The thoughts of a journalist/libertarian–conservative/Christian husband, father, Eagle Scout and aficionado of obscure rock music. Thoughts herein are only the author’s and not necessarily the opinions of his family, friends, neighbors, church members or past, present or future employers.
The interesting thing about the Green New Deal,” admitted Saikat Chakrabarti, the former chief of staff to Representative Alexandria Ocasio-Cortez, “is it wasn’t originally a climate thing at all.” It was, in fact, “a how-do-you-change-the-entire-economy thing.” He wasn’t kidding.
The Green New Deal’s literature called for mobilizing “every aspect of American society” to eliminate greenhouse-gas emissions from “every sector of the economy.” It called for upgrades and retrofits to “every building in America,” “charging stations everywhere,” the shuttering of “every” fossil-fuel or nuclear power plant, the forced obsolescence of “every combustion-engine vehicle.” Its architects’ ambitions knew no limits. And while the Green New Deal may be dead, the universalism to which its advocates adhered is very much alive.
Armed with unchecked self-confidence and possessed of an abiding faith in the idea that you must be coerced into altruism, the activists seem to be coming for almost everything you own. In the process, they are waging a crusade against convenience, an assault on comparative advantage, and a war on things that work.
Securing the fossil-fuel-free future that President Joe Biden imagines for us sometime in the 2030s will not be a pain-free proposition — at least that appears to be the conceit of the more radical wing of the environmentalist Left. The scale of the challenge, as they see it, demands sacrifice from us all. One of their most controversial moves is to give up natural-gas-powered appliances, your gas kitchen range foremost among them.
The relentless lobbying of local governments to forbid natural-gas hookups in new buildings had already succeeded in a number of municipalities when the U.S. Consumer Product Safety Commission (CPSC) sought public comment earlier this year on a proposal to impose a ban nationwide. By then, California had announced its own ban, to begin in the next decade, on the sale of new natural-gas-powered appliances, and New York State was set to follow suit.
The logic of this proscription was twofold. First, it was justified by dubious research, one example of which suggested that cooking with gas in an “airtight” room sealed by “clear plastic sheets” can cause adverse health effects over the long term. It is, indeed, best to avoid preparing meals in a level-four biocontainment facility. Other studies purporting to prove that gas-stove pollution increases the risk of childhood asthma screened out contradictory findings or, as the American Gas Association later observed, “conducted no measurements or tests based on real-life appliance usage.” Ultimately, Rocky Mountain Institute manager Brady Seals admitted to the Washington Examiner that his organization’s highly publicized summary of past studies, which concluded that gas stoves were responsible for a 12.7 percent increase in asthma among kids, “does not assume or estimate a causal relationship.” The second, more honest rationale concerned a general desire to rid the world of the roughly 13 percent of U.S.-produced heat-trapping emissions that residential and commercial structures contribute. Of course, your own preference plays no role in the bureaucrats’ deliberations. “Products that can’t be made safe can be banned,” CPSC commissioner Richard Trumka Jr. warned.
Since they hoped to conserve the status quo, those who objected to this sweeping proposal were summarily dismissed as blinkered promoters of philosophical conservatism. The pro-gas-stove dissidents were accused of either succumbing to a right-wing fever dream or nefariously contriving what Axios called “a new culture war.” But the environmentalists failed to account for one reason people do not wish to replace their gas range with an electric one: The first appliance does things the second cannot.
Or what if you value, you know, value? In most American states, natural-gas appliances cost between 10 and 30 percent less to operate on a regular basis than electric alternatives. What if you can’t afford to switch to the induction ranges — which can cost 60 percent more than gas stovetops — proposed by many anti-gas activists?
The offhand rejection of these arguments set the stage for a real pushback from the public. A cacophonous outcry during the commission’s open-inquiry period drowned out the activists and scuttled its initiative — at least on the national scale. But the effort to relegate natural-gas-powered appliances to history’s ash heap persists in places such as New York, where Governor Kathy Hochul’s spokeswoman bragged that the ban on new natural-gas hookups would “not have any loopholes.” And, she added, “there will not be any option for municipalities to opt out.”
A policy that bans natural-gas hookups in new residential construction suggests that more appliances than just gas stoves have found themselves in the bureaucrats’ crosshairs. Gas furnaces and gas water heaters, too, would become things of the past if the meddlers had their way. Indeed, that is the plan in some of America’s bluest states.
