Ten BILLION Dollars

TL;DR: The Midterms And Your Organization’s Risk, Tipping The Balance, And PolitiFarce

Here’s what you need to know…

As election day approaches, the question remains if the country will be overtaken by the blue wave or if the red wall will be big enough to stop it. Regardless of the outcome, however, companies and organizations will need to navigate and influence the post-election environment to their advantage. Here is what you need to know to be prepared to overcome the challenges and make the most of the opportunities after November 6th:

  • Will The Red Wall Be Enough To Hold Off The Blue Wave? The Republican National Committee has raised over $270 million for the 2018 cycle, which has been invested in data and turnout infrastructure over the past two years, building on the success of its 2016 operation that helped deliver a surprise victory for Donald Trump. As much as people say this election will be a referendum on the president, Trump has had almost straight-line approval and disapproval since he has entered office, suggesting there is little buyer’s remorse that Democrats can leverage into new votes. Further, the Kavanaugh confirmation galvanized Republican voters and erased any enthusiasm gap once enjoyed by the Democrats. When it comes to the Blue Wave, Democrats have raised a lot of money recently, but it is not being spent in the right places (Texas, anyone?) and may be too late to be effective. That said, Democrats only need 23 seats to gain a majority, and the historical average midterm loss for the president’s party is 25. That loss increases to 37 for presidents whose approval rating is under 50% in the lead up to the midterm election. Given this historical trend, Democrats do not need a wave to win back the House.
  • What Should Businesses Expect If Democrats Do Take The House? If Democrats take control, regardless of what they are saying legislative and policy wise, what will overwhelm the leadership’s agenda will be anti-Trump fervor, demanding investigations and impeachment, but the focus and implications of those investigations would reach far beyond the Administration. On a number of key policy issues, companies in industries like energy, pharmaceuticals, financial services, and beyond are at risk of becoming proxies for Trump and his policies. Combine this fervor with the multiple Democratic 2020 presidential contenders in Congress competing for attention and appreciation from their party’s liberal base, and the potential policy and reputational harms for companies and industries multiply significantly. Companies can also expect a Democratic majority to build on the momentum of efforts to coordinate with government officials at the state level.
  • Risks From A Blue Wave Extend Well Beyond The Beltway. There are two offices at the state level that the private sector should be watching closely: gubernatorial races with candidates that could be jockeying for the 2020 Democratic nomination, and state attorneys general races with candidates who will likely target corporate interests to elevate their political profiles. While a slew of senators in D.C. are already angling for the nomination and using policy proposals targeting companies, Wall Street, the fossil fuel industry, and others to build support from their base, several gubernatorial candidates could take that approach from their statehouses if they think: “Why not me?” This includes Andrew Cuomo (NY), Gavin Newsom (CA), and Richard Cordray (OH). For attorney general, Keith Ellison in Minnesota and Letitia “Tish” James in New York could build national profiles by suing companies on issues that translate to public support, whether lowering the price of insulin, Wall Street divestment, or New York State’s lawsuit against Exxon Mobil alleging the company deceived shareholders on climate change, which could expand to ensnare other firms and even investor-owned utilities.
  • It Is Not Just Who Is On The Ballot, But Also What Is On The Ballot. On November 6th, voters will decide on 157 ballot measures in 37 states across the country, and succeed or fail, these measures provide a predictive model for forthcoming policy battles. The volume of measures is not particularly noteworthy, but what is new and different is what is driving these initiatives: professionalized activists funded by national interest groups or high net-worth individuals, as opposed to local interests that can be held accountable for the consequences of their proposals. With Congress and Trump not enacting the policies national interest groups seek at the federal level, they are working in the states to build momentum and enact policy changes. What should raise companies’ and industries’ interest in these ballot initiatives is that strategies and playbooks in one state will be replicated elsewhere, and those that are successful will be replicated across the country with greater speed.

This highly-politicized environment is the new normal, and organizations and companies should be armed with the information and facts of policy and regulatory issues impacting them to protect their reputations. The more you can influence and shape events in the policy and regulatory landscape to your advantage, the better the chance that you can achieve your organization’s objectives – whatever the outcome of this year’s midterms.

News You Can Use

TIPPING THE BALANCE

Amazon has become the latest company to go to a $15 minimum wage, but at the same time workers in D.C. are pushing back. On October 16, the D.C. city council repealed Initiative 77, a measure passed by voters in June that would have raised the minimum wage for all tipped workers by 2026. The initiative, meant to provide financial stability and protections against sexual harassment, was fought by the tipped workers themselves, who argued it would destroy restaurants’ thin profit margins and cut jobs from their support staffs while potentially lowering tipped workers’ take-home pay.

Estimations concluded that Initiative 77 would cost the D.C. restaurant industry $600 million, surge food prices, force restaurants to buy from big box suppliers instead of local farms, and reduce the incentive to leave high tips. An increased minimum wage appears to be a favorable political stance for liberals to take, but when the workers who should be benefitting are fighting back, politicians may want to rethink their positions.

OVERSTEPPING AND OVEREXPOSED

Just as we predicted, receiving investment from sovereign funds of overseas countries brings a myriad of political and reputational risks for companies. This lesson was prominently on display in the scandal surrounding the death of Saudi dissident and journalist Jamal Khashoggi. After repeated denial, the Saudi government admitted that Khashoggi was murdered in its consulate right before Saudi Arabia’s Future Investment Initiative Conference, also known as “Davos in the Desert.”

American businesses, media outlets, and U.S. Treasury Secretary Steven Mnuchin pulled out of the conference in response, although the political and reputational risk has already impacted their future exposure to the Kingdom. Going forward, executives need to accept their roles as “de facto diplomats ” in today’s era of elevated risk, and evaluate their organization’s business decisions through this lens in order to avoid negative implications that may stem from it.

CLIMATE COVER THANKS TO TREES?

The UN’s Intergovernmental Panel on Climate Change recently put out a report on climate change, and panic ensued given its bleak predictions. Abigail Swann, a professor at the University of Washington, however published research that could change the way scientists view climate change. While most research on climate models focuses on wind, rain, and other physical occurrences, Swann believes researchers have ignored vegetation and how plants influence rainfall, a role that “blows the ecology community’s mind.” Forests provide carbon storage, water filtration, and wildlife habitat, and the total effect it can have on the ecosystem is largely ignored in gloom and doom studies.

Ironically, Swann’s research also finds that forest die-offs can be beneficial to the climate in certain areas, suggesting that environmentalist efforts to plant trees may do more harm than good to the climate in some cases. While there is uncertainty in how these findings can be implemented, it serves as a reminder that the earth remains incomprehensible to experts and predictions are futile, meaning balanced, responsible solutions are always a better approach than panic.

POLITIFARCE?

For the second time in a week, PolitiFact, a media fact-checker, has been caught not checking its own facts. The site originally ruled that a claim that Sen. Claire McCaskill (D-MO) said “normal people” can afford private planes was “false,” even though a video of McCaskill saying exactly that in a town hall is readily available on the Internet. PolitiFact only changed its ruling after receiving backlash for its favoritism.

Whether it was bias or sloppiness or both, these latest incidents make it more difficult for fact checkers to be seen as impartial referees instead of engaged combatants in the political clashes of our era.

