Deregulatory Achievements, Big Oil Exodus, and Populist Kids

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Here’s What You Need To Know

In the wake of President Trump’s 100th day in office, there was a lot of discussion on the Administration’s lack of legislative accomplishments. But, looking at Trump’s regulatory accomplishments tells a different story. In his first 100 days, Trump’s efforts to undo burdensome government regulation across a variety of policy areas has been a success, whether one agrees or disagrees with the regulatory action.

Trump used the Congressional Review Act (CRA) a total of 13 times to invalidate the Obama Administration’s regulatory measures. Previously, the law had been used only once since its inception in 1996. At the same time, the Administration enacted a 60-day freeze on all last-minute Obama-era regulations that had yet to take effect. The freeze allowed the Administration time to review and then revise or kill many of President Obama’s regulatory initiatives. Some of the measures made more news than others, but here are a few of the rules and regulations the Trump Administration successfully blocked during their first 100 days:

  1. Stream Protection Rule: A last minute Obama regulation aimed at protecting waterways from mining pollution, the rule offered a vague definition of what is classified as a stream, and Republicans argued it unfairly targeted coal miners while doing little to actually protect waterways.
  2. Rule on Logging Workplace Injuries: Under President Obama, the Occupational Health and Safety Administration (OSHA) extended the statute of limitations for claims against employers for failing to keep detailed records of workplace injuries. GOP lawmakers declared Trump’s reversal of this extension a win for small businesses who would have suffered high compliance costs under the OSHA regulation that would have been a boon for trial lawyers.
  3. Elements of the Every Student Succeeds Act: President Trump removed a requirement that state education systems have a federally approved accountability system, as well as the federal government’s authority to evaluate state teacher preparation programs. Trump explained he was “removing an additional layer of bureaucracy to encourage freedom in our schools.”
  4. BLM Planning 2.0 Rule: This Obama rule expanded the Bureau of Land Management’s authority to administer public lands. Western GOP lawmakers railedagainst the measure for shifting decision making powers about land use from local leaders and to federal bureaucrats.
  5. Offshore Drilling Restrictions: President Obama closed off 94 percent of the nation’s outer continental shelf to offshore oil and natural gas production before leaving office. Trump has directed Interior Secretary Ryan Zinke to revise and limit these restrictions, which is likely to provide oil and gas producers with greater latitude in expanding their offshore drilling efforts, particularly in the Arctic and Atlantic oceans.

During his tenure, President Obama was criticized for governing through executive action rather than working with Congress to pass legislation to achieve his policy agenda. The problem is, executive action, unlike legislative action, requires the consent of the executive – so without President Obama or another Democrat at the helm to enforce them, every one of the Obama Administration’s executive actions can be revised, rescinded, or even ignored.

President Trump and the Republican Congress’ ability to roll back such a substantial proportion of the Obama agenda represents the greatest pitfall of this executive governing strategy. We will see whether President Trump – who has also been accused by opponents of governing through executive action – learns this lesson over the remainder of his time in office.

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MEASURING BIPARTISANSHIP

The Lugar Center and Georgetown University have released their report on bipartisanship in the 114th Congress (2015-2017), which reviewed how often lawmakers cosponsored legislation with members of the opposing party. The results revealed almost two-thirds of Congressmen and Congresswomen acted more bipartisan when it came to cosponsoring bills during the most recent Congress compared to the 113th Congress (2013-2015).Despite Democratic claims that Republicans are the impediments to bipartisanship in Congress, this study found Democrats are statistically less likely to sign on to legislation with members of the opposing party. With the GOP controlling Congress and The White House, it will be interesting to see whether Democrats can work with Congressional Republicans and the White House or if they only further the partisan entrenchment.

BIG OIL’S CANADIAN EXODUS

Canada possesses the third largest reserve of crude oil in the world, but major international oil companies – including ConocoPhillips, Statoil, Shell, and ExxonMobil – are either pulling out or decreasing their presence in the country. The key rationale for this seemingly counterintuitive move is cost. Thanks to higher levels of carbon intensity in their crude oil and limited pipeline access to markets, Canadian oil operations have some of the highest operating costs in the world.Canadian Prime Minister Justin Trudeau dismissed the oil companies’ moves, arguing the world is ready for a low-carbon economy. Big companies are looking to places where the profit margin is higher, like the Permian Basin in New Mexico and Texas. With the next Canadian federal election scheduled to be held no later than October 2019, this major hit to the country’s energy sector could spell trouble for Prime Minister Trudeau’s reelection chances. At the same time, it could mean even more robust U.S. domestic energy production in coming years, and could shift global energy investments to the U.S. instead of Canada or Saudi Arabia.

THE KIDS ARE ALT-RIGHT (AND LEFT)

The liberal democratic order may have created a generation of voters who have grown up so interconnected with the world that they have taken for granted all the benefits an interconnected society offers. That’s the conclusion pollster (and certified Friend of Delve) Kristen Soltis Anderson came to when she analyzed polling from the first round of the French presidential election last month. Anderson points out that while 30 percent of the youth vote went to the far-left candidate Jean-Luc Melenchon, the second largest contingent of this demographic went to the far-right populist Marine Le Pen.In the U.S., young voters don’t love President Trump, but the one place in his agenda they strongly agree with him is on trade. Polling by Harvard’s Institute of Politics found that young people are decidedly more protectionist than the average voter. On the issue of foreign military engagement, young voters side with the slightly more isolationist view of “America first” touted by President Trump. These opinions place establishment politicians of all stripes around the world in an awkward position since they have spent at least the last 25 years or more preaching globalism. Now the generation they raised appears to be turning on them.

AMERICA’S GAINS COULD MEAN RURAL DECLINE

America’s unemployment rate continues to be low and labor force participation is holding steady after February’s slight increase from record lows. Unfortunately, Conor Sen of Bloomberg posits this is not necessarily good news for rural America. It is true more Americans are holding jobs, but due to a variety of factors, few if any of those jobs are in rural communities.First, high-paying rural jobs – like coal mining and manufacturing – are disappearing, leaving little incentive for in-demand American workers to opt for rural employment. Second, immigration into America is also at historic lows, which Sen suggests will mean that urban firms are more likely than ever to recruit and poach residents from rural America. This phenomenon makes it difficult for businesses to fill their ranks in rural communities and is already hurting areas in northern New England – despite those states all possessing extremely low unemployment rates. So, while positive employment data should be good news for all Americans, Sen suggests it may lead to long-term issues for rural America.

VENEZUELAN CONSTITUTIONAL ADVENTURES

After two months of violent clashes between anti-government protesters and police, Venezuelan President Nicolas Maduro, whose authoritarian dictatorship has ruled the country since the death of Hugo Chavez, has signed a decree to convene a citizens’ assembly to rewrite the country’s constitution. The near-daily protests were sparked by a supreme court decision stripping the opposition-led assembly of its power. The decision was quickly overturned, but proved to be a catalyst for massive public opposition to the Maduro government.At this point, Maduro has not yet released any details on the process, who will be involved in its creation, or what specifically it will aim to change. Opposition leaders have denounced Maduro’s calls for a new constitution, calling it a “giant fraud” since the move would mean forgoing any elections until after the process was completed. The move, therefore, does not appear likely to placate those calling for Maduro’s removal from power. And furthermore, it could represent the final measure either before a coup removing Maduro from power or a sham election that would secure his presidency.

FIRED BECAUSE OF OBAMACARE

Earlier this week, health insurer Molina Healthcare fired their longtime CEO and CFO, Dr. J. Mario Molina and John Molina, respectively, as a result of “disappointing financial performance.” Much of Molina’s poor 2016 performance came thanks to the company’s high-levels of engagement in the individual healthcare exchanges created by Obamacare. Molina’s CEO had been a vocal opponent of Republican plans to repeal Obamacare, and the law’s shaky future combined with Molina’s Obamacare-related financial losses, means Dr. Molina likely owes his firing to the healthcare law he supports. As health insurers try to figure out how to navigate the troubled waters of the Obamacare exchanges, Dr. Molina’s firing may serve as a cautionary tale to those who bet big in favor of Obamacare.

Hill Fights, Playground Trouble, and The Glass-Steagall Myth

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Here’s What You Need To Know

This week the negotiations over the potential government shutdown is dominating the news from Capitol Hill. Most people know that debt ceiling and FY 2018 fights loom in the summer and fall, but several other key legislative items that are being largely ignored could present trouble down the road. In the coming months, Congress will have to reauthorize several measures that impact major industries. Each of these measures could become the next big fight on the Hill that distracts from key priorities like healthcare and tax reform.