There are pros and cons to both gas and electric heating units. Despite the slower recovery times (e.g., how long it takes for your shower to get hot and stay hot) and higher average costs of electric heating, some consumers may prefer it. Others may not. But individual preference should play no role here, according to the green activists, because climate-friendly alternatives are more ethical.
And it’s not just about how you cook your food or stay warm. Radicals who resent how you live your life behind closed doors are coming for your air conditioner, too. The Environmental Protection Agency (EPA) recently published a proposed rule designed to prohibit hydrofluoro-carbons (HFCs) with significant global-warming potential (GWP) over 100 years in new air-conditioning and refrigeration systems. This alphabet soup of initialisms complicates much of the literature on the initiative, perhaps by design. Put simply, the rule increases the cost of refrigerants, and those costs are passed on to the consumer. Even the anticipation of that increase has already made it more expensive to install new climate-control units. Here, too, society’s green engineers have a ready alternative for apprehensive consumers: heat pumps.
Headlines last week claimed that the Congressional Budget Office had warned the U.S. “could default on its debt” as early as July if Congress didn’t raise the statutory debt limit. What the CBO director actually said was that “the government would have to delay making payments for some activities, default on its debt obligations, or both.” In reality, the U.S. can’t default on its debt.
Section 4 of the 14th Amendment is unequivocal on that point: “The validity of the public debt of the United States, authorized by law, . . . shall not be questioned.” This provision was adopted to ensure that the federal debts incurred to fight the Civil War couldn’t be dishonored by a Congress that included members from the former Confederate states.
The Public Debt Clause isn’t limited to Civil War debts. As the Supreme Court held in Perry v. U.S. (1935), it covers all sovereign federal debt, past, present and future. The case resulted from Congress’s decision during the Great Depression to begin paying federal bonds in currency, including those that promised payment in gold. Bondholders brought an action in the Court of Claims demanding payment in currency equal to the current gold value of the notes. The justices concluded that Congress had violated the Public Debt Clause and that its reference to “the validity of the public debt” was broad enough that it “embraces whatever concerns the integrity of the public obligations.”
That means the federal government can’t legally default. The Constitution commands that creditors be paid. If they aren’t, they can sue for relief, and the government will lose and pay up.
Those who warn of default confuse debt payments with other spending obligations. “A failure on the part of the United States to meet any obligation, whether it’s to debt holders, to members of our military or to Social Security recipients, is effectively a default,” Treasury Secretary Janet Yellen said in January.
That’s nonsense. Authorized and even appropriated spending isn’t “the public debt.” For constitutional purposes, promised benefits from Social Security, Medicare and other entitlements aren’t even property, as the Supreme Court held in Flemming v. Nestor (1960), and Congress has as much authority to reduce them as to increase them. When lawmakers were drafting the 14th Amendment, they revised Section 4’s language to replace the term “obligations” with “debts.” If the Treasury ran out of money, the constitutional obligation to pay bondholders would trump all statutory obligations to spend.
Ms. Yellen also said that “Treasury’s systems have all been built to pay all of our bills when they’re due and on time, and not to prioritize one form of spending over another.” But as the Journal has reported, department officials conceded in 2011 that the government’s fiscal machinery certainly could prioritize payments to bondholders, and the Federal Reserve prepared for such a contingency. There’s no question enough money would be available: The government collects roughly $450 billion a month in tax revenue, more than enough to cover the $55 billion or so in monthly debt service.
These basic facts should inform decisions by credit-rating agencies in establishing the U.S. government’s creditworthiness. Those agencies have traditionally acted favorably when heavily indebted countries have significantly cut public spending rather than default on their debt.
Like Ulysses binding himself to the mast, the Public Debt Clause ties the government’s hands in a way that ultimately serves its interests. Around the world, public defaults are ubiquitous. Since 1960, 147 governments, including some Western democracies, have defaulted—many repeatedly—on their sovereign debt. The U.S. isn’t among them, in large part because of the Constitution’s restriction, buttressed by the rule of law. That’s why the nation is able to borrow so easily, and so much, at such favorable rates. If the Biden administration and other default doomsayers convince the world that U.S. debt isn’t secure, they will drive up the cost of borrowing—at least until the courts set things straight.
Rather than issue baseless warnings of default, the Treasury should tout the Public Debt Clause as a reason why investments in U.S. bonds are rock solid and entail no meaningful risk of default. That could help secure more-favorable credit terms for Treasury instruments than those paid by other Western countries. The strategy is well worth pursuing, given the sharp increase in rates at which Treasury is currently selling its benchmark 10-year notes—from 2% to 3.6% over a single year—resulting in a major escalation in U.S. debt-servicing obligations.