The Coming Beef With Meat

TL;DR: The Coming Beef With Meat, GPS SOS, And Make Cars Great Again

Here’s what you need to know…

School is starting up again and Labor Day weekend is fast approaching, meaning that many Americans will be taking a trip to the store to buy groceries for their end-of-the-summer cookout. With Americans set to eat more meat in 2018 than ever before, it is safe to say that most carts will include beef, poultry, and pork. Yet, there are trends suggesting that the meat industry may soon face a new public affairs challenge – and find itself under attack in the public arena the same way that plastic is today. Because this challenge would not only impact your shopping cart, but may even impact your decisions at work, here is what you need to know about the coming beef with meat:

  • How Did We Get Here? The average American will eat 222.2 pounds of meat this year, surpassing a previous U.S. Department of Agriculture record set in 2004. This peak is after several years of increasing meat consumption and reverses a prior trend coinciding with the Great Recession between 2008 and 2012 that saw consumption decrease. As the economy has improved, meat consumption has increased and has again become the target of environmentalists that list meat-eating as the greatest environmental hazard facing earth after fossil-fuel vehicles, despite skepticism about that assertion. Today’s age of digitized, professionalized, and internationalized activism means that meat is only a viral moment away from being on the losing end of a public affairs challenge.
  • What Are The Challenges Facing The Industry? The industry has regularly engaged in public policy issues on Capitol Hill impacting its interests, including battles over dietary guidelines advising how much meat Americans should eat as part of a healthy diet. However, the industry’s environmental impact has been under scrutiny and is playing out in the public arena, posing additional risks to the industry as companies mix business with politics, such as when WeWork announced that it would not serve or reimburse business meals with meat for its 6,000 employees in an effort to “reduce their personal environmental impact.” Political stances like these can quickly become accepted should they go unchallenged. Further, due to retaliatory tariffs against its products from the largest foreign buyers, the meat industry has 2.5 billion pounds of meat piling up in cold-storage warehouses, combining trade risk and expanding supply to contribute to “one of the biggest corrections…seen in the industry in several years.”
  • How Does Technological Disruption Pose Other Risks? Besides the above challenges, plant-based meat alternatives are growing in popularity. In a sign of their potential, startups producing plant-based meats are attracting investment from the biggest companies in the meat industry, even as other industry stakeholders are taking aim at them. Regardless of whether plant-based alternatives will ever substitute for the real thing, addressing the reputational risks stemming from disruption from so-called “clean meat” will be a major policy priority for the industry going forward.
  • What Can The Meat Industry Do To Navigate This Environment? With the meat industry facing challenges on topics as varied as health, environment, trade, and science, the trends may suggest that public opinion will follow and that meat could face the same political and reputational risks facing plastic today. In Europe, there are already proposals to tax meat and even set targets to reduce its consumption, while in the U.S., the Humane Society has called this year’s increase in meat consumption “very disturbing.” Proactively preparing for when that viral moment sets off a broader public affairs challenge will help protect the industry’s reputation, and in the meantime, understanding different stakeholders engaged on the issues important to it will help ensure that legitimate concerns can be addressed, while unrealistic concerns from activists seeking an end to the industry can be ignored.

Whether cooking beef, poultry, pork, or plant-based impossible burgers this Labor Day, the team here at Delve wishes you and your family a safe and enjoyable holiday weekend.

News You Can Use

GPS SOS

Contingency plans are a necessary part of mitigating risk when things go array, which is why a recent Bloomberg piece about the lack thereof for the GPS technology the world’s economy depends on was noteworthy. Everything from cell phones, ATMs, and the stock market rely on GPS signals to run properly, which are delicate enough that items in space such as solar flares and debris near satellites, as well as pigeon droppings on receivers on earth, could prevent GPS from working properly – to say nothing of attacks from hostile foreign powers.

While the U.S. Department of Homeland Security mostly says that “it’s up to businesses to make sure they have backup plans,” industries see the protection of this vital technology as a government responsibility. This contingency gap suggests a need for policymakers to proactively shore up GPS vulnerabilities, and in doing so, address the implications of an attack against GPS technology for both the private and public sectors.

SAUDI’S SILICON PLAY

Serving as another example of the power of a tweet, Elon Musk’s two simple words about taking Tesla private, “Funding secured,” rattled the stock market and stunned shareholders. It was then discovered that the Saudi Arabian government were reportedly the ones who “essentially convinced” Musk to consider taking the company private, serving as “another reminder that Riyadh is an ascendant, underrated power player in Silicon Valley finance,” after having already invested in Uber and the SoftBank Vision Fund, and are reportedly considering investing $1 billion in Tesla rival Lucid Motors.

It remains to be seen whether Tesla goes private, particularly because the funding Musk alluded to turns out to have not been so secure, but it is clear the Saudi government’s increasing sway in America’s most innovative sector portends a heightened level of political and reputational risk for Silicon Valley firms who receive investment from sovereign funds of overseas countries.

ALL EYEZ ON SIRI

Between smart devices such as Alexa, Siri, and Google Home, the Internet of Things is using personal information to make homes smarter and lives easier. The “grand bargain,” however, is that people must be comfortable with giving up some privacy to get value from these devices, which is something customers have been willing to do because the makers of such products are considered among the most ethical brands in America.

However, concerns over data and privacy are growing, and customers’ views of these firms are beginning to turn with those concerns. With public attitudes shifting, policymakers and regulators will be freer to begin shaping a regulatory framework for such devices, possibly in a new “grand bargain” in which people will be comfortable with heavier regulation on device makers, even if that lessens innovation and otherwise constrains promising technology.

MAKE CARS GREAT AGAIN

Perhaps in an effort to make cars great again, the Trump Administration proposed a freeze on Obama-era rules for increased fuel economy standards. The result of this proposal was hysteria, requiring the need to take a deep breath and evaluate exactly what the Administration’s action entails and what it would mean. Characterizations of this action as a “roll back” of fuel economy standards is inaccurate because the Administration is proposing to freeze “fuel economy standards at the current 2020 target of 37 miles a gallon.”

Additionally, market distortions enabled by credits for automakers that sell electric vehicles – often at a loss – result in higher prices for SUVs and pick-ups that are then passed onto consumers. This in turn could contribute to Americans keeping vehicles longer, even though they are less-energy efficient than newer vehicles. Given that these standards are a relic of an energy policy implemented in 1975 to address a U.S. oil shortage, long before the shale revolution made the U.S. the world’s largest oil producer, this episode serves as a reminder that regulators cannot predict the future, and that well-intentioned policies can have unintended adverse effects on what they are trying to address.

Mixing Business With Politics

TL;DR: Mixing Business With Politics, Lemonade From Regulation, And Doctoring The System

Here’s what you need to know…

With the announcement that it will no longer serve meat or reimburse its 6,000 employees who order meals with meat out of concern for the environment and animal welfare, WeWork became simply the latest company to mix business with politics. The increasing political polarization in all aspects of daily life has been a growing trend over the past few years, and areas once insulated from the rough and tumble of the political arena are now at the mercy of the 24-hour news cycle. This new operating environment poses additional political and reputational risks for companies and the executives, employees, customers, and investors who depend on them. Here’s what you need to know about mixing business with politics:

  1. What Is Going On? Frustration directed at Washington politicians and the broken governing process has resulted in a vacuum in today’s public policy landscape where policy conversations are now foisted onto companies. In Silicon Valley, workers in the tech industry have “moved from apathy to activism in the last few years,” using tactics to organize on social media, rally against company (read: employer) policies they disagree with, and “fundamentally remake” the power structure inside the companies and the dynamic between the companies and the communities in which they are located. On Wall Street, reforms intended to give vested shareholders a seat at the table regarding corporate governance have been hijacked by social activists and interest groups looking to “promote their political objectives at the expense of shareholders.” This activity is not confined to the coasts, or any particular industry, but is now the new normal.
  2. What Are The Consequences? Political and reputational risks bring intense scrutiny that can result in public affairs challenges causing businesses to close, which was the case when a restaurant had to close temporarily after it refused to serve White House Press Secretary Sarah Sanders late last month and was targeted for withering online trolling. However, most importantly, reputational damage can translate into hard costs that impact a company’s bottom line. That is why it was recently reported that Starbucks executives and investors are worried that a partisan run for The White House by founder Howard Schultz could be divisive and “bad for business.” But what about the potential to attract new, like-minded customers? Despite Patagonia’s sales rising 7% after engaging the Administration over national monuments in Utah, alienating current or potential customers over political stances is ultimately a game of subtraction, when making pragmatic business decisions to increase a business’s bottom line in most cases requires addition. Indeed, a new study has provided evidence that activist investors pushing political agendas unrelated to a company’s core business does not increase shareholder value, and may in fact negatively impact it.
  3. How Can Your Company Survive? Rather than wade into the political swamp on purpose or in response to pressure campaigns, companies can proactively determine how to engage on the issues of the day, paying extra attention to ensure their stance in the public arena is consistent with their values and within their control. Having a strategy in place that understands vulnerabilities will also help avoid negative blowback, and understanding today’s fast-moving environment – for example, that while millennials may appreciate a company’s political stand, it does not influence their spending habits – goes a long way towards avoiding unforced reputational damage.

When companies make business about politics, they lose the ability to decide when that politicization ends. In the case of WeWork, it is possible to imagine powerful agriculture influence groups lobbying government to force the company to again offer meat options as a way to support American farmers, just as politicians in downtown Mountain View are requiring tech companies to stop offering free meals in their cafeterias due to the harm to local small businesses – because bringing politics into the boardroom means bringing in government, too.