  • FAA Reauthorization: The House Transportation and Infrastructure Committee will have to finalize the measure reauthorizing the Federal Aviation Administration’s (FAA) authority by August recess, a goal they do not see as problematic. However, talks have just begun over potential new consumer protection elements to be added into the bill in the wake of the United passenger removal fiasco. Last year’s efforts for a long term reauthorization were stymied over a proposal to spin off air traffic control from the federal government into a nonprofit, nongovernmental organization. The same proposal is set to be included in this year’s reauthorization bill, but the move will now have the backing of the President. Whether or not that is enough to secure the necessary votes for the idea remains to be seen, and could present a potential stumbling point for the upcoming must-pass legislation critical for keeping the flying public up in the air.
  • CHIP: The Children’s Health Insurance Program (CHIP) will need to be reauthorized by Congress no later than September 2017. The CHIP program itself has proven controversial in the past and, since it is packaged within the Medicare Access and CHIP Reauthorization Act, it has the potential to be even more controversial this year. HHS Secretary Tom Price has already expressed a desire to overhaul the Medicare payment system to make it easier for small and rural physicians. Debate over Price’s yet-to-be-released plan for altering Medicare could leave CHIP reauthorization as collateral damage. CHIP reauthorization may also be especially vulnerable to having controversial riders attached to it this year because GOP lawmakers and the White House have not yet been able to address healthcare reform. If it has still not been addressed by the fall, lawmakers may see the legislation as an opportunity to take action on the issue of healthcare to combat critics back home who say they have not done enough.
  • FDA User Fees: Earlier this month top Democrats and Republicans announced a tentative deal to extend funding on several programs related to the approval of new drugs and medical services, including FDA user fees. These fee agreements allow the FDA to collect fees from drugs and medical device makers and fund a significant portion of the FDA’s budget. Should the current user fee agreements expire in September, the FDA would be forced to lay off more than 5,000 employees. However, Congressional leaders hope to have a deal completed before the August recess. Lawmakers have floated ideas about adding new policies in the reauthorization that could derail this preliminary agreement, but at the moment the measure is clear of all extraneous proposals. Senate Health, Education, Labor and Pensions Committee Chairman Lamar Alexander (R-TN) has made it clear that he wants this effort concluded as soon as possible and will fight to avoid any efforts that might make the bill controversial and thus stall its swift approval. While it appears unlikely anyone will be able to derail this preliminary agreement, just as with CHIP reauthorization, the ongoing debate over healthcare reform could lead to last minute obstacles.

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WHAT DO PLAYGROUNDS HAVE TO DO WITH VOUCHERS?

Last week, the U.S. Supreme Court appeared unconvinced by the State of Missouri’s arguments that they could bar a church from receiving state funds as part of a playground resurfacing program. Justices Elena Kagan and Samuel Alito asked the lawyers representing the state sharp questions that suggested skepticism of their argument. The state of Missouri claimed an arcane, anti-Catholic law from the 1800s justified their denial of state funding for the church’s playground resurfacing as part of a government program to reimburse schools and groups looking to replace hard surfaces with much safer rubber tire mulch on their playgrounds.

Progressive groups objected to the church’s case out of fear that any acknowledgment of government neutrality toward religion could undermine future Supreme Court arguments against public vouchers for religious schools. The Court’s final opinion on the case has yet to be drafted, but its outcome could indicate where the Court stands on whether governments should provide religious institutions with the same access to certain programs available to other charities and institutions.

THE PRICE IS RIGHT

The age of online retail has created an unparalleled ability for consumers to comparison shop. Now, retailers are responding with attempts to use social science data to determine exactly the right price for any given product at any given moment. Major online sellers, most notably Amazon, have begun aggressively recruiting economists to help build algorithms geared toward determining the exact amount an individual buyer is willing to pay for a product at a specific moment. This means everything from the buyer’s online spending habits, the season, or even the weather could impact the price of any product at any time.

While these efforts are another indication of a global shift toward data-driven strategies, they also present a potential for charges of discrimination and other legislative, regulatory, or litigation action. If this strategy is played out and prices vary between customers, it is possible a customer who was charged more feels that they have been discriminated against because of their gender, race, location, et cetera. Not only will this spur regulatory intervention, but it could damage the reputation of the retailer accused of the discrimination.

THE POPULATION BOMB THAT NEVER WAS

As countless articles appeared outlining doomsday predictions about the state of the environment in honor of Earth Day, senior contributor to The Federalist Daniel Payne published an op-ed highlighting the how many of these predictions struggle to learn from the past and offer a far too pessimistic assessment of humans’ ability to offer solutions to seemingly insurmountable problems. Payne specifically cites the example of Paul Ehrlich’s 1968 book “The Population Bomb,” which predicted that during the 1970s and 1980s the world would suffer from mass famine and starvation due to overpopulation.

In reality, the period marked an abundance of food and continued population growth thanks largely in part to the agriculture industry’s innovation driven by increased market demand. Since the failure of his original prediction, Ehrlich has continued to predict oncoming famines and pushed back the timeline repeatedly whenever reality failed to match his grim prophecies. Ehrlich’s example demonstrates the perils of the negative outlook offered by environmental alarmists who fail to take into account the potential for innovative solutions they cannot yet imagine because the market has not yet created them.

THE GLASS-STEAGALL MYTH

Ever since the 2008 financial crisis, there have been calls for reinstating the 1933 Glass-Steagall Act, which required a separation of investment banks and commercial banks. With reports that President Trump’s powerful head of the National Economic Council, Gary Cohn, is open to the idea, and a bipartisan group of Senators formulating legislation that would bring back key elements of the depression-era law, The New York Times’ William Cohan recently outlined precisely why it is not the solution to the issues presented in the financial crisis.

Cohan argues it was primarily what were thought of as pure investment banks – namely Bear Stearns, Lehman Brothers, Merrill Lynch, and Morgan Stanley – who created the issues of the 2008 market collapse. Glass-Steagall would have actually prohibited JPMorgan Chase and Bank of America from rescuing Bear Stearns and Merrill Lynch respectively. Cohan argues that the problems that plague Wall Street are not about the size of the banks or concentration of their assets, but about the misaligned incentives that encourage bankers to take huge risks with other people’s money. While others disagree, Cohan believes a return to Glass-Steagall does nothing about this; so despite sound bites about breaking up the big banks – doing so might achieve very little in terms of changing Wall Street.

PENTAGON’S ‘BUY AMERICAN’ ISSUE

As President Trump seeks to strengthen the ‘buy American’ requirements for the U.S. government, some Pentagon procurement officials have expressed concerns over how those constraints might impact their ability to always purchase the best technology. This issue has long been debated, but many on both sides of the aisle argue that forcing the Pentagon to buy American limits the Defense Department’s ability to get the best technology to American warfighters in the fastest, cheapest manner. Obviously buying American helps support the American economy, but the Administration may have to make tough decisions about priorities when it comes to tightening buy American provisions, expanding the military, and cutting spending.

A Not So Special Election, More Inequality, and the Retail Meltdown

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Here’s What You Need To Know

This past Tuesday’s special election in Georgia’s 6th Congressional District to replace recently appointed Secretary of Health and Human Services Tom Price was touted as a definitive mandate for the country’s feelings on the Trump Administration thus far, and a major bellwether for how the 2018 midterms are going to go. The truth is, it is likely neither of those things.

  • Past Is Prologue: Special elections are often highlighted as major litmus tests for the pending political fortunes or misfortunes for one party or another, but historic trends would beg to differ. Democrats secured victories in highly contested special elections in New York and Pennsylvania leading up to the 2010 midterm elections, only to lose 63 seats in the House in a historic Republican sweep. Likewise, Republicans ballyhooed successful special elections in Ohio and California leading up to the 2006 midterms, only to lose control of the House and Senate on Election Day.
  • Ossoff Has A Very Unique Set Of Circumstances: In the Georgia special election, the Democrat, Jon Ossoff, finished with the highest vote count, but was still 1.9 percentage points shy of the 50 percent mark that would have secured him victory without having to hold a head-to-head runoff with the second place candidate. Much of the coverage seems ready to read the tea leaves of how close Ossoff got to the 50 percent mark and suggest this might track for similar districts across the country in 2018. This analysis fails to recognize the incredibly unique circumstances of this election – it was an open seat, so there was no battling the power of incumbency, and it was a jungle primary in which one Democrat had the support of his party’s entire national infrastructure to face off against eleven Republicans. It is safe to say most 2018 midterm races will not operate under these conditions.
  • “All Politics Is Local”: Those seeking to suggest any results from the Georgia special election represent a mandate or lack thereof for President Trump’s agenda also forget Speaker Tip O’Neill’s golden political rule that “all politics is local.” Discussing the Georgia special election, Princeton history and public affairs professor Julian Zelizer writes, “Usually, special elections just tell us what’s going on in a specific district or what the dynamics are between the candidates in the individual contest.” Special elections are still just a relatively small number of voters in a single Congressional district voting for their next Congressman outside of the atmosphere of a national election cycle. Even with all the media attention and outside expenditures, local matters still inform most voters’ views.

The bottom line is that the Georgia special election results indicate who will enter the runoff for the seat and track the sentiments of the citizens of that Congressional district regarding the candidates presented to them – nothing more, nothing less. Neither Republicans nor Democrats should be discouraged or heartened by the results because, despite all the hype, special elections are not all that special.