The real risk we face is out-of-control federal spending, not default. But spending cuts and tax hikes are politically unpopular. That leaves borrowing, which explains the recurring tumult over the debt ceiling. How the U.S. covers its spending tab is a debate worth having, as is whether that tab should be so high. Fear-mongering about default is a way to avoid these debates and avoid confronting the hard choices we face as a result of decades’ worth of overspending.
Those who vote against raising the debt ceiling will take a political risk, perhaps a substantial one, as payments many Americans reasonably anticipate may not arrive. Whether to proceed with this strategy if the Biden administration persists in refusing to accept any deal on future federal spending is a difficult question. But it should be debated honestly, unclouded by specious warnings of default.
So the debt crisis is political theater as much as government “shutdowns”? I’ll buy that. Republicans in Congress should remember that.
Some of the bluest states in the nation have committed themselves to war with the most efficient appliances in your home: natural gas-powered heaters, furnaces, and stoves.
In September, California announced a new rule passed unanimously by the thoroughly undemocratic California Air Resources Board (CARB). It will outlaw the sale of natural-gas heaters at the beginning of the next decade. New York’s newly reelected Democratic Gov. Kathy Hochul proposed a similar initiative this month, which would ensure that the Empire State constructs only “climate-friendly electric homes” by 2027. The first step on the long march involves a ban on the use of oil or gas for residential water heaters, furnaces, and stoves.
Now, the federal government is getting in on the act, but it’s not being so honest about what it hopes to achieve by anathematizing your gas-powered appliances. It’s not about the environment. At least not exclusively. It’s an effort to safeguard your health, which you would recklessly imperil if you were left to your own foolish devices.
In a shockingly advantageous coincidence for meddlesome bureaucrats, it turns out your gas stove is as bad for the environment as it is for your lungs. The U.S. Consumer Product Safety Commission recently discovered that these age-old appliances, which are in use in about 40 percent of American homes, produce harmful levels of nitrogen dioxide, carbon monoxide, and particulates. Recent studies (like those cited by California officials in their quest to ban gas appliances) also found that natural gas stoves and ovens leak carcinogenic benzene into the atmosphere, exposure to which is unsafe at any level. Other studies maintain that gas stoves have contributed to a measurable increase in childhood asthma cases.
If appealing to the hypochondriacal mania that pervades the national discourse doesn’t do it for you, maybe moral blackmail will. According to some Democratic lawmakers, the menace that affects roughly 49 million households hits the poor and American minorities hardest. “Products that can’t be made safe can be banned,” Commission official Richard Trumka Jr. bluntly told reporters. Given the degree to which the physics associated with the combustion of hydrocarbons is unreformable, it’s logical to conclude that an outright ban is the agency’s objective.
All this psychological manipulation is necessary to overcome the foremost obstacle before the busybodies who have gone to war with so many modern conveniences: They work better than their alternatives.
If your primary objective is to get something as hot as possible as fast as possible, there is no substitute for an electric range. But temperature regulation is not its strong suit. Anyone who prepares food on a regular basis understands that erratic temperature control is a recipe for ruining the recipe.
If you only use your stovetop to boil or sear, you’re unlikely to notice the difference between electric and gas. But let’s say you want to sauté, braise, fry, or simmer—just about any other stovetop activity that occurs between the temperature ranges of scorching and warming. In those cases, gas is superior.
Moreover, there are certain activities that electric stovetops cannot manage. You cannot char anything that requires charring, such as delicate vegetables. You cannot toast anything that needs toasting unless you limit your toasting to the oven, which produces a distinct flavor and texture that is not always desirable. You cannot flambé in the absence of a direct flame.
The loss of these techniques may not disturb those for whom fine dining is one restaurant reservation away—those with sufficient means who reside in locales with access to that level of finery. That leads us to perhaps the most important distinction between electric and gas overlooked by America’s busybodies: gas is cheaper. In most U.S. states, natural-gas appliances cost between 10 and 30 percent less to operate on a regular basis than electric alternatives.