News You Can Use

DOCTORING THE SYSTEM

It’s a bird, it’s a plane, it’s doctorpreneur. Motivated to help solve India’s poverty and “abysmal” healthcare system, doctors are at once physicians, entrepreneurs, and philanthropists who are taking advantage of the largely unregulated and “wide open” space to experiment with methods that expand quality healthcare to the greatest number of people possible.

Despite the challenges of India’s public health system, the value-based competition stemming from consumers paying for what they consume and seeking value from providers, offers a lesson to other countries debating how to contain rising healthcare costs, especially given the fee-for-service model prevalent in the U.S.

LEMONADE FROM REGULATION

When life gives you lemons, let your kids sell lemonade. Lemonade stands are getting shut down across the country with cities fining small children for selling without permits, claiming to be looking out for consumer safety. This overextension of government has led to public outcry, with lemonade brand Country Time even creating Legal-Ade to pay these fines or reimburse parents for buying the expensive permits cities are requiring.

While cities that clamp down on lemonade stands may deprive younger generations of their first experiences of having a job and running a business, the newsiness of targeting this summertime rite of passage may aid in raising broader awareness of the excessive burden of regulation from state and local governments, such as through occupational licensing, which deprives opportunity to people of all ages.

GREAT MINDS THINK SATELLITE

President Trump’s space force won’t be up and running anytime soon, but a different space agency is making some moves. NASA is inviting commercial users to start using their satellite data with its launch of an online toolkit that brings together data and analytic tools previously scattered across 50 agencies.

This trove of information was previously difficult to navigate, with general users facing a “high barrier to entry” to navigate the maze of resources at the level of scientists and researchers. NASA hopes this toolkit “leads to new companies forming, new services being offered to consumers, and an overall improvement of quality of life as the rich data from space is used to make our lives safer, more interesting and more convenient.” As the analysts here at Delve love to dive into open source, publicly-available information to derive breakthrough insights for our clients, we could not agree with that sentiment more.

COLLISION COURSE?

Cities that are battle-hardened from regulatory jousting with rideshare and lodging startups are now focusing their public concern on dockless, shared electric scooters that have raced onto the public policy scene. Twenty-five cities now have operating electric scooter companies, with one popular scooter startup achieving a $1 billion valuation. However, it is not only pedestrians who need to be careful to avoid a collision, but also policymakers.

Electric scooters are already illegal in New York, and other municipalities are implementing policies to regulate the burgeoning industry. It remains to be seen whether electric scooters have the staying power that other industry disruptors had before them, although we may speculate that if they do, it will be because they recognize the importance of engaging – rather than shunning – the policymakers and stakeholders on the issues impacting their interests.

Revisiting The Unemployment Rate

TL;DR: Revisiting The Unemployment Rate, Patagonia’s Political Play, And Whose Painting Is It Anyway?

Revisiting The Unemployment Rate, Patagonia’s Political Play, And Whose Painting Is It Anyway?

Revisiting The Unemployment Rate

Here’s What You Need To Know…

In a Medium post during the summer of 2016, we made the bold assertion that “the unemployment rate is dead” as a political talking point, and maybe even as an economic statistic. At that time, the rate’s decline was largely due to people leaving the labor force, creating a “new normal” that meant the statistic could no longer provide a meaningful indicator of – or a campaign talking point about – how people were doing economically.

Understanding how to interpret this statistic remains important as the tax reform debate continues to unfold. Some are arguing the economy is in danger of overheating and that the proposed GOP tax reform might make that danger worse. Yet incoming Federal Reserve Chair Jerome Powell has made clear he remains concerned about the disappearance of men from the U.S. Labor Force, and that such participation, along with productivity gains, are key to growing the economy. His comments seem to suggest the bullishness on unemployment in some quarters is not supported by economic reality for many Americans.

With that in mind, we wanted to refresh our analysis of the unemployment rate, and see whether it remains, to borrow from our June 2016 post, “divorced from other economic indicators”:

  • Is The “New Normal” Still Normal? It appears so. Since the end of World War II, the participation rate of prime-age working men has steadily decreased from 97% to 88.5% today, and the Congressional Budget Office expects the participation rate of males to continue to decline over the next 25 years. Meanwhile, despite this negative trend, the November 2017 jobs report had the U.S. unemployment rate at a 17-year low of 4.1%. In reconciling these two divergent realties, the “really, really strong economy” touted by some requires a deeper dive into the causes driving the continued decline in labor participation.
  • What’s Driving The Decline In Labor Participation? Three factors recently cited as key drivers are the opioid crisis, economic disruption, and the pursuit of education. Overdoses, fueled by the opioid crisis, are the leading cause of death for Americans under 50 years old, and states’ hit hardest by the opioid epidemic often have low workforce participation. In addition, economic disruption has caused a shift from male-dominated occupations of yesterday’s economy like manufacturing toward traditionally female occupations like education and health services. One positive underlying driver may be the increase in the 16-to-24-year-old population not working because they are “going to school,” yet it remains to be seen what opportunities will be available to them when they reenter the economy.
  • The Unemployment Rate As A Meaningful Indicator: While making for “neat and tidy headline news,” the unemployment rate still provides only part of the economic picture. Rather than offering a foundation for an honest assessment about the economy, its use as a political talking point has been cheapened by the complex realities of today’s changing economy, which already create a muddled message that can confuse an electorate. For example, then-candidate Trump was extremely critical of the unemployment rate, repeatedly calling it “phony” and a “hoax,” but since taking office, he has touted it as evidence of his positive handling of the economy.
  • The Unemployment Rate: Dead Or Alive? Politicians, journalists, and pundits may do well to stop focusing on the unemployment rate itself, and instead evaluate the underlying data from which the unemployment rate is calculated. This would allow policymakers to have an honest conversation with voters about the economy, based on specific factors, which can in turn lead to concrete policy prescriptions to address them.

News You Can Use

WHOSE PAINTING IS IT ANYWAY?

Are Middle Eastern geopolitics behind the misinformation surrounding the buyer of the world’s most expensive painting? After being sold at Christie’s last month for $450.3 million, Leonardo Da Vinci’s Salvator Mundi – a painting that depicts Jesus Christ in Renaissance clothing – was reportedly sold to an intermediary for Saudi Crown Prince Bin Salman. Al Jazeera, the news network based in rival Qatar, quickly accused the Saudi Crown Prince of buying a “Christian painting” that is “contrary to the teachings of Islam,” which was then picked up by other news outlets in the region and around the world.

It was later revealed that the intermediary was actually acting on behalf of the United Arab Emirates, who will display the painting in The Louvre Abu Dhabi, leading to speculation that the public misinformation campaign was a tactic by Qatar to embarrass and undermine Prince Bin Salman as he leads a massive anti-corruption crackdown in his country. The incident shows how careful reporters and the public must be when relying on vague and anonymous sources in the media.

POLICY BATTLES MEET PUBLIC ARENA

When Quartz covered how Google’s Android collected users’ locations, the story included details from an interesting source: Oracle. The two tech giants are locked in an ongoing federal court battle over allegations that Google copied portions of Oracle’s computer code Java, and a large amount of the latter’s $8.8 million in lobbying spending this year has been used to publicly challenge Google on key policy debates.

This campaign, which even included billboard ads in Tennessee, further demonstrates a shift in the influence industry that led to the launch of Delve in December 2015: in today’s fast-moving environment, shoe-leather lobbying alone is not enough to achieve desired outcomes. As policy battles are increasingly played out in the public arena, what you don’t know about your opponents and their advocacy efforts can lead to missed opportunities or unanticipated attacks that undermine your public affairs objectives.

ANOTHER TAKE ON THE ELECTION-MEDDLING NARRATIVE 

Might Russian President Vladimir Putin not be the geopolitical genius the world makes him out to be? That’s the narrative pro-Western liberals living in Putin’s Russia want to highlight, suggesting that America’s fixation on the Kremlin’s election-meddling – and on the image of Putin as a calculating, savvy, and triumphant operator on the world’s stage – reinforces the Kremlin’s domestic narrative.

Putin’s domestic opponents see this compounded further by the U.S. being gripped by what they consider a “Russian-style spasm of paranoia and conspiratorial thinking,” blaming “internal problems on sinister outside forces.” So what is one to do? Take a deep breath, remain calm, and let the facts of the investigations lead where they may.