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UK ELECTIONS ARE ON!
This past Tuesday, British Prime Minister Theresa May called for a snap general election on June 8th, much earlier than had been expected. May will need two-thirds of Parliament to support her call for elections, and Labour Party leader Jeremy Corbyn has already said he “welcomes the PM’s decision.”  Highly favorable opinion polling of the Conservative government suggest they will remain in power, retaining control of Downing Street in the long term. More importantly, the move is widely seen as an effort to secure a definitive electoral mandate for May’s ongoing Brexit process. By shoring up her domestic political standing, May can strengthen her hand in negotiations with the EU.

ANOTHER HELPING OF INEQUALITY PLEASE
A recent study published in the Nature Human Behaviour journal found that people may have a psychological preference for unequal societies when asked to describe their ideal distribution of wealth, despite widespread concern over economic inequality. The study concludes that these seemingly contradictory feelings can be reconciled by recognizing that it is economic unfairness, not inequality per se, that bothers people. The researchers’ subtle distinction makes the interesting point that in a public policy debate, people would happily sacrifice strict equality of wealth distribution for what they deem as a fair distribution. Of course, this becomes an unsolvable equation as soon as anyone seeks to determine the entirely subjective definition of “fair.”

THE RETAIL MELTDOWN
Despite recent overall positive economic outlooks, the future still looks grim for the retail industry, with dozens of large retailers closing stores, announcing bankruptcy, or hitting multi-year stock lows. What is causing this retail meltdown? First, with half of all U.S. households now subscribing to Amazon Prime, consumers have come to expect free shipping, easy returns, and access to wide selections shopping online. Second, over the past four decades, the number of shopping malls in America grew more than twice as fast as the population – meaning we have more supply than demand. Lastly, spending on material possessions has decreased as Americans seek purchases aimed at experiences and activities, like hotels, travel, and restaurants. In order to stay alive, retailers will have to get creative in capturing consumer spending that once had nowhere else to go.

DO YOU CITE WHAT I CITE?
Until recently, scientists could only track citation records and measure the influence of an article or idea if they subscribed to one of two proprietary databases: Web of Sciences or Scopus. Now, the Initiative for Open Citations, backed by a coalition of open data advocates, is asking publishers to make article references freely available. In just six months, the Initiative has increased the number of freely available citations from 1 percent to 40 percent. This step not only benefits scientists who hope to establish credibility; it also helps the public at large, who can now trace each link back to the source of a particular foundational idea. Mapping and analyzing this web of sources and citations may provide greater insight into how common conceptions are formed, something that could prove very useful when trying to combat the rise of fake news.

THE HARD TRUTH FOR THE DEFENSE INDUSTRY
The defense industry’s optimism in President Trump’s pledge to rebuild the military, which sent their stocks soaring, may have been misplaced. Trump’s proposed military spending increases are relatively modest – only three percent higher than President Obama’s last budget. Even still, these spending hikes will be difficult to achieve. Trump will need to garner support from Democrats and GOP fiscal hawks alike to achieve the necessary 60 votes in the Senate to lift the budget caps from the 2011 Budget Control Act (BCA), and his repeated promises not to cut entitlement programs leave him with little room for finding cuts to offset these increases. Trump would also face Congressional opposition to any attempt to increase military spending through war spending or Overseas Contingency Operations, which are not beholden to budget caps. As a result, defense spending may increase somewhat, but a significant boost in military spending appears improbable.

Equal Pay Hits, United We Oppo, and Minimum Wage Reality

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Here’s What You Need To Know

How do Republicans respond to the equal pay issue? Since April 4th marked “Equal Pay Day,” a symbolic day dedicated to raising awareness about the gender pay gap in the U.S. workforce, we wanted to give you some perspective on the issue. Democratic politicians have been able to attack their Republican opponents on this issue for decades now, though it has become most prevalent in the past several election cycles. Yet, through effective use of the type of research we prepare for our clients every day, GOP candidates have crafted a strong response.

  • The GOP Responds By Exposing The Truth: As Republican politicians were repeatedly hit with criticism over their refusal to support Democratic equal pay measures, our analysts and other communications research teams went to work to provide an effective response to the criticism. We wanted to illustrated that these attacks were more political theater than policy debate. We found that numerous Democrats had substantial gender wage gaps within their own political offices and campaigns. By pointing out that the Clinton Foundation paid men more than women on average or that Elizabeth Warren’s Senate office did the same, Republicans can effectively nullify attacks on the issue. Better still, by making an analysis of an opposing campaign’s gender pay gap a mainstay of our political research, GOP candidates can launch the attack before their Democratic opponents even have a chance to raise the issue.
  • Rules For Analyzing Gender Pay Gaps: Whenever our team prepares research on a Democratic candidate, especially one who has spoken out on the issue of equal pay, we look to their campaign and any other office they have held where employment and salary information is public to search for indications of a gender wage gap. One of the first things we recognize is that the details of how employee salaries are disclosed varies between offices. Even just looking in the federal government, Senate and House offices report their staff salaries differently. This means there is no one-size-fits-all formula and that each office needs to be reviewed on its own. Beyond that, we look for effective one-to-one comparisons of employees with the same titles to review monthly (not annual) payments. The critiques often also go beyond simply the salary figures, which is why we also examine the gender spread among senior staff on the campaign or in the office.
  • Democrats Don’t Have An Effective Response Yet: As our clients and many other Republicans have used this research advantage to great effect responding to a key Democratic attack, Democrats have yet to effectively respond when called out for this apparent hypocrisy. Their primary approach has been to simply dispute the validity of the claims by either doing what Hillary Clinton’s campaign did and argue the accusations are based on too limited a set of figures or the strategy used by Elizabeth Warren’s office in offering manipulated statistics to disprove the pay gap. Some have even argued the gap only exists because their senior staff happens to be all men, which only magnifies their hypocrisy.  Whichever response is chosen, it does not seem to be particularly effective and boils down to either blatant spin or a hollow denial. If Democrats hope to continue using the issue of equal pay as a political hit on their Republican opponents, they will need to prepare better for these counterattacks on the subject, or better yet, start practicing what they preach.

The point of this exercise is not so much a partisan one so much as it is to demonstrate precisely how effectively employing competitive intelligence can offer responses to tough attacks. Often times, complicated policy issues are boiled down to very simplistic attacks for messaging purposes, and those are almost always opportunities to dig into the facts and pushback with some carefully prepared research on the subject.

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UNITED WE OPPO
Earlier this week, United Airlines made headlines when a passenger was forcibly removed from an overbooked flight after refusing to give up his seat. The powerful images of the incident, showing the passenger bloodied and dragged down the aisle by his arms and legs, have plunged United into crisis mode with their stock dropping $1.4 billion in just two days. One part of what is undoubtedly a multi-faceted crisis PR operation has been surprisingly aggressive opposition research. Within 48 hours of the incident, members of United’s crisis communications team had dug into the passenger shown in the video and begun pushing out rapid response documents to the press outlining the passenger’s troubled past. They found that the 69-year-old doctor from Kentucky was previously convicted of trading prescription drugs for sexual favors resulting in the suspension of his medical license. This effort shows that some of the most high-profile crisis PR operations have competitive intelligence components on their team. However, it also shows that blaming the victim will not distract the public from your beat down of the victim. Research is only as good as the way it is used.

HOME BUYERS’ STRUGGLE
Despite a relatively stable job market and mortgage rates holding near historic lows, home buyers face a major challenge in the real estate market – the thinnest national housing supply in the past 20 years. The supply of available homes in the U.S. has declined on an annual basis for the past 21 months, thanks to (1) Americans staying in their current homes even longer for fear of not finding a new home they both like and can afford, and (2) real estate investors who hold properties for a disproportionately long period of time owning roughly 35 percent of the market. Couple those factors with sluggish construction growth thanks to costly regulations, limited build-ready land, and a shortage of skilled labor, and you have a recipe for a struggling real estate market. This difficulty for young families and Millennials to purchase their first homes could mean an entire generation having trouble creating wealth over time, a major issue for long-term U.S. economic growth.

TRUMP’S SECRET WEAPON
The Trump Administration and Congressional Republicans have been quietly engaging in successful efforts to drastically pull back Obama-era regulations using a little known measure called the Congressional Review Act. The legislation, passed in 1996, effectively allows Congress to simply repeal recently enacted regulations. President Trump has already signed 11 of these CRAs targeting several of the Obama Administration’s last-minute regulations. The CRA can only be used within 60 days of Congress’ notification of the new regulation, so the window for its use against Obama era rules is closing. However, because the CRA also contains a provision that says once Congress repeals a regulation new rules that are “substantially similar” cannot be enacted, some Republicans are planning to use the CRA to preemptively block new regulations Democrats are likely to propose in the future. Between Trump’s quiet success repealing major regulations and his under-appreciated success shepherding Neil Gorsuch to the Supreme Court, the President is actually having a much more successful first hundred days in office than a skim of the national headlines would suggest.