The attack on natural gas appliances should be viewed as an extension of the war the nation’s regulatory apparatus is waging against gasoline-powered lawn equipment. The arguments that opponents of these machines deploy are myriad. They are bad for the environment. They throw “disease-spreading” particulate into the atmosphere. They shatter the bucolic placidity of the spring and summer months. These dubious assertions are necessary to convince you to devote more of your income and vastly more manhours to the work of lawn care.
There’s symmetry, too, with the undemocratic means by which America’s most neurotic states are depriving you of access to single-use plastics such as straws and shopping bags, incandescent lighting, and short-cycle dishwashers and laundry machines. Efficiency is the problem. If abstractions such as social justice and sustainability fail to convince you, then you must be cajoled or extorted out of your selfish attachment to proficiency. And if that doesn’t work, there’s always the force of law.
I wonder what the reflexively anti-Trump commentators — say, Charlie Sykes — have to say about this. The Trump administration did not declare war on natural gas.
There’s a school of media thought that President Joe Biden’s frequent falsehoods do not represent a significant problem for the country. But today’s inflation report—and Mr. Biden’s comments in response—demonstrate the stakes when consequential issues are not addressed plainly and honestly.
“Biden, Storyteller in Chief, Spins Yarns That Often Unravel,” reads the headline on a recent New York Times report that attempts to gently place the president’s prevarications in a forgiving context. Timesfolk Michael D. Shear and Linda Qiu put it this way:
For more than four decades, Mr. Biden has embraced storytelling as a way of connecting with his audience, often emphasizing the truth of his account by adding, “Not a joke!” in the middle of a story. But Mr. Biden’s folksiness can veer into folklore, with dates that don’t quite add up and details that are exaggerated or wrong…
“He obviously has this tendency, where he’s a good and decent man who in politics has felt like he could stretch the truth up to a point just like virtually every president has done,” said Eric Alterman, the author of “Lying in State: Why Presidents Lie — and Why Trump Is Worse” and a professor at City University of New York.
“With Biden, people have decided these are not the kind of lies that matter,” Mr. Alterman added. “These are the kinds of lies that people’s grandfathers tell.”
Sounds tolerable and maybe even adorable except for the fact that this particular grandfather holds more power than anyone else on the planet and he’s costing Americans a fortune.
Even the Times today acknowledges the widespread pain, reporting:
The Consumer Price Index report for September, released Thursday, showed that painfully rapid price increases continued to trouble Americans and bedevil the Fed. Here are the takeaways:
Inflation remains relentless. The overall index climbed 8.2 percent in September versus the prior year, a slight moderation from 8.3 percent the previous month — but that was because gasoline prices had fallen, a trend that has since reversed. Practically every other detail of the report was worrying.
By some metrics, inflation is hitting new highs. Stripping out food and fuel to get a sense of underlying price trends, the so-called core index climbed by 6.6 percent, the fastest pace since 1982 and more than economists had expected.
The monthly change in prices is also worrying. It offers a snapshot of the latest trends — and those month-to-month figures looked bad. The price index picked up by 0.4 percent from August, double what economists had expected, and the core measure rose by 0.6 percent on a monthly basis.
The Times adds that rents are still rising and notes:
From pet care to dental visits, prices for a wide range of services are up a lot. That’s worrying, because it suggests that wage increases — a major cost for service providers — may be feeding into higher prices.
What is not folksy or charming at all is this morning’s statement on inflation from the president, in which he doesn’t get through even the first line without attempting to steal a rhetorical base and blame his predecessors. The president begins:
Americans are squeezed by the cost of living: that’s been true for years, and they didn’t need today’s report to tell them that. It’s a key reason I ran for President.
Mr. Biden goes on to hail today’s extremely disappointing report from the Labor Department as “progress in the fight against higher prices.” He also claims:
Because of my economic plan, the United States is in a stronger position than any major economy to take on this challenge. And my policies—that Democrats delivered—directly tackles [sic] price pressures we saw in today’s report…
This challenge is largely the result of his policies. Despite warnings from leading economists from the Clinton and Obama administrations, Mr. Biden from the start of his presidency insisted on enacting massive spending increases based on his false claim that the U.S. economy was in a shambles and in need of emergency federal intervention.
It was never true. In the first quarter of 2021 when he took office, the U.S. economy was humming along at a robust 6.3% annual growth rate. This followed an explosive 35.3% surge in the third quarter of 2020 after many shutdowns had ended and then solid economic growth of 3.9% in the quarter before he took office.
The Biden fairy tale of a struggling economy was used to sell his program of juicing demand with heavy spending. Meanwhile his regulatory activism discouraged supply, especially in energy. The result: too many dollars chasing too few goods.