PATAGONIA’S POLITICAL PLAY

When President Trump reduced the size of two national monuments in Utah, outdoor-clothing brand Patagonia went on the offensive by suing the Trump Administration, alleging that the President’s actions are unconstitutional. In an interview, the CEO was more direct: “The government is evil and I’m not going to sit back and let evil win.”

Patagonia has already waded into the political arena, having criticized the President earlier this year for pulling out of the Paris climate agreement, but the lawsuit demonstrates a step further for the company. Since announcing its intent to engage the administration over the national monuments in Utah, the company’s sales have been up by 7%, which may inspire other companies to follow suit and use political stances to attract – or inspire additional purchases by – like-minded customers.

#FAKEEMBASSY

Last December, a fake U.S. embassy in Accra, Ghana – which according to a Department of State article greeted visitors with “an American flag and a photo of President Obama” – was reportedly shut down. The facility allegedly was operated by Ghanaian and Turkish crime rings for nearly ten years, whose members posed as consular officers and charged customers as much as $6,000 for fake documents.

But the embassy and the documents are not all that’s fake: it turns out the story is, too. An investigation by The Guardian found that the story actually conflates plotlines and images, while adding some imagination, to create a fake U.S. embassy that never existed – giving a whole new meaning to #fakenews.

Prince Harry And Meghan Markle (Nigel Roddis/EPA)

TL;DR: Royal Engagement Tax Consequences, The State Of State, And Tis’ The Season For Vulnerability Studies

Royal Engagement Tax Consequences, The State Of State, And Tis’ The Season For Vulnerability Studies

Prince Harry And Meghan Markle (Nigel Roddis/EPA)

Here’s What You Need To Know…

With the announcement of Prince Harry’s engagement to American actress Meghan Markle, Anglophiles can look forward to another royal wedding taking place in Spring 2018. But while the spotlight will be on the happy couple, it will also shine a light on the unique tax consequences faced by Americans living abroad. The United States, along with the tiny African nation of Eritrea, are the only two countries in the world that tax based on citizenship rather than residency. The American system is a lasting relic of the Civil War-era Revenue Act of 1862, which called for taxing its citizens abroad, in part to punish those who fled the country to avoid wartime service.

The potential ramifications of this unusual system of taxation have resulted in transatlantic tax intrigue. So to celebrate the royal engagement, we’re digging into the Foreign Account Tax Compliance Act (FATCA), to whose consequences both the future Duchess of Sussex – and all Americans living abroad – are subject:

  1. What is FATCA? This law was passed in 2010 to help curb offshore tax evasion, and was a seemingly non-controversial “revenue-generator” in the depths of the recession. FATCA requires U.S. citizens to report any worldwide income, including that which results from foreign trusts, banks, and securities accounts. In order to do this, citizens and green-card holders are required to file paperwork, such as a Report of Foreign Bank and Financial Accounts (FBAR), if they have any foreign bank account that exceeds $10,000 at any point during the year. The Internal Revenue Service (IRS) also requires citizens with more than $300,000 in assets at any point during the year to file a separate document detailing them.
  2. What Are FATCA’s Implications? Besides the added paperwork burden, FATCA can make it difficult for American citizens living overseas because financial institutions used by Americans abroad must comply with IRS demands or face the consequences – which may include the IRS withholding 30% of non-compliant financial institutions’ U.S. sourced income. Rather than allow the American government invasive access to their records, foreign financial institutions may instead refuse to accept American customers, which in turn can hurt their chances of starting a business overseas or even getting promoted at their current job, should that position require banking access.
  3. What Does FATCA Mean For The Royal Family? Markle will have to file her taxes in the United States. This would give the IRS access to review information regarding any of the Royal Family’s finances held in accounts for which Markle is an account holder, and could result in increased scrutiny from the IRS towards, or risk leaked information about, the Royal Family’s finances – which they have preferred to keep opaque.
  4. Is There Relief For Americans Living Abroad On The Horizon? Not yet. Republicans discussed making changes to the tax burdens of Americans overseas as part of tax reform, but the packages that passed the House of Representatives and Senate include no changes to the current system. Interest groups that advocated for these changes, like American Citizens Abroad, have vowed to continue their work to repeal FATCA, noting an increased awareness on this issue – which has since been compounded by the pending royal nuptials.

Americans are renouncing citizenship at a record pace, a trend that has increased since FATCA was passed in 2010. Should the increased spotlight on this law resulting from the royal engagement ultimately lead to its repeal, Americans living overseas may owe a debt of gratitude not only to policymakers in Washington, D.C., but to the Duchess of Sussex.

News You Can Use

TIS’ THE SEASON FOR VULNERABILITY STUDIES

Santa is making his list, the Delve research bullpen is humming at full speed, and an iconic major league baseball franchise is crowdsourcing its managerial vetting process. Before selecting Aaron Boone as manager, the New York Yankees took an innovative approach to evaluating candidates, ditching the discretion typical of such interviews to instead conduct the vetting process in public before the media.

The reason for this process was twofold: to see how the managerial candidates handled the glare of the largest media contingent in baseball, and to allow the media to vet the candidate in the event they found something the team’s background search did not. This public-vetting process, juxtaposed with the reputational damage stemming from other notable cases, means that Santa is not the only one finding out who has been naughty and nice this holiday season.

THE STATE OF STATE

 Secretary of State Rex Tillerson is working towards a private-sector-style “redesign” of the department he heads, and his critics charge that he is gutting it at a time when the United States needs diplomats and development experts more than ever. The fact sheet released by the State Department last month shows that this criticism does not entirely stand up to scrutiny, however.

While some important positions remain unfilled, like Ambassador to South Korea and Assistant Secretary for East Asia, Tillerson has dismissed the notion that he is “hollowing out” the department, pointing to his signing of over 2,300 hiring exemptions to staff up on other critical positions under the hiring freeze that preceded his tenure. With the ranks of senior foreign service officers also at the same levels as they were at the beginning of the Obama Administration, the simplified-narrative that the State Department is being “hollowed out” appears to be overheated rhetoric.

LEAVING (THE TRUTH BEHIND) ON A JET PLANE

Earlier this year, left-leaning Democratic Senator Sherrod Brown proposed a bill to clarify whether privately owned jets need to pay federal excise taxes. Now that his proposal has been incorporated into Senate Republicans’ tax plan, however, his fellow Democrats are attacking it as a giveaway to rich corporations at the expense of working Americans. But does the tax plan that passed the Senate really include a tax break for private jet owners?

According to The Washington Post Fact Checker, that claim is worthy of numerous Pinocchio’s. The change is not a tax “break,” because the IRS has not collected money from the private jet companies, but rather the provision removes the ambiguity that has led to litigation in the past. So when opponents tweet the inaccurate claim that this bipartisan change provides a “private jet tax break,” perhaps they should delete their account, or at least apologize for accusing their fellow Democrat of siding with fat cats.

WHO ARE YOU TO ADMINISTRATIVE LAW JUDGE? 

The Trump Administration has decided to reverse the federal government’s position on a case pending before the Supreme Court and – if the Court rules in its favor – the decision will have a large impact on the administrative state as thousands of agency decisions could be nullified retroactively. Under the Obama Administration, the federal government supported the Securities and Exchange Commission (SEC) in a case brought against them by investment managers who contended that the agency’s use of Administrative Law Judges (ALJs) is unconstitutional.

ALJs are career bureaucrats who preside as the functional equivalent of in-house judges during enforcement proceedings, despite the Constitution’s requirement that all “inferior officers” be appointed by the president, courts, or head of an executive agency. As such, the ramifications of a ruling in the Administration’s and investment managers’ favor would return agency decisions to accountable personnel and deal yet another blow to the administrative state.

ENERGY DIPLOMACY IS REAL

Poland’s state-owned oil and gas company inked its first five-year agreement to purchase American liquefied natural gas, and in doing so, lessened that country’s dependence on Russian energy. The Kremlin-owned Gazprom currently supplies over two-thirds of Poland’s gas, and the Kremlin has used its dominance in the European market as a diplomatic tool against America’s allies.

The United States is on its way to becoming a net oil exporter within the next ten years, which would be the first time since the 1950s. At a time when there is concern about the United States retreating from the world, the ability to provide an alternate source of fuel suggests America can remain engaged, using new tools to counter geopolitical adversaries while fostering closer economic ties with allies and partners around the world.