THE DIGITAL WAR AGAINST ISIS
Dr. Haroon Ullah, a senior member of Secretary of State Tillerson’s Policy Planning Staff, recently published a Medium post outlining the Department’s efforts to combat ISIS inside one of their safe spaces – the internet. Ullah highlights ISIS’ effectiveness in using the internet to form a “Digital Caliphate” by recruiting disaffected individuals everywhere from Nice to Berlin to Orlando to San Bernardino. Efforts to blunt ISIS’ online growth have been undertaken by the U.S. government, our allies, and the private sector. Companies like Twitter are aggressively cracking down on accounts on their platform used by ISIS, with U.S. and allied governments working to reach a point where there is now more anti-ISIS content online than pro-ISIS content. Ullah explains these efforts must continue because even if ISIS retreats from the physical battlefield, the digital battlefield is where America and its allies must break the ISIS’ allure.

MINIMUM WAGE REALITY
The “Fight for Fifteen” movement, which seeks to raise the minimum wage, has seen considerable popular support among progressives, particularly in urban areas. Yet even some progressive politicians who believe in the idea appear to be changing their minds when it comes to actually putting the policy into practice. Just recently, Baltimore’s new Democratic Mayor, Catherine Pugh, went from actively supporting efforts to raise the minimum wage to using her mayoral veto powers to block legislation to raise the wage, after actually studying the economics of the policy. She learned what many economists have argued about an increased minimum wage: it forces businesses to adjust their expenditures in order to account for these higher wages leading them to scale back employee hours, cut new positions, and move toward cheaper automated options. Many chief executives of governments at the local or state level across the political spectrum have realized that workers suffer the most when government prices them out of the labor market because statutory minimum wage policies – along with how they are implemented – often end up creating greater unemployment for workers rather than great prosperity.

THE MEALS ON WHEELS LIE
After President Trump released his budget outline, countless media outlets reported a proposal to eliminate the $3 billion Community Development Block Grant program (CDBG) that would result in drastic funding cuts to the Meals on Wheels service that provides food delivery for homebound senior citizens. These sensationalist reports failed to mention that the vast majority of Meals on Wheels’ federal funding comes from an entirely different program. The CDBG is often used for business subsidies and pork-barrel projects, and is only loosely connected to Meals on Wheels because some states have opted to use the grant to supplement other funding sources for the program. The misleading headlines surrounding this issue are just another example of how hastily crafted media narratives can quickly snowball into hyperbolic claims that could have easily been avoided.

HOW PERVASIVE WAS OBAMA NSA SPYING?
Bloomberg reports that former National Security Advisor Susan Rice sought to “unmask” members of the Trump campaign and transition team whose communications were collected incidentally during legal surveillance of foreign persons. While these Trump associates were not the targets of surveillance, Rice’s action increased the chances that their identities and conversations would be leaked to the public. As outlandish as it sounds, it was already known that the Obama Administration worked to spread raw intelligence that included Trump officials’ conversations widely within the government.

Now some are beginning to connect the dots of a previous incident in which Obama officials exposed domestic political opponents using surveillance of foreign officials. According to a 2015 report, Obama staffers used similar tactics to monitor U.S. lawmakers during debate over the Iran deal. Despite a 2011 directive explicitly forbidding the National Security Agency from preserving communications of members of Congress, the agency reportedly intercepted conversations between the Israeli diplomatic officials detailing their private discussions with U.S. lawmakers. While this process was technically legal, many believe the Obama Administration later leaked information gleaned from this surveillance to influence the Iran deal debate.

President Obama declared President Trump’s claims of wiretapping were “ridiculous,” but looking back at actions taken by the previous Administration, his administration may have skirted the law once again to achieve their political and policy objectives.

French Elections, Chinese Purchases, and Canada’s Constitution​

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Here’s What You Need To Know

We are now just over two weeks away from the first round of what Is being touted as potentially one of the most impactful elections in modern European history. On April 23rd the French people will vote in the first round of their presidential election, after which the top two finishers will face off in the second round to be held on May 7th.

  • The State Of Play: In the first round of voting, the French electorate is choosing from a staggering eleven candidates. These include Marine Le Pen, of the right-wing National Front, Emmanuel Macron, from the recently formed “En Marche!” movement, Francois Fillon, of the center-right French Republicans, Benoit Hamon, of the currently ruling Socialist Party, Jean-Luc Melenchon, of the leftist Parti de Gauche, and six other candidates from minor political parties who made the ballot. Of these candidates, the two who appear poised to move on to the May 7th final round elections are Le Pen and Macron. Francois Fillon, the former right-of-center front-runner, who was originally seen as Le Pen’s likely opponent in the second round, has been sidelined by several scandals. At the moment, conventional wisdom (and polling) seems to suggest that Le Pen may take first place in the first round of voting, but Macron will take a significant lead in the second round head-to-head with Le Pen. However, these are the same polling methods that claimed Brexit would never happen and Donald Trump would never be elected.
  • The Truth About Le Pen: Since taking over the leadership of the National Front from her father, in 2011, Le Pen has made international headlines as a radical right-wing populist. As candidates and campaigns with populist messages have begun gaining traction around the globe, Le Pen has been eyed as a serious contender for the French presidency. Many in France and around the world are expressing serious (and likely hyperbolic) concern over Le Pen’s potential victory. These concerns seem to miss the point that, as outlined above, there is a massive field of candidates in the first round of voting. It only stands to reason that the loudest, most controversial of those candidates gets most of the attention. When it comes to a head to head race, there appears to be little to suggest that the French electorate is actually seeking Le Pen’s brand of radical change. Likewise, even if Le Pen were to win, she will inevitably learn the lesson of all outsider candidates: It’s easier to talk about power when you don’t have it. Fears that she may follow through on declarations of dropping the Euro and potentially withdrawing from the EU may very well go the same way as Donald Trump’s campaign promises to radically renegotiate or pull out of NAFTA. The truth about Le Pen is that she isn’t nearly as likely to win in the second round as some are predicting, and she’s even less likely to be able to enact the most controversial of her campaign promises even if she does win.
  • The Truth About Macron: With Fillon more or less out of the race, Macron has become the likely centrist, establishment candidate to make it to the runoff with Le Pen. Macron has billed his campaign as that of an outsider and has and vowed to spark a “democratic revolution” against the nation’s careerist politicians. Despite never having held elected office, he did serve in the current government as the appointed Minister of Economy, Industry, and Digital Affairs. Macron’s message is a delicate balance, walking a line that distances him from the current Hollande government, which French voters hold a decidedly negative view of, while not straying so far from the establishment as to scare moderate voters. Despite his campaign rhetoric to “transform, not reform” the French government, Macron has promoted moderate, pro-business policies favorable to the center-right and has served in government with the center-left Socialists. The truth about Macron is that, despite the talk of radical transformation, he’s probably one of the most centrist candidates in modern French political history.

The upcoming French presidential election will undoubtedly receive wide international coverage, with everyone trying to read into the global significance of whatever the results end up being. The truth is, all politics are still local, and the French electorate does not actually seem interested in embracing Le Pen’s policy agenda. Macron appears the much safer bet to succeed the unpopular Hollande government, even though he was until last year a part of it.

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ECONOMIC GUT CHECK
Looking at consumer confidence alone, you’d think the U.S. economy was booming. Numerous recent surveys of consumers, small business owners, and Fortune 500 CEOs all show record levels of optimism about the economy. Despite this public sentiment, the economic data paints a slightly bleaker picture. Last year marked the weakest economic expansion since 1945; business spending has failed to pick up, retail sales have slowed, auto sales have struggled, and business creation has become stagnant. This divergence between soaring optimism over the economy’s performance matched with fairly stagnant data on economic growth has economists offering muted projections for the economy’s performance. The question is whether this positive sentiment fuels stronger growth or crashes due to broader economic trends hitting their pocketbooks in the long run.

H-1B PANIC
There was a flurry of concern this week over confusion regarding a supposed policy change by the U.S. Citizenship and Immigration Services that would have reportedly meant computer programmers were no longer eligible for H-1B visas. Following these reports, a USCIS spokeswoman clarified that there was no policy change made and the policy memo in question was merely explaining current policy for a Nebraska call service center. However, there remains confusion over whether the memo is reinterpreting current policy to maximize scrutiny for entry-level computer programmers seeking H-1B visas, or if the original panic over the memo was entirely unfounded. The chaos and confusion caused by the clumsy release of a policy memo on an issue as closely scrutinized as H-1B visas illustrates exactly how undisciplined communications continue to lead to the rumors and misinterpretations that have plagued the Trump Administration for the past several months.

A CHINESE INTEL GRAB?
A Chinese firm partially owned by the government is currently seeking approval to acquire the American cash transfer business MoneyGram. But Congressman Robert Pittenger (R-NC) is  calling for greater scrutiny of the deal due to concerns that the purchase may grant the Chinese government access to sensitive information on American citizens. Due to the nature of MoneyGram’s business, the company holds a plethora of transactional data, including names, bank account numbers, and addresses of customers. The Treasury Department is currently reviewing the deal and declined to weigh in yet on the purchase. However given Trump’s criticism of Chinese trade practices and policymakers’ increased concern over cybersecurity, these types of deals may be viewed with skepticism in the Trump Administration, so much so that the White House may directly get involved.

