How goes the battle?

Half a dozen national and state issues were reviewed at the SAFE board meeting on May 24. Here are some highlights as informed by the discussion.

1. Race for the White House – November 2020 still seems a long time away, but the presidential campaign has been underway for several months with over 20 [most recently 24] “major candidates for the Democratic nomination. The action seemed rather slow at first, e.g., several candidates were spending time in New Hampshire or Iowa, ho hum, but the pace picked up after former Vice President Joe Biden threw his hat in the ring.

Mr. Biden was already leading in the polls, and the former vice president’s lead widened once he officially entered the race. Other candidates are now scrambling to adjust their campaign strategies while there is still time. When Biden announced, everything changed, David Siders, politico.com,
5/14/19.

First came the Cory Booker relaunch. Then a pivot from Kamala Harris. Now, Beto O’Rourke is hosting high-dollar fundraisers and courting national TV. It’s reset season in the presidential primary campaign.

At his first campaign rally in Philadelphia, Biden presented himself as a seasoned political leader who could restore civility and cooperation in our political system. In the process, he lobbed a few choice insults at the president, e.g., characterized Mr. Trump as the “divider in chief.”

Vis-a-vis other Democratic candidates, Biden portrays himself as a moderate. He is determined, but not “angry.” He will support sensible progressive policies (stay tuned for details) versus far-fetched proposals like Medicare for All or the Green New Deal.

Trump inherited a strong economy from the Obama-Biden administration, according to Biden, and is now in the process of “squandering” it. So much for the one area in which the Trump administration appears to enjoy a clear edge in public opinion. Biden calls for unity, Meredith Newman & Karl Baker, News Journal,
5/19/19.

As matters stand, a majority of voters will give Republicans credit for a strong economy when they go to the polls next year. All bets are off if economic growth fizzles or inflation spikes over the next year or so, however, and economic policies being followed in several areas – see the next two sections – have significant downside potential.

The Democratic field is way too big, and candidates who don’t qualify for the first debate (
Miami, June 26-27), or make the grade only to perform poorly, will soon start dropping out.

Given his current lead, Biden may well win the nomination. He is one of the oldest candidates in the Democratic field (76), however, and his policy instincts aren’t in harmony with the current energy in a Democratic Party that seems to be moving steadily to the left. It would not be surprising if other candidates surge to the front.

SAFE has offered a suggestion for the presidential campaign that could – if it caught on – change the dynamics in a positive way. Instead of competing to see who can promise the most “free stuff,” and there’s been a good bit of this activity already, the candidates should be trying to offer plans to bring the government’s spending into line with reality (what taxpayers are willing to pay for). See Section 4, Budget – infra.

2. China trade war – There has been widespread support for the president’s efforts to combat abusive Chinese strategies, e.g., stealing intellectual property, forcing US & European firms that wish to participate in the vast Chinese market to accept Chinese partners, subsidizing Chinese firms competing in emerging technology areas, etc., which have contributed to a huge balance of payments deficit for the US vis-à-vis China.

Optimists perceived that ongoing trade talks with China, backed by threats of temporary tariffs on US imports from China, would lead to a quick deal, after which the president could take credit for a win and all concerned would live happily ever after. Not everyone agreed, however, that such expectations were realistic.

If the real US objective was not simply to gain relief from unfair trade practices, but to revitalize the US manufacturing sector or permanently shrink the US balance of payments deficit, then higher US tariffs would be required on a longer-term basis. US could be locked in a “forever trade war,” Steve Liesman, cnbc.com,
4/9/19.

When it got down to the short strokes, the Chinese supposedly began reopening points that had already been settled. The US then reacted by raising US tariffs on some $200 billion per year in imports from China to 25%, China retaliated with higher tariffs on $60 billion in US exports to China, and further moves are threatened unless the trade talks get back on track. Trump to sit with Chinese president [maybe at the G-20 summit in late June], says deal was 95% done before talks broke down, Sean Higgins, Washington Examiner,
5/13/19.

These developments have been accompanied by falling stock prices, which reflect investor concerns that both the US and global economy will suffer from the developing trade war. The cost of China tariffs, Wall Street Journal,
5/13/19.

. The Dow is now nearly 1300 points lower than it was in January 2018 when Mr. Trump began his tariff offensive—despite the best 12 months for economic growth since 2005 and healthy corporate profits. The stock market isn’t the only measure of economic health, and it can send false signals, but in this case the clear market message is that tariffs will subtract from economic growth.

And despite the president’s repeated claims that tariffs on Chinese imports are paid by China, these are actually taxes paid by US business and/or consumers – which will have the same economic effects that tax increases normally do.
Ibid.

Don Rissmiller of Strategas Research Partners estimates a hit to GDP this year of “about -0.1% point for every 2 months we go along with the higher China tariff rates, or roughly -0.5% for a year. A little more than half of this is through reduced confidence & lower investment.” That estimate sounds as good as any, unless the trade war gets worse.

Unless there is a quick end to the standoff with China, an economic recession may well be in the offing. Here’s the worst-case scenario for the US-China trade war, Christine Romans, cnn.com, 5/23/19.

"If talks stall, no deal is agreed upon and the US imposes 25% tariffs on the remaining $300 billion of imports from China, we see the global economy heading towards recession," Morgan Stanley's analysts wrote. Under that scenario, the US Federal Reserve would have to cut interest rates, ultimately back to zero and China would need huge new stimulus, they said.

With the 2020 presidential race looming, President Trump will be under pressure to cut a quick trade deal with China even if it does little to alter the mercantilist practices that China has been following. To borrow one of the president’s catch phrases, “it will be interesting to see what happens.”

