November 5, 2021

Thought of the Week:

“Huge Win!!!,” was the text I received from a congressional staffer at 12:44am on Wednesday, November 3, just 6 minutes after the Virginia Gubernatorial election was called in favor of Republican Glenn Youngkin. The staffer in attendance, front and center, at the Youngkin victory rally works for a Congressman whose district is more than 1200 miles away from the Virginia state capital. Funny, it wasn’t the text that concerned me so much; the truth is that the Republican sweep of the Virginia elections, as well as Republican gains nationwide, was a near political coup. What worried me was the number of exclamation points he used. Despite what one may hear on cable news, the election did not turn on a failure to pass President Biden’s reconciliation or infrastructure bills, nor was the campaign race driven. The Virginia elections turned on state issues—education, crime, and economic opportunity. The Republican gains were also not a referendum on former President Trump; the Youngkin campaign did not embrace President Trump and neither did the other two statewide Republican winners—Winsome Kelly (Lieutenant Governor) and Jason Miyares (Attorney General). In a state President Biden carried by 10 points, former Governor Terry McAuliffe’s campaign seemed tone deaf. The McAuliffe team tried to nationalize the election by bringing in President Biden, Vice President Harris, former President Obama, former Georgia State Representative Abrams, and oddly, American Federation of Teacher’s President Weingarten. By playing to the progressive base, Terry McAuliffe lost a race he should have won handily. The lesson for Democrats should be that President Biden won simply because he wasn’t President Trump. As is evident from his approval ratings and recent right track/wrong track national polls, the voting public has largely rejected Democrats’ progressive policies. The party should heed the advice of legislators such as Sen. Manchin (D-WV) and Rep. Stephanie Murphy (D-FL) and slow the reconciliation process down. So, what concerned me about that congressional staffer’s text? Just as Democrats over-read their mandate by trying to pass excessive social welfare increases through reconciliation following 2020’s essentially tie result, the off-year 2021 elections results do not deliver a conservative mandate. Let’s hope the use of three exclamation points does not portend a pendulum swinging back too far the other way.

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

Capital Alpha: Big Republican Wins Threaten Democratic Legislative Agenda. The Virginia election results were a game-changer. Republican Glenn Youngkin did not just win the governor’s race by a narrow margin, as many expected, but Republicans won broad and deep statewide, in an election that has implications for the 2022 midterms and the 2024 presidential race. For now, there remains a 40% chance of nothing getting done—neither the Bipartisan Infrastructure Framework (BIF) nor the Build Back Better Act (BBBA) in its current form passing through Congress. The House is widely expected to go through the motions of passing the BBBA, even though the product will be dead on arrival in the Senate. In time, once the present situation resolves itself, there is a better chance of the BIF busting loose and a further slimmed-down BBBA with consensus on various clean energy and health care items passing by the end of the year. 

Eurasia Group: Virginia/New Jersey Elections Show Democrats Struggling with Voters. Republican Glenn Youngkin defeated Democrat Terry McAuliffe in the Virginia gubernatorial race, outperforming former President Trump in the suburbs and headlining a night that saw Republicans win the top three offices in a state thought to be increasingly Democratic. Youngkin’s win shows two things: (1) running against Trump is not enough when he is not on the ballot; and (2) there are no reliable majority coalitions in American politics; each party’s ability to redefine itself will keep the two-party system competitive. The unexpectedly close gubernatorial race in New Jersey is a warning to Democrats that backlash against their agenda, the economy, and the pandemic threatens their majorities in Congress, with an emerging narrative that the progressive shift is what undid the party’s chances. While progressives will blame the losses on Republican race baiting and a failure to go far enough to expand the social safety net, with election losses across the country they will lose some of their intra-party swagger. Although this may speed passage of the bipartisan infrastructure bill (BIF), reconciliation, while not dead, will now be done on Sen. Manchin’s (D-WV) terms. Bridging gaps between the Biden-endorsed Build Back Better framework and a more moderate position will take time. In fact, the House should not vote without understanding the true cost of the legislation nor without a deal on the state and local tax deduction, which will likely end up short of full repeal. The timeline for reconciliation is December, not November.

In Other Words (Quote): 

“You don’t embrace him but you don’t dump him, because he is still the heart and soul of the party.”
Former Rep. Tom Davis (R-VA) on former President Trump following Republican wins in Virginia’s elections. 

“Nobody elected him to be FDR, they elected him to be normal and stop the chaos.”
Rep. Abigail Spanberger (D-VA) on President Biden following Tuesday’s elections.  

“I don’t think that we’re behind the curve. I actually believe that policy is well-positioned to address the range of plausible outcomes, and that’s what we need to do.”
Federal Reserve Chairman Powell.

Did You Know:

Since assuming the throne in 1952, the only American president Queen Elizabeth II has not met/did not meet was President Lyndon B. Johnson.

Image of the Week:

The Federal Reserve announced its decision to begin tapering the pace of asset purchases by $15bn/month. Absent rapid spikes in inflation up/down, such a pace would see the Fed ending purchases next June, and opening the window for an initial rate hike in the second half of the year if inflationary pressures persist. The current political environment is supportive of a tapering decision—inflation is one of the vectors driving backlash against President Biden. Markets continue to price in at least two 25bp hikes by December 2022 and a cumulative 135bps of hikes by the end of 2023. Tuesday’s Republican victories have put progressives on their heels, and Fed Chair Powell is now likely to be reappointed. 


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