THE NEXT SUBPRIME PROBLEM?
Financial analysts have expressed growing concern over rising subprime auto loan delinquencies, comparing the market to the 2006 real estate market. While those comparisons are likely bombastic – with the auto loan market substantially smaller than real estate and with cars being easily recovered and resold – the trend does show continuing struggles the American middle-class are facing. Most Americans require a car in order to get to their job, take their kids to school, go to the mall to buy retail goods, and, generally speaking, be a productive member of society. Considering the high interest rates these loans often carry, they are placing a substantial burden on middle and working class families who would suffer most from a collapse of this market. How a potential crash of this subprime market may seep into other parts of the economic should be closely watched.

GE READY FOR THE ROBOTS
As the debate over the robotics industry’s impact on the future of the American job market continues, General Electric CEO Jeff Immelt weighed in to curb the concerns on the rise of automation. Under Immelt’s leadership, GE has moved away from more speculative markets like finance and telecom, and refocused on building products – like jet engines and gas turbines. He argues that concerns of robot-driven joblessness are overblown and miss the fact that increases in automation have made Americans richer by allowing workers to focus on higher paying, more valuable tasks. He goes on to explain successful businesses will need to train employees to rise above tasks robots can accomplish. Of course, given GE’s recent investment in robotics, Immelt’s arguments should be taken with a grain of salt. But, his points clearly outline the argument we are likely to hear from industry in the ensuing robotics debate.

CANADIAN CONSTITUTIONAL REFORM?
A recent poll found that an overwhelming majority of Canadian citizens support major changes to the country’s constitution. Specifically, 92 percent support adding a provision to explicitly protect private property rights; 70 percent support enacting term-limits for the Prime Minister to ensure no one can serve in the position for more than eight years; 69 percent would support a measure to eliminate constitutionally mandated affirmative action policies; and 64 percent supported abolishing the Canadian Senate, which is appointed by the Prime Minister. Anytime a population supports major reforms in such large majorities, politicians should take notice. It will not be a surprise if the Conservative Party of Canada bring some of these issues to the forefront when they seek to take back the government in the next election set to take place during or before October 2019.

CAFE Standards, the Real Trump University, and Chinese Capital

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Here’s What You Need To Know

The cries of support and opposition were heard far and wide this week when President Trump signed an executive order that begins to undo much of President Obama’s Clean Power Plan. But, those focused on the really impactful policy changes should be looking to an announcement from two weeks ago. While in Michigan, President Trump announced a review of the Corporate Average Fuel Economy (CAFE) standards that President Obama had put in place in 2012. The Obama schedule had CAFE standards set to increase to 54.5 miles per gallon by 2025.

Depending on what the Trump Administration’s review of this policy determines, the changes could have a much greater impact on the economy than anything from the Clean Power Plan.

  • This Is Not Just An Environmental Issue. Aside from being an environmental policy issue, CAFE standards also have an incredibly important impact on trade policy. The U.S. auto industry has always served as a powerhouse for American exports. But, if the Administration decides to reduce the emissions standards, as many expect, it could potentially put the industry in an awkward position and create difficulties for the industry’s export capabilities. Regardless of what U.S. regulators decide, Chinese and European governments are drafting increasingly stricter emissions standards which could create difficulties for U.S. automakers’ export capabilities. This would force the companies to make tough decisions about their vehicles based on where they sell them (and potentially where they manufacture them).
  • The Auto Industry Isn’t Necessarily In Agreement On CAFE Standards. The American auto industry is certainly interested in discussing how CAFE standard increases can be adjusted to make their lives easier, but there are varying degrees of how much the different companies want these changes to go. Where each automaker falls on this spectrum is based largely on how far along they are in complying with the schedule set out by the Obama Administration. In the past almost five years, American automakers have spent billions in capital to plan for upcoming models to comply with the pending fuel standards. As much as they all want to see the standards made less stringent, the companies who have made these long-term capital commitments may not be especially interested in bailing out their less forward thinking competitors.
  • CAFE Standards Will Impact Coming Debates On Transportation Innovation. Watching how the Administration addresses CAFE standards will be crucially important to the impending debates over major transportation sector innovations like autonomous vehicles and the growing number of car sharing services. Should the Administration ease CAFE standards considerably, it could allow for automakers to, in the long-term, spend less on making cars to fit government regulations and spend more on investing in these new innovation-driven industries that could provide alternative paths to reducing overall emissions in the U.S.

While the expectation is that the Administration will ease the aggressive standards goals set by the Obama Administration, it is not necessarily clear by how much they will ease them. On the same day Trump declared CAFE standards an impediment to increasing American auto manufacturing, the Administration clarified they would be leaving in place a waiver that lets California and other states enforce stricter rules within their borders. The outcome on this issue is far from a given, but a shift in these policies could produce major impacts for everything from the national economy to trade policy.

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PRIVACY BATTLE MOVES TO THE STATES
With Republicans in control of Washington, the federal government appears ready to roll back several major areas of regulation, including those limiting access to consumers’ online data. This means consumer privacy advocates are moving their fights to the state level. There are currently several measures before the Illinois state legislature limiting what kind of data companies are allowed to pull from their users’ devices and accounts. Two specific Illinois bills aim to limit when companies can track consumers’ location through smartphone applications, and limit the use of microphones on internet connected devices. Similar laws are already on the books in California, Connecticut, New Mexico, Nebraska, and West Virginia. As more controversial items from the deregulatory perspective are tackled in Washington, look for activists to bring pressure to statehouses across the country to ‘re-regulate,’

STAGNATION OF INNOVATION
Despite continued headlines about disruptive startups being introduced, the numbers show that the American economy is actually stagnating. Companies established during the startup boom, like Uber and Facebook, have now moved from scrappy market disruptors to established tech firms. The firm birth rate, or the rate at which new firms enter the marketplace, has been declining every year since 2008. The rate at which firms were created was even outpaced by the firm death rate in 2010 for the first time on record. Economic growth and individual workers are suffering – a low churn rate of firms entering and exiting the marketplace means that fewer jobs are created each year. At a time like this, introducing a policy framework that encourages investment and reins in regulations will be necessary to increase job creation and bolster the economy.

SLOWER BANK LENDING AHEAD  
A recent research note from UBS argues that the latest round of investor confidence displayed in high stock market valuations may be misplaced. The report points to a major slowdown in bank lending, with loan growth by domestic banks falling in almost every category. As a recent Axios article explains, “Companies are issuing less debt due to a mix of uncertainty regarding tax and spending policy, already high debt levels in the U.S. corporate sector, and the threat of higher interest rates.” Yet, investors are betting on stronger global growth, and assuming there will be no shocks to the global economy. An event like the 2014 oil price collapse could lead to greater constraints on growth and trigger a stock market pullback or correction. Trends in bank lending should be closely watched because they offer an early indication of big banks’ confidence in the economy and companies’ confidence in their own growth.

THE REAL TRUMP UNIVERSITY
As much as any president in recent history, Donald Trump has brought a unique philosophy to governing. The academic birthplace of much of this philosophy is a liberal arts college in California. Claremont McKenna College is home to, until recently, obscure political philosophers known as the “West Coast Straussians,” named for the philosopher Leo Strauss. The group is led by Claremont McKenna professor of government Charles R. Kesler, and their writings in The Claremont Review of Books on the 2016 election have served as the academic underpinning for Trumpism and an interpretation of its rhetoric into a full-fledged political philosophy. One notable essay, written by Trump national security official and former Claremont graduate student Michael Anton, declared, “2016 is the Flight 93 election: Charge the cockpit or you die.” The essay went on to outline the intellectual rationale to support then-candidate Trump that focused on the conservative establishment’s inability to fight “out-of-control government, politically correct McCarthyism,” and “a disastrously awful educational system.” Anton’s position inside the White House places a student of Kesler’s West Coast Straussianism in the room for countless major policy discussions with the President. With one of their own inside the West Wing, The Claremont Review of Books is likely to remain one of the best places to glean a quick understanding of the academic philosophy behind Trumpism .

HAVE THE CHINESE TAKEN SILICON VALLEY?
Recently, Chinese investments in the United States have moved away from industries like entertainment and toward American start-ups with products that could have military applications. For example, young tech firms working on cutting-edge artificial intelligence for military robots, rocket engines, ship sensors, and printers capable of producing high-tech components like computer screens for jets, have all received generous funding from Chinese companies with close ties to the government. These investments have concerned senior Pentagon officials, and the Defense Department has produced a white paper making the case that Beijing is directly encouraging Chinese investment in American startups specializing in these areas. Increased defense expenditures by the Trump Administration may alleviate some of this concern since the primary reason these American startups claim they have turned to China for funding is a lack of interest from the American military in their unproven technology. However, this issue will need to be closely watched as economic innovation and national security begin to overlap in increasingly precarious ways.

Brexit Begins, Natural Gas’s U-Turn, and CBO Struggles

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Here’s What You Need to Know

Last Monday the British government took its first baby step on the long march toward making Brexit a reality – Parliament passed a bill allowing UK Prime Minister Theresa May to trigger Article 50 and commence the process of leaving the EU. Getting this measure passed was the first of many struggles UK leaders will face in this process, and Downing Street has already announced that the Prime Minister does not intend to formally begin the process until sometime next month.