Net Neutrality Tweet

TL;DR: Net Neutrality Hysteria, Political Philanthropy Rising, And A New Bitcoin Order From Chaos?

Net Neutrality Hysteria, Political Philanthropy Rising, And A New Bitcoin Order From Chaos?

Net Neutrality Tweet

Here’s What You Need To Know…

Last week, the Federal Communications Commission (FCC) released the tentative agenda for its December meeting. This meeting will include the agency’s plan to rollback so-called “net neutrality” rules implemented in 2015, which imposed government regulation of Internet Service Providers (ISPs) like utilities. The announcement has set off a wave of hysteria and misinformation, in a move being described as a “victory” for big telecommunications companies and a damaging loss for consumers and supporters of a “free internet.”

Yet the noise surrounding net neutrality is not supported by the realities of what the FCC is proposing to do. Given that this would be the sixth change regarding this policy over the last ten years, it is appropriate to take a step back from the ledge to evaluate the issue on its merits. Here are the facts you need to navigate this issue:

  • What Is Net Neutrality? The term is generally used to describe “the principle that individuals should be free to access all content and applications equally, regardless of the source, without Internet Service Providers discriminating against specific online services or websites.” However, the current kerfuffle is specifically focused on the 400-page set of rules implemented by the FCC under Chairman Tom Wheeler in 2015 that designated Internet providers as telecommunications utilities under Title II of the Communications Act of 1934 – a “heavy-handed” and clumsy approach to upholding the principle of a free and open internet.
  • Why Eliminate The FCC’s Net Neutrality Rules? In a Wall Street Journal op-ed, FCC Chairman Ajit Pai expressed his desire to see the internet return to the bipartisan framework of the Telecommunications Act of 1996, which called for an internet “unfettered by Federal or State regulation.” In addition, the current regulations have resulted in a 5.6% decrease in broadband network investment – the first time there has ever been a decline outside of a recession. When compounded with the increased cost for smaller ISPs to comply with the rules, as well as the delay of new services on account of uncertainty stemming from them, the unintended consequences of this policy may be harming consumers rather than helping them.
  • The Arguments Cited For Net Neutrality: Proponents of net neutrality are warning that ISPs like Verizon, Charter, Comcast, and others could decide to raise prices, block certain websites, and change the speed that users download certain content. In foreshadowing a doom and gloom scenario, reporters and legislators alike have cited Portugal – where a leading mobile phone provider bundles specific apps together and offers different prices depending on the amount of data used – as an example of what can happen “with no net neutrality,” but Portugal makes a poor example, as Portugal has active net neutrality regulations, as do all countries in the European Union.
  • The Effects Of Rollback On Innovation: A former chief economist at the FCC views deregulation positively, arguing the regulations are anti-competitive and stifle innovation and investment. To illustrate this point, the economist cites AOL’s creation of a mass market for computer networks in the 1990s and the invention of voice-over-internet in the mid-2000s, both innovations that transpired in the aftermath of deregulation.
  • Holding ISPs Accountable: A removal of net neutrality rules will bring things back to how they were prior to 2015. The Justice Department will have the authority to determine if any conduct is uncompetitive, and the Federal Trade Commission (FTC) will again police ISPs and protect consumers. Furthermore, an open, competitive market allows for the public to reward or punish ISPs depending on their actions by choosing who they do business with. Nearly 40% of Americans already have access to more than one broadband provider, and as phone companies expand their fiber options, satellite internet improves, and 4G LTE expands highspeed access to more consumers across the country, that figure will only increase. If an internet provider was a bad actor on net neutrality, it would only increase the incentives for others to compete in that market.
  • So Why Is This Issue So Controversial? Net neutrality has drawn the attention of celebrities, including Cher and actor Mark Ruffalo, who have weighed in on the matter, expressing concern about “less” Americans having internet access and the consolidation of information into “the hands of a few.” Yet Commissioner Pai noted recently that some tech companies are promoting misleading claims about the policy, which benefits them by ensuring they do not have to worry about how much bandwidth their content requires having a financial consequence for them or their consumers. Pai also noted that tech companies themselves are not pure when it comes to a free and open internet, citing recent actions by Twitter against a Republican Congresswoman and other voices the company did not agree with, an issue we raised in August as a potential regulatory issue for tech companies.

A vote to remove the net neutrality regulations will be held on December 14th. Keep these facts in mind when observing the debate over the next few weeks, and remember that despite the heated rhetoric, ending net neutrality is not the end of the world.

News You Can Use

POLITICAL PHILANTHROPY RISING

Philanthropy is booming in America, but some donors may be surprised to discover that their gift is going to political ends. While much has been made of the boon for the anti-Trump economy, traditional foundations and philanthropies are increasingly directing millions of dollars towards combatting the effects of Administration policies, which diverts funding from programs that directly help low-income families such as educational and social service institutions that run soup kitchens and shelters.

Wealthy philanthropists are also transferring millions of dollars to private charities that support political causes, thereby avoiding the need to pay taxes on that money. This represents the dawn of “weaponized philanthropy,” and if philanthropy is politics under a different guise, donors should ensure they know how their money will be used before donating in order to make sure it aligns with their goals.

IF YOU *CAN’T* MAKE IT HERE, WE’LL RAISE TAXES

The New York Times editorial board recently highlighted the proliferation of vacant storefronts in the city, asking whether the online shopping revolution or “greedy” landlords may be to blame. Included in the editorial are two proposed solutions to provide a “lifeline” for imperiled local businesses and their neighborhoods, both of which attempt to tax the city’s way out of this affliction.

One potential cause for the increase in vacant storefronts not mentioned in the editorial may be the $15 minimum wage that began taking effect in 2016 – an idea the Times endorsed. By acknowledging New York City’s increase in vacant storefronts without mentioning or reexamining its support of a $15 minimum wage, which makes it more expensive to operate retail establishments in the city, the Times is failing to provide a full picture of the situation that leads to the right policy prescriptions.

THE LEFT’S ATOMIC DILEMMA

Nuclear power offers cleaner, emission-free energy alternative to fossil fuels, and European countries have used nuclear power as a main component of their energy mix for some time, including up to 76% of France’s electricity generation. Yet in the U.S., where European solutions are often popular on the Left, increasing nuclear power faces ardent opposition from prominent environmental groups and influential Democratic political donors. Axios recently found this influence on full display when one of its reporters got tepid support for nuclear energy from Democratic policymakers attending a United Nations climate conference in Bonn, Germany, even as they look for ready alternatives to fossil fuels.

THE DIGITAL MEDIA BUBBLE

The decline of print media has been well-documented, with people instead visiting websites and news sources that reinforce their worldview – a phenomenon called “filter bubbles.” Yet the struggles facing digital media publications has one editor going so far as to say that there is a “digital media crash” that will result in more companies going out of business because of the lack of a sustainable revenue model.

So what does this mean for consumers and their filter bubbles? We may never know, because although platforms like Facebook and Google capture more advertising revenue than ever before, these companies are making changes to help publishers better monetize their content and potentially stave off this crash.

A NEW BITCOIN ORDER FROM CHAOS?

Over the course of a few days, the value of Bitcoin has shot up and fell down, eventually passing $11,000 per coin this month. That means the cryptocurrency is up more than 1,000% since the beginning of the year, but this growth has been nothing if not extremely volatile. Jeffrey Tucker at the Foundation for Economic Education argues this volatility is the result of Bitcoin’s success, rather than its failure as an alternative to other forms of currency.

Tucker views Bitcoin’s resilience, despite being denounced and scrutinized, as evidence that it is “the product of a dynamic and competitive marketplace,” with the power to disrupt “the systems that have monopolized world finance for the last one-hundred years.” Unless, of course, it is a fatally flawed and speculative currency whose crash will have widespread implications for many beyond just its users before national and international regulators find a way to control it.

Laptop

TL;DR: “Uncovering” Online Reviews, Paradise Leaked, And Activists: Checking In

“Uncovering” Online Reviews, Paradise Leaked, And Activists: Checking In

Laptop

Here’s what you need to know…

90% of consumers read online reviews before visiting a business and 67% of consumers are influenced by what they read in those online reviews. But while the majority of people who use these reviews believe they generally give an accurate picture of the product or service, many also agree that it is challenging to tell whether such reviews are truthful or biased.

