July 7, 2023

Thought of the Week:

As I was driving my son home from my mother’s (his grandmother’s) 80^th birthday dinner this week, he brought up something that was weighing on his mind. He said, “You know, dad, it’s hard to square today’s Republicans and Democrats, today’s right and left, with the definitions you’ve always given for what it means to be conservative or liberal.” I had always explained that the central difference between right-wing and left-wing ideologies revolved around the rights of individuals vs. the power of the government. In essence, along a continuum from left to right, liberals believe that society is best served with an expanded role for the government while on the opposite end the spectrum conservatives hold that the best outcome for society is achieved when individual rights and civil liberties reign supreme and the role of government is limited. I always stressed that liberals and conservatives actually want the same thing, they just come at the problem from different viewpoints, and that every individual falls somewhere between the two extremes. To demonstrate my point, I typically pointed to government-run entitlement programs—Social Security on the left vs. privately held retirement accounts like 401(k) plans on the right. He said that while he understood the basic framework, among his Millennial and Gen Z cohort, there is extreme pressure to be “all-in” on the right or left, with no exceptions. He said that between the two groups there are few attempts at real discussion; minimal effort, if any, to see nuance; and the goal is not to find commonalities or reach consensus but to demonstrate ideological purity. Making things even more confusing, he said that Republican, conservative, and right and Democrat, liberal, and left don’t even seem to mean the same things. It was a deep discussion to be having on a short drive after a day at work and a family gathering. He then pointed to the past week’s Supreme Court rulings on affirmative action, gay rights, and student loans to demonstrate the point that there is a stark divide between the left and right that permeates society. While acknowledging that those, as well as last year’s ruling on abortion, taken alone would seem to define a hard left/right break, I also said that things were a bit more complicated than that. While agreeing that the court was certainly conservative, and admitting that I was no legal scholar, I noted that the court’s three liberals were actually in the majority in a significant number of cases, including ones on voting rights, immigration, and the role of state legislatures. I said that it makes things easier to simply view things as black or white/left or right, and that one way to have a real discussion might be to offer an entirely different way of looking at things. Instead of viewing court rulings singularly through a left/right prism, it could be instructive to look at the modes of interpretation justices use to come to their decisions. I pointed to Textualism, which focuses on the plain meaning of the text, emphasizing how the terms in the Constitution would be understood by people at the time they were ratified; Originalism, which considers the meaning of the Constitution as understood by at least some segment of the populace at the time of the Founding; and Structuralism, which draws its inferences from the relationships among the three branches of government, federal and state governments, and the government and the people as three ways other than left/right to consider the rulings. I told him that other approaches—Judicial Precedent, Pragmatism, Moral Reasoning, National Identity, and others—also exist, and that by offering novel perspectives he might be able to avoid at least some of the poison that has crept into left/right discussion. He seemed to take it as food for thought, which I chalked up as a dad win. Read ahead for more on the Supreme Court in 2024.    

Thought Leadership from our Consultants, Think Tanks, and Trade Associations

Conference Board Says At Least One More Rate Hike Coming, Rate Cuts Not Until 2024. Although nominal personal consumption expenditures (PCE) increased, real spending was unchanged in May, signaling slower consumer spending momentum in the second quarter of 2023. Nonetheless, the spending that did occur was largely for services, a space the Federal Reserve is struggling to calm. While headline PCE inflation slowed to 3.4% year-over-year, the core measure was roughly unchanged at 4.6% year-over-year, a pace well above the Fed’s 2% target. As a result, the data supports the Fed’s desire to continue raising interest rates to return inflation back to the 2% target. Slower overall real spending notwithstanding, much of the spending was on services. Moreover, core PCE inflation—the Fed’s preferred consumer inflation gauge—remained sticky. The current forecast: at least one more interest rate hike, and possibly more, given the stubbornness of inflation and continued supports for consumer spending, including a robust labor market and rising real incomes. A hike as soon as the July meeting is possible. Although markets continue to price in rate cuts if the forecasted recession occurs, the Fed will allow a lengthy pause in rates and not consider any rate reductions until well into 2024.