Brexit Bill’s Rocky Road: The Brexit bill did not come without some difficulty. Disagreements between the House of Commons and the House of Lords slowed the bill’s approval and led to both Houses rejecting proposed amendments. The two amendments would have offered EU natives already living in the EU extra legal protections in the UK and required a “meaningful” vote on the exact terms of the Brexit deal May’s government will negotiate. Though both Houses eventually agreed to the terms, they have much more difficult steps ahead of them and further disagreements are already beginning to present themselves.

Parliament’s Next Steps: Theresa May’s government may have the daunting task of actually negotiating the Brexit deal ahead of them, but Parliament also has a to-do list aimed at preparing the country for life after the EU. There are at least seven controversial pieces of legislation Parliament must pass, according to a leaked report from British foreign affairs officials. Each law requires massive overhauls of major policy areas impacted by Brexit, including immigration, taxes, agriculture, trade and customs regimes, fisheries, data protection, and sanctions. Adding to the challenge, all of these reforms must be completed within the next two years in order to be completed by the time the Brexit process closes out.

Not-So-United Kingdom: Members of the regional governments of Northern Ireland and Scotland have both expressed desires to leave the United Kingdom in order to avoid Brexit and remain in the European Union. In Northern Ireland, the new leader of the Irish nationalist party Sinn Fein called for a referendum on Northern Ireland joining Ireland. Fifty-six percent of Northern Irish voters did vote to remain in the EU, but this move is likely just Sinn Fein using the opportunity to push for the Irish reunification policy they have traditionally promoted. Scottish First Minister Nicola Sturgeon also called for a second referendum on Scottish independence. Scottish leaders would hope to remain in the EU were they to gain independence, however European leaders have already stated that they would not accept an independent Scotland into the European Union. As impossible as it still may be for some to fathom, Brexit is really happening. The first tangible steps toward the two-year process of negotiating the UK’s exit from the EU has occurred. It’s worth noting that this bill is comparatively devoid of detailed policy, which will be negotiated by British and EU diplomats over the next two years. And, it still stumbled to the finish line only to be met with renewed criticism from parts of the UK. The unhappy conclusion for those tasked with shepherding Brexit into reality should be that it’s going to get worse before it gets better.

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SEXISM AND 2016: Researchers recently performed an experiment to analyze possible gender bias in political campaigns by reenacting the first president debate of the 2016 election, but swapping the candidates’ genders. The researchers’ hypothesis followed the conventional wisdom that sexism played a major role in the politics of 2016, most people would reject Trump’s bombastic claims and aggressive style if they were employed by a woman, and Clinton’s command of policy would be more impressive coming from a man. But, researchers were shocked to find that elements of what people found most inspiring about Clinton fell flat when she was played by a man, and tactics used by Trump that appeared to be uncoordinated stumbles looked more clever when he was played by a woman. This analysis is important for those on both sides of the aisle seeking to convince more women to run for office, and suggests sexism may not play as large a role in how candidates are perceived by voters as some believe.

NATURAL GAS’ U-TURN: Last December, a tanker of liquefied natural gas (LNG) heading from the United States to Asia made a sudden U-turn and instead docked in Mexico and unloaded its cargo. This event is just the latest signal of how the U.S. is radically altering the shale gas exports industry. Traditionally, the LNG business was almost entirely centered around long-term contracts with set destinations. But, now the American LNG industry is focused on seeking the best price at any one moment in time – shifting the business toward an emerging spot market akin to oil. The U.S. is set to become the world’s third largest LNG exporter by 2020, and how this market develops will play an important role in the American energy economy as well as the future of the global energy sector.

PURPLE IS OUT IN AMERICA: The 2016 presidential election was one of the most contentious and narrowly won in recent history. The data shows more than 61 percent of voters cast ballots in counties that went for either Trump or Clinton with at least 60 percent of the vote. This geographic sorting of political ideology has been progressing for the past several election cycles, with 50 percent of voters living in such counties in 2012 and 39 percent in 1992. The statistics seem to suggest that most counties are only becoming more entrenched in their chosen political ideology. If this trend continues, it could mean American politics are going to become even more polarizing than they are currently, and swing counties may become rarer and rarer with each election. See the map below:

 

HISTORY OF CBO’S INACCURACY: There’s been much debate and discussion about this week’s CBO score of the House Republican healthcare bill, and the agency’s methods and accuracy. The truth is, the CBO has its limitations and there have been large gaps between their original estimates and real historical data. For example, before Obamacare was enacted, the CBO estimated that by this year, the law’s exchanges would have enrolled 23 million Americans; they stuck with this number as recently as June 2015. However, the actual number is about nine million. CBO analysis of Obamacare repeal and replace legislation fails to take into account those who purchased insurance only to avoid fines and counts anyone who would willingly leave the insurance rolls as “losing” coverage. On the other hand, CBO likely overestimates the number of people who would drop out of Medicaid. The fines may have helped motivate people who are Medicaid eligible to join the program, but the absence of those fines seems unlikely to convince them to leave a free program. Overall, there are numerous flaws in how CBO has estimated figures for healthcare policy in the past and both parties would be better served by not over-focusing on the agency’s analysis.

JAPAN’S ECONOMIC FUTURE: ROBOTS: ​Most predictions about the future of the Japanese economy are bleak at the moment. But, financial adviser and publisher of the Gartman Letter, Dennis Gartman, is enthusiastically bullish on investment in Japan, thanks the nation’s robotics industry and its ability to turn a  demographic liability into an asset. Japanese firms are increasing their profit margins by moving ahead of their foreign counterparts in transitioning their workforces to robots. The Japanese are even expanding this advantage beyond traditional manual and factory work expected to be taken on by robots. Last week, a Japanese advertising agency revealed a robot built to replace white collar workers, in this case advertising creative executives, with impressive results. With this long-term play in robotics, Japan’s economic future might not be as terrible as some suggest.

TPP Talks, Big Data, and Greenpeace Confessions

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Here’s What You Need to Know

The United States has withdrawn from the Trans-Pacific Partnership (TPP), but that does not necessarily mean the deal is dead. Indeed, the void in the Asia-Pacific trade market left by U.S. withdrawal is not likely to remain unfilled for long. Next week, on March 14-15, Chile will host a trade summit that will include all members of TPP, the Pacific Alliance, China, and South Korea.

The topics of discussion will be what future TPP may have without the United States, and more broadly, what does the future of trade look like in the Asia-Pacific region.

  • Can TPP Continue? The key question of the Chile summit will be whether or not the massive bilateral trade agreement can forge ahead without the steady hand of the United States guiding it. While many of the agreement’s participants would like to see it proceed, none have been as vocal in this effort as Australia. Prime Minister Malcolm Turnbull has already publicly stated a willingness to allow China to join the deal, essentially filling the literal void left by America’s withdrawal.
  • China Is Stepping In. The universe abhors a vacuum, and whether China will move to fill the void in leadership in trade relations in Asia no longer appears to be a question. At the summit in Chile next week, China is expected to push for a focus on the Regional Comprehensive Economic Partnership (RCEP) in place of TPP. RCEP is a preexisting proposed free trade agreement between the majority of the nations within the TPP agreement and several more Asian nations. One key signal of a Chinese victory coming out of Chile would be a move toward RCEP in place of TPP.
  • American Involvement: The United States has announced it will be sending a representative to the meetings in Chile next week, but has yet to name that individual since President Trump’s nominee for U.S. Trade Representative Robert Lighthizer has not yet been confirmed for the job. Who the Administration decides to send to the meeting will give important insight into whether they are going to seek to help lead the conversation in Chile. But, given the topics of conversation at the summit and the Administration’s current positions, it does not seem likely the U.S. will be playing a major role.   

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BIG DATA GOES LOCAL
The Associated Press and Data.world – an online platform for hosting and collaboratively analyzing data – have joined forces to help equip local reporters with granular facts and figures on their communities. This is a concerted effort by AP to give local reporters critical information to help better support their stories and give their reporting more context. The platform offers local journalists access to large collections of records and insights that they can fit to their stories and audiences. The new system aims to provide local journalists with added flavor for their current stories and give them fresh ideas for new ones. But, like all data, it can be manipulated by those looking for more “evidence” to fit a narrative; as the saying goes, “Statistics don’t lie, but liars use statistics.”

HACKED LATELY?
This week, Bloomberg reported the Center for American Progress (CAP) was among several liberal advocacy groups and think tanks that had been victimized by Russian hackers who demanded large ransoms for promises to not release embarrassing internal emails and documents. CAP’s president Neera Tanden, however, flatly denied the claim and tweeted, “This story is wrong as it relates to CAP. We have been neither hacked nor faced any ransom.” This means either Bloomberg or Tanden are being dishonest, putting into question whether the left was really hacked, and whether anyone was actually extorted. Whatever details eventually come to light, the confusion surrounding these claims highlights efforts to push a narrative of rampant Russian hacking of Democratic institutions. There are clearly legitimate attacks occurring by Russian hackers, but it seems this story either misled its readers or failed to confirm its facts with the relevant parties. This seems to be the result of a rush to break a story on the week’s new Russian hacking scandal.