One reporter’s benign quest for a new mattress resulted in “uncovering” the secret world of online mattress reviews, and even more broadly, illustrated the high-stakes, hard-fought battle for the control of influential and lucrative platforms for influencing what Americans think about various products, services, and more. Because consumers trust review sites, companies – like those in the online mattress industry – have been waging a behind the scenes campaign to influence the reviews of supposedly independent sites, or at least those perceived to be independent by consumers.

So how can you know that the websites you visit, and reviews you read, are legitimate? At Delve, we know how to uncover hidden motives, so just in time for the holiday shopping season, here is our advice for “uncovering” the world of online reviews, so that you can better evaluate the online information you use to make better buying decisions:

  1. Who Is Behind Online Reviews? The reality of online reviews is messy. They can be placed by a hired marketing consultant, a friend of a business, another business as part of a “review-swapping” agreement to leave a fake positive review or a fake review to disparage a competitor, or even a “professional product reviewer” who receives commissions to post reviews on sites like Amazon.com. Thankfully, there are now websites, such as fakespot.com, that verify online reviews by looking for words or phrases commonly used in fake reviews, and whether the reviewer has submitted an unusually high number of positive reviews – which can indicate some sort of financial incentive. Some of these sites also are transparent about receiving compensation, if you scan the fine print of their “About Us” web page.
  2. What Are The Other Financial Implications To Consider? Financial motivations drive the challenges posed by fake online reviews, and there are several ways to monetize this lucrative niche. Review websites may have an affiliate marketing arrangement with vendors, giving the website owner a commission or rebate for every purchase made by a consumer who bought the product or service reviewed. Such arrangements were crucial in helping the online mattress industry quickly grow into a $1.5 billion business. Wirecutter, the popular product review site that was purchased by The New York Times, has used this model to generate between $10 million and $20 million of revenue last year.
  3. What Legal Tactics Are Used To Influence Review Sites? When companies can’t buy off reviewers, some have turned to lawsuits to stifle popular review websites that did not rate their products or services higher than those of competitors. This was the case with various online mattress review websites, eventually leading to the takeover of some of these sites by online mattress companies. Similar to financial arrangements, disclaimers illuminating any conflicts of interest are worth searching out on each site.
  4. Isn’t Government Supposed To Stop Such Practices? There has been some action by regulators. The Federal Trade Commission (FTC) has already settled with a car dealership for deceptive and unfair sales tactics, including fake reviews it planted online. But when it comes to the online mattress industry, where marketing affiliations and incentives may be unclear to consumers, one CEO said, “Honestly, the FTC has to step in at some point and make review sites divulge what they are paid for each bed or brand…This industry is a freight train out of control.” Therefore, using tools and tactics to better evaluating online reviews is the surest way for people to protect their interests.

While businesses are hiring reputation-management firms to help undo damage done by critical reviews and taking a number of other steps, consumers need to understand the motivations and incentives driving the various stakeholders in the lucrative world of online reviews. Use the above analysis as a guide for evaluating online reviews this holiday season, and you will be an educated consumer who can discern an information advantage from the online reviews you see – negative, positive, and everything in between. Happy holiday shopping!

News You Can Use

PRESSURE FOR TAX REFORM…FROM EUROPE?

 Republicans in Congress are continuing their push to get a tax reform bill to the President’s desk by the end of the year, and they may be getting pressure to make good on this campaign promise from an unexpected place: Europe. The Netherlands and France are both working on tax reform plans that focus on simplicity and lower rates, which is notable given Europe’s high tax burden.

Recent momentum on Capitol Hill suggests Republicans know that their political future depends on being able to make tax reform law. While that may be pressure-enough, should these two European countries implement their tax reform plans – which may help entice businesses looking to leave Britain after Brexit – other businesses and investors around the world may look there for opportunities too, rather than to the world’s biggest economy in the U.S.

PARADISE LEAKED

Who leaked the Paradise Papers? Despite the coverage of the 13.4 million financial documents related to how politicians, celebrities, and high-net-worth individuals use offshore accounts to protect their money from higher taxes, little attention is paid to how this information was obtained and who was behind it. This begs the question, writes Holman Jenkins Jr. of The Wall Street Journal Editorial Board, as to whether the International Consortium of Investigative Journalists may unwittingly be doing the bidding of an intelligence agency.

Just as Wikileaks is viewed as a likely front for Russian intelligence, could that – or a different – intelligence agency have hacked these documents and provided them to ICIJ to embarrass a particular target, or achieve a particular objective? Given the heightened scrutiny surrounding the source and motivations of cyberattacks, Jenkins’ suggestion that only after uncovering who hacked these documents and their motivations can we then make “more intelligent inferences” about the Paradise Papers’ significance may be the most important aspect of the entire investigation.

THE KREMLIN’S NOT-SO-SUCCESSFUL FACEBOOK CAMPAIGN

Longtime political digital media strategist Patrick Ruffini has run digital campaigns in numerous U.S. states as well as other countries, and when it comes to the Kremlin’s Facebook influence campaign, he’s not impressed. Rather than a “catastrophic success,” Ruffini uses his past experience to argue that the Kremlin’s Facebook campaign was less-successful than portrayed. The Kremlin spent $100,000 in advertising on Facebook, reaching as many as 126 million Americans.

Yet, this is a tiny fraction of the 33 trillion posts Americans viewed on the social media platform between 2015 and 2017 – and for context, the Trump and Clinton campaigns spent $81 million to mobilize their respected supporters on the platform. Ruffini cautions against letting the relatively small number of poorly-targeted ads placed by the Kremlin, which were designed to enable extremist voices on the political fringes rather than target persuadable independent voters, push through legislative initiatives that could curtail free speech – a position he shares with a longtime Democratic consultant.

GREEN DOOM AND UNANTICIPATED INNOVATIONS 

Whether it was the prediction that 20th century London “will be buried under 9 feet of manure,” or that the United States’ abandonment of the Paris Climate Agreement is a “disaster,” governments and supposed experts predicting doom and gloom environmental scenarios is a constant. However, due to unanticipated innovations in the free market, we have largely avoided the negative fates often predicted. Twenty-five years after the prediction of a street buried under feet of manure, the combustible engine, and the advent of the affordable, personal automobile made the horse – and the waste that exposed 19th century residents to biohazards and lethal diseases – irrelevant as a transportation source.

Indeed, despite the criticism leveled against its on-again, off-again climate policies, the U.S. has actually reduced carbon emissions more than any other country on earth over the last 16 years, an amount four times greater than the country with the second largest reduction and equal to the reductions of the next eight countries combined. With any new predictions from governments and experts come proposed solutions, but the facts suggest that the free market and a level playing field have been making both a moot point.

ACTIVISTS: CHECKING IN

The Eaton Hotel in Washington, D.C. is opening in 2018 and it will be the first in a chain of hotels to cater to activist and activist-minded travelers. Owned by the same parent company as the Langham Hospitality group, rooms for the 4-star property will go for between $250 and $300 a night. But are there any ideological constraints on who can stay at the Eaton? Not necessarily, although the founder and president believes that the property is for those with generally more “progressive” values, and that the clientele will be “self-selecting.”

To cater to this clientele, the hotel will have featured events and speakers – on topics ranging from climate change to race relations, several activist-artists in residence, a cinema that screens films about social good and human rights, a coworking space, a wellness center dedicated to “new age health,” and other services tailored to this “shared social mission.” In an era of greater ideological divides than ever before, it remains to be seen whether a hotel that segregates by ideology proves as alluring a “shared social mission” as one that appeals to engaged activists on both sides of the ideological spectrum to come together to find consensus.

Fireside Chat

Delve Founder & CEO Speaks At S&P Global Platts Pipeline Development & Expansion Conference

Delve Founder & CEO Speaks At S&P Global Platts Pipeline Development & Expansion Conference

Fireside Chat

The Stage: On Wednesday, Delve Founder & CEO Jeff Berkowitz spoke at the 12th Annual S&P Global Platts Pipeline Development & Expansion Conference in Houston, Texas. Joined onstage by Delve strategic partner & Off The Record Strategies CEO Mark Pfeifle, the two held a Fireside Chat to discuss preparing energy infrastructure companies for the new Age of Activism, using lessons learned from Delve’s and OTR’s teams on the ground during the Dakota Access Pipeline protests.

The Lessons: Being unprepared has consequences. Therefore:

  • Know who your opposition is: the key leaders and stakeholders; their motivations; understand their funding sources, tactics, and alliances.
  • Engage early and often, before you are in a fight: “You can win, but at what cost?”
  • Don’t expect the benefit of the doubt in a crisis. Get ahead of the curve with the facts and your own resources.

