June 2, 2023

Thought of the Week:

If you know me, you know I’m not a coffee drinker. Diet soda is my caffeine delivery vehicle of choice, and there is no better mode of transportation than a large fountain Diet Coke from McDonald’s. Otherwise, whether it’s from a can or bottle, I prefer Diet Pepsi over Diet Coke. Over the years, people have asked me, “Can you really tell the difference between the two?” My answer: “absolutely, without question.” Within the past month, I’ve received a similar question—is there really a big difference between former president Trump and Florida Governor DeSantis? While some, even those within his own campaign, have characterized DeSantis as “MAGA without the drama” and others say that the Florida Governor is nothing more than Trump with brains, there really is a fundamental difference between the two. Political analysts at the American Enterprise Institute (AEI) say that the primary contest between the former president and the Florida Governor is not just over who will lead the GOP, but is also a struggle between two competing concepts of the New Right—populism vs. institutional culture wars. Not unlike the Patrick Buchanans or Ross Perots of the past, Trump’s rails against elites, identifies scapegoats, and indulges in conspiracy theories; he speaks in straightforward, declarative language; and draws huge crowds by telling Hillary Clinton’s “deplorables” that they can reclaim their status by throwing out the corrupt elite. Trump’s brand of populism combines nationalism and traditionalism with a distrust of centralized power. His strength is largely rhetorical, and he’s great at staying on message—MAGA, build the wall, lock her up, USA, USA…. His argument is binary: Trump is good and not-Trump is bad. DeSantis is less straightforward. He doesn’t talk about how jobs have been shipped to China or how the war in Ukraine can be over in a day; rather, he lectures about how government, Big Tech, and corporate media work together to suppress freedom and entrench progressivism. DeSantis doesn’t fight Democrats so much as the narratives (travel advisories warning African Americans to stay away from Florida; the notion that he bans books; and the “medical authoritarianism” that imposed lockdowns, social distancing, masking, and vaccine mandates even after they were revealed to be useless) the Left uses to stigmatize the Right. Unlike populists and MAGA devotees, DeSantis isn’t anti-institutional. In fact, he wants to use government to rescue those institutions he deems have been consumed by wokeness. DeSantis is less populist, more technocrat; and in his wars against Progressives over coronavirus, Disney, Critical Race Theory, and many others, he delves into details on culture and the law. While Trump continues to speak at the level of generality emphasizing such things as economics and foreign policy, DeSantis is gambling that the events of 2020 radicalized a portion of the New Right and sped up its rejection of politics-as-usual and its embrace of state power. This new Right, shaped by such things as the government’s response to the pandemic, “mostly peaceful protests,” and the tech suppression of Hunter Biden’s laptop is a Right that distrusts every word it hears from the Left. DeSantis’ Right is one more willing to use state power than 20th century conservatives, and he’s betting that institution-based culture wars will prove more attractive to GOP voters than MAGA populism.

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

Conference Board Believes Strong April Spending and Inflation Data May Portend Another Fed Hike. April personal income, spending, and inflation all saw renewed strength following several months of softening; in addition, personal consumption expenditures spiked and income gains reaccelerated. At the same time, inflation metrics came in hotter following several months of cooling. Headline price inflation rose to 4.4% from a year earlier and core price inflation rose to 4.7% from a year ago. Collectively, the data shows that key parts of the U.S. economy are resisting the tightening in monetary policy that has occurred over the past year. Although the Fed Funds rate has risen by 500 basis points since March 2022, the most rapid increase in decades, consumer spending has held up better than expected largely due to tightness in the labor market and wage gains. While the rate of inflation has been cooling generally, it remains far too high. The Fed has warned that the path to its two-percent inflation target will be bumpy, which is consistent with the April data. Expect the Fed to raise rates by 25 basis points in June and then pause for the remainder of 2023. The high rates will gradually push the U.S. economy into a short and shallow recession this year.