Eurasia Group Eyes 2024 Supreme Court Docket–Will Focus on Regulators, Tax Issues. With the conservative-controlled Supreme Court having decided major social policy issues over the past two years, the court’s coming term will be marked by a series of potentially consequential rulings on issues related to the administrative state and tax policy. A case on whether the federal government can tax unrealized income could imperil Democratic proposals for a wealth tax. A case challenging the constitutionality of the Consumer Financial Protection Bureau’s funding mechanism could weaken the agency, limiting its regulatory role and invalidating current regulations. And a case of extreme interest to business, the court will more than likely curtail federal agencies’ ability to interpret ambiguous statutes, a decision that will have enormous consequences for policymaking. In addition, the court is likely to hear a case on the legality of the abortion pill mifepristone; although the court’s decision in the Dobbs case in 2022 made states the primary actors on abortion policy, this case indicates that federal courts will still play a role.

Inside U.S. Trade Reports that Trade Not ‘Core’ to Biden’s Economic Policy. Deputy National Security Adviser Pyle publicly declared that the Biden administration’s vision for the global economy is not centered on trade policy, arguing instead that investment—both domestically and internationally—is a policy more fit to tackle current challenges. In fact, the White House has largely shunned traditional free trade agreements in favor of broader economic arrangements like the Indo-Pacific Economic Framework and the Americas Partnership for Economic Prosperity. Additionally, the Biden administration has downplayed the usefulness of tariff-liberalizing market-access talks and has pushed for reshoring, or “friendshoring,” critical technology supply chains through domestic industrial policy. According to the administration, because the U.S.’s average tariff rate is just 2.4% and trade between the U.S. and key partners is growing organically, doubling over the past several years, what needs to be at the core of international economic policy is a focus on an emerging set of challenges—supply chain fragility and resilience, climate and clean energy, anti-corruption, and global taxes. In place of globalization and tariff liberalization, the administration says it is offering a positive and forward-looking vision that centers on global issues. What this looks like in practice is investment, with the U.S. attempting to align its domestic investment with that of its allies. In an effort to build a “toolkit” to facilitate investment, the White House is looking to reorient multilateral development banks and views an outbound investment mechanism as “critical” to preventing sensitive, national-security related technologies from benefitting China’s military surveillance system.

“Off the Record”

Capitol Hill Staffers Pessimistic on Passing Appropriations Bills. An overwhelming majority of Capitol Hill staffers (79%) don’t think Congress will pass all 12 appropriations bills by the end of the year, triggering an automatic across-the-board cut. As part of the debt-limit deal between President Biden and Speaker McCarthy, a 1% cut is to be applied across all agencies, including defense and veterans programs, if Congress cannot pass all 12 appropriations bills by December 31; right now, it’s even unclear how Congress will keep the government funded beyond the end of the fiscal year on September 30. The House is currently marking up its funding bills at about $120 billion lower than the agreed-to caps under the Fiscal Responsibility Act. Meanwhile, the Senate is sticking to the funding levels in the debt-limit compromise. Change doesn’t seem likely: What’s more, a majority of senior staffers (57%) don’t think the most recent showdown over the debt limit will have any impact on whether Congress makes long-term reforms to the process. So, look forward to another debt-limit fight in 2025.

In Other Words

“This is not a normal court,” President Biden after the Supreme Court struck down affirmative action programs.

Did You Know

Although Congress officially adopted the Declaration of Independence on July 4, 1776, the official copy wasn’t inked by all 56 signers until August 2, 1776. Moreover, even though the holiday has been celebrated each year since 1776, July 4^th wasn’t declared an official holiday until 1870; in 1941 the date became a paid holiday for all federal employees.

Graphs of the Week

Bloomberg Government Links Economic Stress to Decision 2024. The Biden administration is obsessed with the middle class; it’s the target of everything from White House efforts to rewrite economic policy and seed an industrial revival to its foreign policy and geopolitical competition with China. The core premise of Bidenomics is that the middle shall come first. Yet, as the president ramps up his 2024 re-election effort, he seems to have a middle-class problem. Among the 100 million Americans with annual incomes between $45,000 and $180,000 and wealth between $100,000 and $1 million, polling shows persistent angst about the future. The post-pandemic surge in inflation and the Federal Reserve’s reaction—the fastest increase in interest rates since the 1980s—have combined to put the middle class in a financial vice grip. The bottom line: more than $2 trillion in wealth held by the middle class has been eliminated since the Fed started hiking, and just 39% of those 100 million Americans defined as middle class say they expect their situation to get better in the next year.

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