The Takeaway: We discovered that local law enforcement was facing well-organized, well-funded, and savvy professional energy infrastructure protesters. Although they left North Dakota, these professional protesters now have a roadmap of best practices to use on other energy infrastructure projects. And we’re already seeing them take action across the country.

All signs point to Dakota Access – the biggest story of 2016 after the presidential election – being a harbinger of what’s to come.

Curtain

TL;DR: Pulling Up The Curtain On The Political Hanger-On, Zero Stars From Yelp, And A “Confirmation Bias Tour”

Here’s what you need to know…

Last week, it was announced that former Trump presidential campaign foreign policy advisor George Papadopoulos plead guilty to lying to federal agents about his contacts with Russians connected to the Kremlin. After this revelation, the President took to Twitter to refer to Papadopoulos as a “young, low level volunteer named George,” the White House Press Secretary called him a “volunteer” with an “extremely limited” role, and a former campaign advisor said that Papadopoulos was “the coffee boy.”

All of this begs the question as to how the 30-year-old was able to represent the Trump campaign on occasions such as a panel at the 2016 Republican National Convention and in an interview to Russia’s Interfax News Agency, if he was indeed just “the coffee boy.”

The investigations into Russian-meddling in the 2016 election continue, but the Papadopoulos episode – that of a young, relatively-unknown person who was an unpaid advisor on another presidential campaign before joining the Trump campaign – bears some resemblance to that of a classic political hanger-on, who seeks an advantage by associating with a political campaign. With people looking to capitalize on their experience or access gained through campaigns, we want to pull up the curtain on political hangers-on, so that you can better recognize and assess the claims made by individuals, consultants, and firms that approach you:

  • What Makes A Political Hanger-On?  Someone who attaches to a political campaign for personal gain, like currying favor for a future job or appointment, using it as a springboard to elected office, or monetizing “access” to policymakers. Affiliating with a campaign, even as an unpaid volunteer or in helping with fundraising, is a way to burnish one’s resume and credentials. And should the campaign win, it can lead to lucrative new opportunities.
  • Why Do Campaigns Let This Happen? Showing broad support is crucial in a campaign, particularly when trying to show policy depth and expertise. Unpaid policy advisors – particularly on presidential campaigns – are often quite influential, with direct access to the candidate and may help craft policy platforms, speeches, and talking points. However, given the large number of candidates in the Republican primary, and Trump’s nontraditional background, he was unable to get the most experienced unpaid advisors during the campaign. This can lead to a cascade effect, where more inexperienced people fill the orbit around a campaign.
  • What Are The Risks They Pose? Perception is reality in politics – and your business. When a person affiliated with an organization behaves badly or uses poor judgment, it hurts the entire organization. Papadopoulos is an example of this, whose announced plea agreement took the spotlight off of the Republicans’ tax reform rollout and led to the President personally pushing back on the questions raised by the indictments.
  • What Can You Do To Protect Your Interests? You need to know who you are dealing with when approached by individuals making claims of access or experience related to political campaigns. If not properly vetted, companies that associate with them may put themselves at political and reputational risks from any distractions or embarrassments that their poor judgment can cause. When we are vetting an individual’s professional biographical claims for a client, here are some of the methods we use:
    (1) check the campaign’s disclosure reports with the Federal Election Commission to see if the individual was paid by the campaign, or at least getting expense reimbursements;
    (2) pull the campaign’s press releases to see whether the individual’s affiliation with the campaign was announced in its own press release, or was only one name among other advisors in one long press release, or not announced at all;
    (3) review news reports and social media to see if the person was a repeat surrogate on TV/radio, or quoted in press releases by the campaign on their topics of expertise;
    (4) analyze the individual’s social media connections and interactions between their accounts and those of known campaign leaders.

Going into any election season, a surge of new faces and volunteers will affiliate with political campaigns at every level. After election night, these individuals go onto other opportunities. When people approach your company with claims of access and experience from political companies, trust but verify their claims – and don’t be caught unprepared down the road when political and reputational damages cost more to mitigate.

News You Can Use

ZERO STARS FROM YELP

As top lawyers for Google, Facebook, and Twitter went to Capitol Hill last week to testify in front of the Senate Intelligence Committee, another tech company decided to wade into the debate by calling for Congress to take action against what it deems to be the “anticompetitive practices” of Big Tech. Yelp, the Phoenix-based online review company, suggests that the internet has become less diverse and more centralized with more power concentrated in a few dominant companies, thereby making those companies, and their users, easy targets for bad actors.

Two tech companies accounted for 99% of every new dollar spent in online advertising last year, and one of those companies also has a 97% market share of all smartphone and tablet search engine traffic. With Big Tech facing continued reputational challenges, tech companies with less market dominance may become more active in pushing for increased regulation as a way to soften their competitors’ market position. In the case of Yelp, though, this attempt to redirect criticism away from themselves toward their competitors might back fire, since the same scrutiny has been applied to them.

A “CONFIRMATION BIAS” TOUR

In the wake of defeats and challenges, politicians, corporate executives, and political organizations often embark on “listening tours” to connect with targeted constituencies. Third Way, a center-left think tank, embarked on one such post-election listening tour across the country to hear from voters and provide Democrats a “path out of the wilderness.” The think tank, which argues for a pragmatic, moderate, and centrist Democratic platform over that of a decidedly left-wing platform as a means to achieve electoral success, visited with targeted voters in rural and working class cities and thought they would encounter voters who listen to each other and find more that unites them than divides them.

But they were disturbed to find some voters on a visit to Wisconsin who were negative about the future, bitterly divided on ideological issues, and of the view that “centrist ideals just perpetuate a broken system.” When they released their report on this visit, however, it glossed over these findings, making no mention of these sentiments and instead noting that the people in the town have “gotten away from partisanship,” and are putting their “differences aside to work together.” In largely reinforcing what their organization already believes, it appears that the $20 million “New Blue” campaign was less of a “listening tour,” and more of a “confirmation bias” tour.

A RISING TIDE LIFTS THE POOREST 

At the same time the American middle class is struggling and disruption is being caused by globalization, the speed of people being lifted out of poverty around the world is historically unprecedented. Over the last 25 years, more than 1.25 billion people escaped extreme poverty, and the more than 40% of people who still live in extreme poverty reside in just two countries: India and Nigeria.

Economic liberalization reforms in these countries have meant that incomes have increased and the poverty rates have declined, despite remaining too high. However, as a means to explain this miraculous drop in extreme poverty, political leaders and academicsalike suggest free-market capitalism as the tide that has lifted the world’s poorest people out of poverty faster than anyone else.

EXPLORING, NOT REPORTING 

When is a political candidate not really a political candidate? When they are “exploring” a run. While exploratory committees have been a common practice among presidential candidates for some time, now potential candidates in down-ballot races are increasinglyusing this practice. By setting up an exploratory committee rather than announcing their candidacy outright, candidates are able to raise and spend funds to “test the waters” without having to report these finances to the Federal Election Commission (FEC) unless and until the close of the reporting period after they officially declare their candidacy.

The FEC requires anyone who has decided to run for office or is actively campaigning to register with them as soon as the campaign raises $5,000. Yet, candidates who avoid this requirement by setting up an exploratory committee are testing the limits of the legal definitions of a candidate while doing so. The recent increase in this practice could make it more difficult to assess the fundraising, spending, and strength of political campaigns in the future.

CNN REALLY IS FAKE NEWS

It was a rough day at the office for CNN. With the President in the midst of his trip to Asia, CNN falsely reported that the President irresponsibly dropped a whole box of fish food into Japanese Prime Minister Shinzo Abe’s koi pond – which, besides being trivial, was based on an edited video clip that did not provide the full context of the event.

If not enough, later that day CNN ran a story which took a portion of the President’s speech to a group of Japanese business leaders out of context, choosing instead to run a snarky headline that provided a misleading and incomplete picture of what he said. The “fake news” phenomenon does exist, and it does provide real political and reputational challenges. Unfortunately, sloppy reporting that is loose with the facts only feeds into the counter narrative assailing parts of the media as “fake news.”