Eurasia Group Sees “Weapons of Mass Disruption” Beginning to Emerge. At the beginning of the year, the Eurasia Group listed “Weapons of Mass Disruption” as its third greatest risk for 2023. Unlike others on the list, it was making its first appearance on the annual outline. Two data points have emerged over the last week to make its inclusion seem prophetic. First, an AI-generated image of a major explosion next to the Pentagon was promoted on “verified” Twitter accounts. Although quickly debunked, it was distributed even more quickly by some accounts, including major media outlets in India that couldn’t help engage with something seemingly so viral. The S&P 500 dived 0.3% on the news—taking $500 billion of value off the table—before rebounding once U.S. officials confirmed the story was fake. Second, UK investor, and anti-Russia activist, Bill Browder participated in a Microsoft Teams call with whom he thought was former Ukrainian President Poroshenko; however, the one on the other end of the line wasn’t the former president but a deep fake using AI-generated video and voice. While close assessment of both showed they weren’t what they appeared to be, analysts say the world is months, at most a year, away from AI-generated text, audio, and video being indistinguishable from humans. The implications for anything that requires verified information—elections, news, market trading, etc.—are world-changing. “True” information will come either from closed network connections (where nobody can participate who isn’t directly verified) or directly from the source—you’ll only believe things you see with your own eyes. Absent a fundamental change in underlying technology [blockchain] or a completely new regulatory environment [governments reasserting sovereignty over the digital world]—neither of which seems plausible in the next couple of years—this may be a game changer for political stability.

NAM Says Caution Levels Have Risen Significantly Since April and Manufacturers are Considering Alternatives to China. In the face of growing security concerns and worries about potential military conflicts, manufacturers are reconsidering their dependence on China. In fact, worries over the prospect of military conflict became much more conceivable following Russia’s invasion of Ukraine, and with regard to security, China’s government recently banned domestic companies from purchasing products made by U.S. semiconductor firm Micron Technology, saying it posed national security risks. As a result, many executives are plotting alternate supply chains or devising products that can be made elsewhere should Chinese factories become inaccessible. No doubt, China’s access to raw materials and ability to produce components for finished goods remains unmatched, and its supplier networks have yet to be replicated elsewhere. Still, some manufacturers that rely heavily on China for revenue and inputs are using extra discretion when it comes to data and intellectual property. What’s more, because a revised espionage law lets Chinese authorities inspect any facilities and electronic equipment makers they suspect of spying, a number of manufacturers are aiming to assemble new supply chains that circumvent China. While these companies are bracing for higher prices and slower service than they receive from China, they know they won’t be cut off by the threat of war or a trade embargo.

“Off the Record”

Speaker McCarthy’s Gavel Safe…For Now. Just six months ago, conservative hard-liners forced 15 ballots and deep governing concessions before making Kevin McCarthy (R-CA) Speaker of the House. Today, two dynamics explain why Speaker McCarthy has been resilient thus far: (1) the backroom horse-trading in becoming Speaker helped McCarthy forge relationships with the right in ways his predecessors never did; and (2) the GOP base continues to support him. Previous Republican Speakers Boehner and Ryan saw their own voters turn against them, which, in turn, put pressure on rank-and-file GOP House members. However, that isn’t happening right now. In fact, since taking the gavel, Speaker McCarthy’s approval rating has jumped 10 points among Republicans; it now hovers around 66%.

In Other Words

“It is an important step forward that reduces spending while protecting critical programs for working people and growing the economy for everyone. And, the agreement protects my and Congressional Democrats’ key priorities and legislative accomplishments,” President Biden on the debt limit deal.

“Is it everything I wanted? No. But…I think we did pretty dang good for the American public,” House Speaker McCarthy (R-CA) on the debt limit deal. 

Did You Know

At the end of April, or perhaps early May, the UN estimated that India (1.427 billion) passed China (1.426 billion) as the world’s most populous country. India’s population is more than one sixth of the world’s 8 billion people, is about equal to the population of continental Africa, and is 200 million more than the 1.24 billion of all high-income countries combined. India’s GDP is also growing and is now the fifth-largest in the world, passing France in 2019 and the U.K. in 2020. At $3.7 trillion, and expected to grow 5.9% this year, India totals close to 3% of the world’s $105 trillion GDP (the U.S. stands at $26.9 trillion, China at $19.4 trillion, and the EU at $17.8 trillion). The International Monetary Fund (IMF) sees enough sustained growth for India to reach $5 trillion by 2027, passing both Germany and Japan that same year.

Graph of the Week

EPA’s new power plant rule could contribute to a drastic reduction in carbon emissions and toxic pollutants. Last month, the Environmental Protection Agency (EPA) proposed a new standard that would drastically reduce emissions and toxic pollutants coming from power plants across the country. Fossil fuel-fired power plants, which were responsible for 25% of the country’s emissions in 2021, will need to make major changes to meet the EPA’s new guidelines—lowering emissions by nearly 90% by 2040.


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