VIDEO KILLED THE TV ADVERTISING BUDGET
A new study by the Consumer Technology Association found video viewership has increased more than 30 percent over the past five years. But, almost half of all that video is being viewed on devices other than televisions. This near 50-50 split in video consumption between TV and devices like computers, tablets, and smartphones is a major shift in the marketplace. Only four years ago, 62 percent of video was viewed on televisions. These figures have led experts to predict 2017 will be the first year digital advertising spending eclipses TV advertising spending. Despite these predictions, digital video advertising is still being predominately produced in a horizontal format rather than the vertical format better suited for smartphones and similar devices. How advertisers adapt in the targeted world of digital video and how consumers react to more exposure to ads on their devices will dramatically change the shape of information consumption habits.

BROTHER CAN YOU SPARE $500?
Last week, the CEO of Assurant, a company that offers insurance for consumer products like cell phones and home appliances, made this startling claim while speaking about the growth of his business on Bloomberg TV: “The reality is, half of Americans can’t afford to write a $500 check.” The claim shocked some, but a recent Bankrate survey confirmed 57% of Americans don’t have enough cash to cover an unexpected $500 expense. Even though the official end of the recession was over seven years ago, this figure shows that the economic recovery has done nothing to help those with massive loan debts, those who live paycheck to paycheck at lower wage jobs, and those who have left the work force altogether and live off government safety nets.

OUR BRAND IS OUTRAGE
A number of staunchly conservative and liberal blogs have been traced back to one entity whose only goal appears to be profiting off manufactured outrage on both sides of the aisle. After noticing blog posts from “Liberal Society” and “Conservative 101,” whose content was almost identical, Buzzfeed tracked several hyper partisan fake news headlines – like “WOW, Sanders Just Brutally EVISCERATED Trump On Live TV. Trump Is Fuming,” and “Nancy Pelosi Just Had Mental Breakdown On Stage And Made Craziest Statement Of Her Career” – back to an entity called American News LLC. This company owns many partisan news websites and runs a number of widely-shared Facebook pages that amplify their webpages’ clickbait articles. The company did not offer any comments when these connections were reported. But, this story confirms companies are out there manufacturing completely fake news to feed the partisan hunger of liberals and conservatives and get more clicks and views, which can turn into easy monetization.

CONFESSIONS OF A GREENPEACE TARGET
Richard Garneau, president and CEO of Resolute Forest Products, recently wrote an op-ed on his experience as a target of the radical environmentalist group Greenpeace. The group assaulted the company and its partners in the press, online, and during in-person events with false claims about their forestry practices. Resolute sued Greenpeace for defamation and intentional interference with economic relations, forcing the activist group to actually defend their claims in court. During these proceedings, Greenpeace representatives were forced to admit that their accusations against companies “do not hew to strict literalism or scientific precision,” and were instead, “hyperbole,” “heated rhetoric,” and “non-verifiable statements of subjective opinions.” This case has received praise from business leaders as a major breakthrough for companies who find themselves victims of unfair attacks by activists. It also shows that knowing the facts and defending them while exposing activists’ misleading claims is a winning strategy for companies.

Obamacare

What’s Actually Inside the GOP’s Obamacare Repeal Draft?

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Here’s What You Need to Know

Last week, a draft of a House Republican bill designed to repeal and replace Obamacare was leaked. The legislation is a first look at how House Republicans, working with the Trump Administration, are planning to break down the policies of Obamacare while simultaneously replacing key elements of the healthcare reform law.

The main points of the leaked proposal include:

  • Trading The Individual Mandate For Individual Penalties: The GOP draft proposal does eliminate Obamacare’s individual mandate, but establishes penalties for individuals who fail to maintain consistent coverage. Specifically, the penalty punishes those who re-enroll in the healthcare marketplace by increasing their premiums by 30% for one year. This mechanism would replace the individual mandate as a tool to disincentive people from only getting health coverage when they get sick.
  • Changing Subsidies To Tax Credits: The Republican plan also eliminates Obamacare’s expansive income-based subsidies, and instead creates a system of age-based tax credits. Beginning in 2020, persons under 30 would receive a tax credit of $2,000, and that amount would increase by $500 each decade beyond 30 until age 60 when the tax credits would cap at $4,000.
  • Creating “State Innovation Grants”: One area Obamacare received bipartisan support was the law’s handling of pre-existing medical conditions. The Republican plan looks to maintain that success through the creation of “state innovation grants,” offering the states federal money to establish high-risk pools for those people with pre-existing conditions.
  • Big Changes For Medicaid: The GOP draft measure also seriously rolls back Obamacare-driven Medicaid spending, completely eliminating the law’s Medicaid expansion by 2020. The measure also reforms the pre-Obamacare Medicaid system by converting it to per-capita subsidies, in which states are given the latitude to build safety-net health insurance programs with federal funding in the form of a fixed dollar amount for each Medicaid enrollee resident within their borders.
  • Eliminating Taxes, And Some Tax Breaks: Another fundamental of the Republican plan is the elimination of all taxes associated with Obamacare. However, in order to pay for the tax credits and grants in the new plan, Republicans would also eliminate tax breaks on generous health plans offered by employers. This proposal is notably similar to Obamacare’s controversial “Cadillac tax,” which Republicans actively opposed and received fierce criticism on from businesses and labor unions alike. Should this remain in a final GOP plan, it would likely be a major political fight and elicit cries of hypocrisy from Democrats.

The response to this “discussion draft” has been less than heartening for anyone betting on its success. Beyond predictable Democratic opposition, conservative Republicans criticized the legislation for not going far enough in efforts to erase several key Obamacare policies. Senator Rand Paul underscored this opposition by calling the plan “Obamacare lite” while the Heritage Foundation released their own version of a repeal-and-replace plan to push back against GOP leadership efforts.President Trump discussed the repeal-and-replacement of Obamacare during his address to the joint session of Congress this Tuesday night, yet both establishment and conservative Republicans claim the President endorsed their version. Speaker Ryan has said House Republicans hope to present their Obamacare repeal legislation after the coming recess, but this draft illustrates just how far they have to go before reaching something that will be able to muster anything resembling consensus.

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RUSSIAN DIPLOMAT DEATHS. Since last November, six Russian diplomats and an aide to a former deputy prime minister have died suddenly, and almost all on foreign soil. The Russian Ambassador to Turkey, Andrei Karlov, was very publicly assassinated the same day a long-time diplomat in Moscow, Peter Polshikov, was shot dead. Not to mention, senior Russian diplomats in India, Greece, and at the United Nations have also died suddenly. There have been other cases over the past decade where Russian officials have either died mysteriously or were very clearly poisoned, yet no conclusions have been made about what these deaths might mean. The international community is taking note of them and waiting to see what happens next.

NO MOVING OUT FOR MILLENNIALS. Owning a home has always been a rite of passage for success and adulthood in America. But as Millennials approach an age when home ownership has traditionally become a reality, they are finding it still a far-off fantasy. Beyond the constraints of crippling student debt and a weak job market, even Millennials who have found better-paying jobs appear locked out of the housing market thanks to the record-low number of homes available for sale. And of those homes that are on the market, few are priced at a value accessible to first-time buyers. Since home ownership creates wealth over time, this could result in a shrinking of American wealth in decades to come, along with another implosion of the housing market as fewer and fewer people are able to afford purchasing homes.

OCCUPATIONAL OPTIMISM. Americans have record-breaking optimism for the future of the labor market, with a recent University of Michigan study showing 35% of U.S. consumers surveyed expecting unemployment to further decline in the coming year. This is the largest share of respondents reacting positively since March 1984. Since bringing jobs back to America was a fundamental promise of President Trump’s campaign, it appears American consumers are taking him at his word, believing in his ability to deliver on that promise. How Trump’s policies help the middle class versus those in other income brackets will be critical to whether that optimism continues.

PAST VS. PRESENT PRESS. Now is likely the most consequential time for the American journalism in a generation. With online and citizen journalism breaking down the monolith of the media, and the drive to beat competitors outpacing the necessity of getting the story right, Senior Fellow at the Hudson Institute Lee Smith recently described “the death of the American press” happening before our eyes. Smith argues the press coverage of alleged links between Donald Trump and Russia, based largely on an unverified dossier, illustrate the sorry state of American journalism today. Smith takes a critical line with this “investigative” reporting, contrasting it with the tireless research of his former colleague at the Village Voice Wayne Barrett. Barrett spent decades covering Donald Trump, and Smith argues, if the President actually had a connection to the Kremlin, Barrett and his team of well-trained reporters would have discovered it because they relied on cross-checked and verified sources. Smith also argues the Trump-Russia coverage exposes how the present-day press all feed from the same trough of information – relying on the same cadre of Washington and New York insiders – because it is all they know how to do at this point. Smith concludes that when the media focused on an ad-driven business model, deciding content had no actual value, they permanently devalued news and gave birth to the untrusted media of today.