TL;DR: The Facts On Tax Reform, Till Kingdom Come, And Grassy “Know-It-All”

The Facts On Tax Reform, Till Kingdom Come, And Grassy “Know-It-All”

Here’s what you need to know…

Yesterday, House Republicans unveiled the detailed draft of their long-awaited tax reform legislation, which will be marked up by the House Ways and Means Committee on Monday. Even before it was released, Republican efforts on tax reform have been slammed by Democrats as a “middle-class con job,” “a cruel joke,” and kicking “working families to the curb.” This oppositional messaging will only grow louder as Democrats try to scuttle the bill from passing Congress and reaching the President’s desk.

As The Washington Post noted yesterday, “In their haste to condemn the GOP tax plan, Democrats have spread far and wide the false claim that families making less than $86,100 on average will face a hefty tax hike. Actually, it’s the opposite. Most families in that income range would get a tax cut.” To help clear your confusion as the tax reform battle heats up, here are the facts on what it means for Americans’ bottom line:

  • It’s The Brackets, Stupid: Republicans are reducing the number of tax brackets from seven to four – 12%, 25%, 35%, and 39.6% – and moving most Americans into a smaller bracket than they are in now. Nearly 80% of households will be in the 12% bracket or pay no income taxes. Yet many are concerned they will pay more because the headlines are focused on which deductions are being eliminated or capped. That’s the wrong focus. The plan works because it broadens the tax base by removing or curtailing deductions and taxing that larger tax base at a lower rate. So the focus shouldn’t be on what is happening to which deductions, but at what new (and in most cases lower) rate Americans will be taxed.
  • The Standard Deduction: Overall, the bill raises the standard individual deduction to $12,000 from the current rate of $6,350, and the standard deduction for a married couple to $24,000, from $12,700. However, in the spirit of simplification, the new system will eliminate the personal exemption, so it is not quite the near-doubling that it seems at first. Still, taxpayers will get a larger standard deduction than they have now and more taxpayers will opt for this easier filing mechanism that will reduce the more than $20 billion and 1.35 billion hours it already costs Americans to file their taxes. In addition, the child tax credit will increase from $1,000 to $1,600 per child up to 14 years of age, and add a $300 credit for each parent and, for the first time, include a $300 credit for non-child dependents as well. The income level at which the child tax credit is phased out will also nearly double.
  • The Mortgage Interest Deduction: After initially backing the tax reform framework that said the GOP plan “retains tax incentives for home mortgage interest,” homebuilders shifted, becoming some of the plan’s staunchest opponents over worries about the potential negative impact that dis-incentivizing homeownership could have on their bottom line. Since the homebuilders dropped their support of the framework, the newly released draft bill reduces the level of loans for which interest can be deducted from $1 million to $500,000 on new loans, meaning current homeowners would still retain their current deduction. Given the median new home price in the U.S. is currently around $320,000, this reduced cap will only impact buyers in expensive housing markets or at the high-end of the real estate market.
  • The State and Local Taxes (SALT) Deduction: This itemized deduction allows taxpayers to deduct state/local property taxes and either state income or sales taxes, but it generally benefits wealthy residents of high-tax states – and blue-state politicians who can raise taxes and have the federal government soften the blow to their constituents’ wallets. Last-minute legislative maneuvering is satisfying some concerns on this issue, allowing a deduction for property taxes to remain in place, with a cap of $10,000. However, according to analysis by ATTOM Data Solutions, the average American household’s property tax bill is $3,296, and “there were nine counties in the country with a population of at least 100,000 that had average annual property taxes of more than $10,000,” meaning most households will not be affected by the proposed cap.
  • Surely Someone Pays More? No tax reform will work for every single household, and some will end up with higher tax bills under this plan. Those earning between $260,000 and $425,000 are most vulnerable at first blush, given the small upward shift in their tax bracket. However, removing the alternative minimum tax, increasing and expanding the child tax credit, and lower rates on the first $260,000 of their earnings should protect many of those high-earning households.

The stakes are high given Republicans’ failure to repeal Obamacare, and Democrats are hoping to convince Americans they’re going to pay more so the rich and big corporations can pay less. The above facts will help you understand that their rhetoric does not quite match the reality.

News You Can Use

INSUFFICIENCY OF THE PLAINTIFFS’ BAR

The United States is the most litigious society in the world, thanks in part to lawsuits driven by plaintiff attorneys looking for the next class action settlement worth billions of dollars. But after a California judge tossed out a $417 million jury award against Johnson & Johnson, it is clear that talcum powder is not going to be that next settlement – due to what the judge called “insufficiency of the evidence.”

Johnson & Johnson appealed the original verdict in the case, where a woman with advanced ovarian cancer, and who used Johnson & Johnson’s talcum powder for years, brought a suit against the company claiming that the product’s main ingredient, talc, caused her illness. A new judge looked at the facts of the plaintiff lawyers’ evidence and found it did not withstand scrutiny, however, because no causal link exists between talc and an increased risk of ovarian cancer, among other flimsy assertions propagated by the plaintiff lawyers. In failing to bring a case to court that was built on a solid foundation of facts, the plaintiff attorneys spent time, money, and energy on a strategy that was ultimately not built for success.

TILL KINGDOM COME? 

Speaking at the Future Investment Initiative conference in Riyadh last month, Saudi Crown Prince Mohammad bin Salman announced that the Kingdom will return to moderate, open Islam and will do more to tackle extremism. Prior to the conference, the 32-year-old Prince bin Salman has been talking in private about the need to moderate for some time, and under his rule the country has seen sweeping domestic changes that have brought back public concerts and will allow women to drive beginning in June 2018.

Prince bin Salman’s Vision 2030 plan charts a more modern course for the Kingdom, including economic and social reforms, reducing reliance on oil revenues, and creating jobs for its younger population. His remarks at the Future Investment Initiative conference are the latest indication that he has ambitious plans for the future of the Kingdom, but with challenges posed by an influential and ultraconservative segment of the population, as well as continued human rights violations, it remains to be seen whether the Kingdom’s modernization drive will achieve the results he seeks.

KILLING ECONOMIC THEORIES OF POPULISM

The populist wave sweeping the globe is often-linked to economic factors like inequality, joblessness, and free markets. Economist Tyler Cowen takes issue with these theories, proclaiming them “dead” in his examination of the economic growth rate of countries where populist leaders have made recent gains. Citing countries like the Czech Republic, Poland, and Ethiopia, Cowen finds that countries with populist-style rulers are experiencing above-average economic growth, contrary to the notion that economically-disadvantaged voters are embracing populism because they have fallen on tough financial times.

This is even the case in the U.S., where Cowen notes that Trump supporters in the Republican primary had a median income of $72,000 – “which is hardly poverty,” he notes. To explain the rise in populism, therefore, Cowen suggests viewing this phenomenon through a cultural, rather than economic, lens as citizens worry about immigration, trade, and demographic and social change in their respective countries.

RATING CITIZENS  

We rate restaurants, rideshares, and movies – but how about each other? In China, it is already happening. Ant Financial, an Alibaba-affiliated company that also runs a popular third-party payment app, generates a “Sesame Credit” score by evaluating online and offline data like one’s job, spending, saving, and friends who use Sesame Credit, to determine how trustworthy someone is. Scores fall between a range of 350-950, and users with higher scores gain privileges unavailable to those with a lower score – such as renting a car without a deposit or expediting airport security.

This private system foreshadows the Chinese government’s plan to launch a social credit system in 2020 to determine the trustworthiness of all of its 1.3 billion residents. While this system would help China overcome the fact that many of its citizens lack a traditional credit history, the policy implications that arise from a national database that rates citizens – and rewards or penalizes them based on their rating – are immense, especially when the algorithm evaluates one’s political ideology.

GRASSY “KNOW-IT-ALL”

The library at the National Archives released approximately 3,100 never-before-seen files from the Federal Bureau of Investigation, Central Intelligence Agency, and other agencies related to the 1963 assassination of President Kennedy, as well as the full text of more than 30,000 other files previously released in part. This is because of a 1992 law passed by Congress that requires all records related to the assassination be released no later than 25 years later – October 26, 2017 – unless the President certifies a continued delay due to national security concerns.

President Kennedy’s assassination was a pivotal event in history “when everything seemed to change,” and historians, researchers, and students of history alike who have waited for years to see these files face a daunting trove of documents. Here at Delve we know that digging into public records is not for the faint of heart, given all of the redactions, coded language, and technical jargon. That is why we think you may find former New York Times reporter and author Philip Shenon’s suggestions helpful on how to make better sense of the newly-released JFK assassination files.