conference Did Light a Path to Fiscal Policy Compromise. President Biden’s press conference provided insights into his thinking on Russia, Build Back Better, and his view on the Republican Party. On Russia, he seemed to indicate he thought an invasion of Ukraine was going to occur, but later contradicted himself, requiring National Security Staff to clean up his comments. The president’s major foreign policy gaffe on Russia was more likely musing than firm prediction, and the base case for military conflict in Ukraine remains unlikely—a 60% chance of no conflict. On Build Back Better, the president endorsed a strategy of splitting the bill into smaller parts. This idea has been gaining traction on Capitol Hill, and Biden’s endorsement shows that he would see a smaller bill as a win, even if it would disappoint progressives in his coalition. This increases the odds of a bill getting done from 25% to 30%. The contents of such a bill will be clearer come March, after the February 19 government funding deadline. The process could finish as early as April or May. A compromise bill would be more than fully tax-financed with between $500 billion and $1 trillion in gross spending and potentially hundreds of billions in deficit reduction. It would likely include the roughly $500 billion in climate provisions that have already passed the House along with spending on early childhood education, health care, and potentially a limited expansion of the Child Tax Credit. Despite White House predictions of doing more on fiscal policy later, it is likely that this would be the only major fiscal bill to pass in 2022 as the reconciliation process is unlikely to be used more than once.

More Ideas of Interest:

-American Enterprise Institute (AEI): What Biden’s Approval Rating Means for the Midterms.

-Inside the EPA: Experts Say Vaccine Ruling Signals Supreme Court Will Limit EPA GHG Power.

-Observatory Group: Some Once Remote Federal Reserve Scenarios Now Looking… Plausible.

-Trade Analyst Laura Chasen: Commerce Department has Big Plans for Industrial Policy

In Other Words (Quote): 

“She’s going to be my running mate, number one. And number two, I did put her in charge. I think she’s doing a good job.” – President Biden on Vice President Kamala Harris.

“I think what you’re going to see is that Russia will be held accountable if it invades…And it depends on what it does. It’s one thing if it’s a minor incursion and we end up having to fight about what to do and not do.” – President Biden during his most recent press conference.

Did You Know:

The Twentieth Amendment to the U.S. Constitution moved the beginning and ending of the terms of the president and vice president from March 4 to January 20.

Image of the Week:

No Relief Coming for President Biden’s Approval Ratings Slump…So Says the Eurasia Group. Without unified Democratic support for changing the rules, the Senate’s supermajority requirements will continue to block the Biden agenda. To break out of an extended political slump, President Biden will need some combination of good news on the economy, pandemic, and legislative front. Even then, Republicans are likely to have enough momentum to spark a red wave election in November.

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