3. Monetary Policy – The president and his advisers repeatedly criticized the Federal Reserve in 2018 for gradually hiking interest rates and reducing the extraordinary quantity of securities being carried on the Federal Reserve balance sheet. Fed Chair Lewis Powell clearly got the message, and further tightening of monetary policy appears to be off the table for the rest of 2019. Fed’s Powell says “no rush” to hike rates in “solid” but slowing economy, Howard Schneider & Jason Lange (Reuters), yahoo.com, 2/26/19.

After raising rates four times in 2018, and anticipating further hikes in 2019, the Fed in January switched to a "patient" stance as concerns about the global economy took root, and markets voiced doubts about the U.S. economic recovery. The Fed's benchmark overnight lending rate currently is within a range of 2.25 percent to 2.50 percent. There was also little said by lawmakers about the Fed's evolving plan to maintain a balance sheet of perhaps $3.5 trillion, which would be lower than the current $4 trillion but still massive by historical standards.

The president may continue to press for a rate cut, however, which would tilt in the direction of faster growth while increasing the risk of an inflationary spike. As already noted, such a move by the Fed may become inevitable if the trade war with China escalates instead of being tamped down.

Despite periodic Fed handwringing about US inflation falling below its 2% per year target, which we never understood as there is no inherent reason the Fed should prefer rising prices to price stability, the US inflation rate is currently running at 2% and has been doing so most of the time since 2015. Current US inflation rates: 2009-2019, usinflationcalculator.com, accessed
5/23/19.

If the inflation rate spikes higher, Americans may start noticing – and once inflationary expectations got started they could prove hard to counteract. We hope the Fed will not allow itself to be pushed into an ill-advised interest rate cut.

4. Budget – SAFE is not affiliated with any political party, nor do we endorse political candidates. We take a lively interest in the political process, however, and encourage participants to support our smaller, more focused, less costly government agenda.

To this end, we summed up the case for balancing the budget and keeping it that way in a recent blog entry. Briefly, the current growth of deficits and debt ensures financial disaster for this country, with the only uncertainty being when it will strike – as suggested by the CBO exhibit below. It’s time to balance the budget, 2
/25/19.

screen-shot-2019-02-20-at-3.17.31-pm

This entry included SAFE’s policy suggestions, which were basically (a) don’t make the situation any worse in the near term, and (b) ensure that candidates’ plans for balancing the budget will be a leading issue in the 2020 presidential race. Letters to convey this presumptuous message were sent to the president, and to 27 members of Congress (including 7 Democratic presidential candidates).

There has been only one response to these letters thus far, which basically missed the point. None of the presidential candidates has advocated a balanced budget by 2025, at least not yet. And aside from a Senate Budget Committee hearing on the budget process, there isn’t much evidence that members of Congress are thinking about deficit reduction. Budget news for FY 2020,
5/20/19.

Never say die! Having provided good input for the presidential candidates, SAFE will continue to pursue the matter. To this end:

•We wrote Sen. Tom Carper to propose that a previously discussed meeting (the third in a series) with SAFE member Jim Thomen and yours truly be scheduled to compare notes on this subject. Budget update, letter to Delaware members,
5/20/19.

•We recapped our suggestion about the 2020 presidential campaign in a letter to the editor, which the News Journal published on
May 28.

•And various other people will be contacted, including allies at other conservative think tanks, Joe Biden (now that he has announced his candidacy), and media commentators.

If you readers agree, please feel free to join in making the case.

5. Bloom Energy – A pending Bloom Energy project has potentially opened the door for a Public Service Commission review of the Qualified Fuel Cell Provider tariff, with which Delaware residents who are customers of Delmarva Power have been saddled. Furthermore, various environmental aspects of this project need to be reviewed. The foregoing concerns were expressed at, or in connection with, a Department of National Resources and Environmental Control (DNREC) hearing on January 10. Bloom Energy proposes to replace fuel cells at QFCP power facilities, 1/21/19.

DNREC issued an order on April 22 granting the construction permit. Many of the issues that had been raised were ignored, apparently on the basis that they were erroneous or irrelevant.

Civic activist (and SAFE director) John Nichols filed a timely appeal of the DNREC order with the Environmental Appeals Board on
May 6 and a hearing has been scheduled for September 24.

Nichols briefed us on the status of this matter. The appeal will require a good deal of time and effort, but it will hopefully receive serious consideration.

6. Renewable portfolio standard – A move is afoot in the Delaware General Assembly to raise the “renewable energy” target in the Renewable Portfolio Standard, currently set to max out at 25% in 2025, to a higher level (potentially 100%) in subsequent years. Senate Concurrent Resolution 10, passed by the House and Senate on 1/24/19.

To this end, Sen. Harris McDowell scheduled a meeting on May 10 to solicit inputs of interested parties. Three SAFE directors (John Nichols, John Greer and yours truly) attended the meeting. Our participation and observations were previously reported. Multiple attacks on use of fossil fuels, Section D,
5/13/19.

At the SAFE meeting, attendees reviewed and approved a proposed letter to Delaware John Carney confirming feedback already provided to Sen. McDowell and several other Delaware legislators. Our letter to the governor was sent on
May 27.

Coincidentally, Maryland just raised its renewable and clean energy (RCE) target to 50% by 2030. Count us as skeptics about the estimated cost, “$1.50 per month for the typical residential customer, on average, according to state legislative analysts.” As an encore, the bill calls for a review of raising the RCE to 100% by 2040 with possible eligibility of nuclear power for subsidies.

MD Governor Larry Hogan supports this plan, but supposedly believes it doesn’t go far enough. Maryland bill mandating 50% renewable energy by 2030 to become law, but without Gov. Larry Hogan’s signature, Scott Dancer, Baltimore Sun,
5/22/19.
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