DEAR DE BLASIO. Last week, New York City Mayor Bill de Blasio spent almost five hours being interviewed by federal prosecutors probing whether the Mayor and his advisors exchanged favors to donors for contributions to his 2013 campaign, and his now-shuttered non-profit, the Campaign for One New York. The corruption-busting U.S. Attorney for the Southern District of New York, Preet Bharara, sent a clear message to de Blasio: federal prosecutors are taking the charges against the Mayor very seriously. Just this week, de Blasio actually admitted to doing favors for friends and community allies who needed help with city business, but argued it was acceptable because he never pressured agency heads to do anything. The U.S. Attorney’s investigation is focused on whether de Blasio traded favors for campaign contributions from New York landlord Moishe Indig. De Blasio is also still currently being investigated by the Manhattan District Attorney’s Office for allegedly steering campaign donations to state Senate campaign committees to circumvent campaign-donation limits in 2014. The federal corruption investigation is apparently being led by the public corruption team that took down former New York politicos Sheldon Silver and Dean Skelos, suggesting Mayor de Blasio may soon be suffering the same fate.

CHANGING DEMOGRAPHICS DON’T EQUAL CHANGING POLITICS. There is no question the demographics of the United States are changing, but despite what some think, this evolution is not likely to translate to a serious shift in American political ideology. The center-left think tank, Third Way, recently explained why suggestions that these demographic shifts will result in an overwhelming political advantage for the Democratic Party is inaccurate and flawed in its logic. First, these demographic changes are not evenly distributed throughout states and voting districts of the country. Second, Americans change their voting behavior far more regularly than any of the models predicting Democratic demographic dominance. And finally, even when taking into account these demographic changes, self-identified liberals are only the third largest portion of the electorate behind conservatives and moderates. In essence, Democratic claims that changing demographics equals Democratic dynasty is wrong, and Democrats have work to do to broaden their message if they hope to earn political dominance.

Robotics and the Next Big Policy Fight

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Here’s What You Need To Know

As more and more jobs have become automated over the past few decades, political rhetoric has had to walk the line of decrying workers being replaced by robots and touting the economic successes brought on by increased efficiency. But, that conflict appears to be coming to a head with the predicted exponential growth of the robotics industry and of greater automation within the workforce.

Whether it is the growing autonomous car industry, further automation of industrial processes, or automation of more white collar jobs, policymakers are going to be forced to answer serious questions about how public policy can address the rise of the robots.

  • Tech Leaders Call For A Universal Basic Income: Many leaders in the tech community, most notably Elon Musk, have called for the United States to establish what is called a “Universal Basic Income” (UBI) – which is essentially a social welfare program paying all citizens an untaxed, fixed amount regardless of their employment status. Tech CEO’s are declaring this policy a necessity to respond to impending mass automation. Look for those who may already support UBI to tout these arguments in any and all upcoming fights on the issue as it likely gains prominence on the left.
  • If Welfare Is Broken, Fix It: On the other side of the UBI debate, business mogul Mark Cuban described the policy as “the worst possible response” to unemployment brought on by automation. Cuban, and others, have argued creating an entirely new system of welfare through UBI is unnecessarily disruptive, and the smarter move would be to work to fix the current system of social safety nets to improve their efficiency in the face of the threat of automation-related unemployment. Similar to supporters of UBI, watch for welfare reform advocates to embrace this as yet another argument for fundamental reform of these entitlements.
  • Time To Tax The Robots?: Another proposed policy response recently offered by Bill Gates is to require robots – or more specifically their owners or manufacturers – to pay the taxes the employee that they’re replacing would have, and then to use this revenue to fund job retraining programs. Gates claims automation will be even more concentrated in the next twenty years than it was in the last. He also suggests that companies seeking to defend their efficient, automated processes should consider that public opposition could kill the future of automation even faster than any tax.
  • Look To The Massachusetts Tech Tax: While Gates’ proposal didn’t offer specifics, the concept of a “tech tax” was actually attempted to solve the state of Massachusetts’ revenue problems in 2013. The plan created a 6.25% sales tax on a range of computer and software services, and was quickly repealed after tech firms argued the measure punished the state’s economic engine for its success. The companies argued that the measure stymied innovation by punishing the state’s most successful industry. Similar arguments will undoubtedly be made if serious attempts are made to tax robots, with businesses crying foul at the idea of taxing industries for becoming too efficient.

The UBI and tech tax debates only mark the beginning of the battles that are coming as policymakers begin to search for appropriate solutions to automation’s role in American unemployment, while balancing the need to help workers and to allow businesses to maximize efficiency.

News You Can Use

FED-VOLUTION
Danielle DiMartino Booth, a former advisor to the Federal Reserve Bank of Dallas, recently previewed her new book which outlines how the Fed transformed from its intended purpose of a lender of last resort to what she argues is now a “destroyer of American wealth.” In 2008, the Fed adopted a zero bound rate for “fed funds,” which made the interest rate at which banks lent money to each other on the overnight market the lowest is had ever been in the nation’s history. Booth contends that in enacting this policy, the members of the Federal Open Market Committee (FOMC) effectively offered banks free money – even actually paying the banks to take the money – without any real analysis of how that new policy would impact the rest of the country. Then, when the Fed started its “quantitative easing” policy to continue buying Treasuries and mortgage-backed securities, its manipulation of the economy had essentially left the overall economy frozen in motion thanks to the unforeseen consequences of consistency low interest rates. Whether it’s major pension funds and public schools suffering from historically low yields on the bonds they once relied on, or baby boomers incapable of retiring because their supposedly safe retirement strategy was counting on better returns on their CD’s, each of these has a ripple effect the FOMC never considered in 2008. As the Fed comes under increased scrutiny by the new Administration and Republicans in Congress, how the U.S. central bank came to this point will be increasingly important if there are any hopes of refocusing it on its original mission of protecting the power of U.S. currency.

TPP TRUDGES ON?
The United States has officially withdrawn from the Trans-Pacific Partnership, but that does not mean the agreement will cease to exist. As the other eleven countries in the deal contemplate their next move, Chile has invited each of them to attend a summit next month to discuss the future of trade in the Asia-Pacific region. TPP’s future, or lack thereof, could be decided at this meeting. And, the Prime Ministers of Australia and New Zealand have already publicly declared their intention to push the agreement forward. There also remains an open question as to whether China will show up for this summit, which could further President XI Jinping’s efforts to cement his nation’s regional dominance in the absence of U.S. influence. The White House has also yet to confirm whether the U.S. will send a representative to the Chile summit. However, it’s clear none of the other trading partners are interested in waiting for the U.S. to move forward on their agenda, which could weaken Trump’s position in future bilateral trade negotiations.

WHO NEEDS BANKS?
University of Pennsylvania professor Lisa Servon recently spent time working as a teller at check-cashing stores to study why customers use the service. She discovered that the conventional wisdom suggesting a bank would better serve customers was entirely false. For their customers, check-cashing stores are actually cheaper, more transparent, and provide better service. A check-cashing store has fees, but they are up-front, clearly defined, and pale in comparison the hidden fees and unexpected maintenance costs levied by banks. The simple predictability of these fees is crucial to middle and low income families operating on a budget that cannot afford the surprise of a bank fee. Servon concluded that the economic elite who decry the folly of the “unbanked’ are simply incorrect in their assumptions about the illogical nature of check-cashing stores; these alternative financial services are actually savvy options for customers at specific income levels.

KANDER COMPLICATES HIS FUTURE
Missouri Democrat Jason Kander came close to defeating Republican incumbent Senator Roy Blunt last election cycle. Between his successful rhetoric and a nationally recognized campaign ad, he came out looking like a fresh leader with a real future in the Democratic Party – until now. After losing his election, he formed his own voting rights group, with board members like Cecile Richards of Planned Parenthood, Stephanie Schriock of EMILY’s List, actor Bradley Whitford, and three Obama Administration veterans. He also joined the board of the largest pro-Clinton super PAC, Priorities USA. Yet, these decisions could come back to haunt Kander by eliminating his outsider status and centrist appeal that allowed him to come so close to success in 2016, alienating the moderates who valued his independence in the last election cycle, and potentially damaging his political future in a purple state like Missouri.

TRUMP’S COURT
Most of the focus on President Trump’s ability to shape the judicial branch is currently focused on his nominee for the U.S. Supreme Court, Neil Gorsuch. But, the new President is actually positioned to shape the federal court system even more broadly. A recent New York Times analysis highlighted the fact that a stack of vacancies on the federal bench along with the abnormally high number of older judges could position Trump to fill more judicial vacancies than any first-term president in decades. The lower courts Trump could fill are incredibly important with only 15% percent of all cases brought before a federal judge even making it beyond a district court. The process of filling all these judgeships has yet to commence, but these historically quiet nominations could reshape the judicial system for decades to come.

Mark Your Calendar

Thursday, February 23 – Sunday, February 26: DNC’s Winter Meeting where a new Democratic Party Chair will be elected