Of course Mr. Biden could not have done all his damage if the Federal Reserve was not also blundering—continuing its money-creation binge long after the rebound from lockdowns had begun. But at least the Fed is trying to learn from its mistakes and is now withdrawing stimulus. Mr. Biden shows no signs of contrition or understanding and now he’s pretending that his failed policy mix will cure the ailment he helped create. It will not.
Some Biden allies are even heralding a huge new cost-of-living adjustment for Social Security as a historic increase in benefits, but of course it’s just an effort to offset the historic monetary debasement authored by Mr. Biden and the Fed. This massive COLA means our government has failed in its bedrock responsibility to maintain the value of the currency.
The falsehoods employed to create the Washington-made inflation disaster are not harmless and ignoring them will only prolong the pain for American workers, savers and consumers.
As ever, America needs a free press to hold politicians to account, not to excuse their deceptions.
The Consumer Price Index for All Urban Consumers rose 0.4 percent in September on a seasonally adjusted basis after rising 0.1 percent in August, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all-items index increased 8.2 percent before seasonal adjustment.
Increases in the shelter, food, and medical care indexes were the largest of many contributors to the monthly seasonally adjusted all items increase. These increases were partly offset by a 4.9-percent decline in the gasoline index. The food index continued to rise, increasing 0.8 percent over the month as the food at home index rose 0.7 percent. The energy index fell 2.1 percent over the month as the gasoline index declined, but the natural gas and electricity indexes increased.
The index for all items less food and energy rose 0.6 percent in September, as it did in August. . . .
Inflation is proving to be more resilient — and more troubling — than many had hoped or forecast. Both the headline and core inflation readings are about 0.2 percentage points higher than expected. That might not sound like a lot, but over a month, it’s a pretty big miss. Worse, it comes after a run of disappointing inflation readings. There’s nothing in this report that folks at the Fed are going to cheer. Even as nominal wage growth remains contained, inflation continues to run at troubling rates. Remember, the Fed is focused on core rather than headline inflation, and core is a more dismal story.
One year ago, in September 2021, the U.S. inflation rate was 5.4 percent, continuing a stretch of steadily high, but not quite astronomically high, inflation rates that had begun in April. By November, the rate had jumped to 7.8 percent, the largest year-over-year jump since 1982, and we knew we were entering once-in-a-generation territory. This September’s prices are 8.2 percent higher than those prices, which were already 5.4 percent higher than September 2020’s prices. In other words, we’re now well into our second year of exceptionally high inflation. For 19 straight months, the inflation rate has been higher than it was a year earlier.
CNBC reported that economists had expected the CPI to have risen 0.3 percent, up from 0.1 in August, and offered an ominous quote from Diane Swonk, KPMG’s chief economist:“The core inflation is going to be higher, so it’s still an inflation that hasn’t peaked yet in many ways. There’s still more risks of supply side shocks.”
Yesterday brought the update to the Producer Price Index, a less-discussed figure that measures the prices that suppliers are charging businesses and other customers. That number increased 0.4 percent from this August to this September, and 8.5 percent from last September to this September.
If inflation is cooling, you shouldn’t be seeing big jumps in the PPI number or the CPI number. You know that a lot of people wanted to see some glimmer of hope in those numbers, both for the sake of the country and for the sake of Democrats’ hopes in the midterms. But CNBC’s Jim Cramer couldn’t find a silver lining yesterday:
“It was just plain bad. There’s absolutely nothing to say about it other than it was bad. A lot of people were hoping this number’s going to be good, maybe accepting that tomorrow’s going to be bad,” he said on CNBC’s Squawk Box. “The only thing that’s actually even remotely positive about it is that there’s nothing that’s really shocking to the upside, it’s just kind of as bad as it’s been.”
“There’s no relief here . . . there’s just nothing good here,” he added.
All of this makes for a target-rich environment for Republican challengers to Democratic incumbents. You can picture the ad and debate lines already: The so-called Inflation Reduction Act was signed in August, and so far, it’s not doing a darn bit of good. The economy was already recovering in early 2021, and then Joe Biden, Chuck Schumer, Nancy Pelosi, and the rest of the Democrats decided to throw another $1.9 trillion in cash into the economy — too much money chasing too few goods, driving prices up. Biden said in July 2021 that inflation was going to be temporary, and he declared in December that inflation had peaked, and he said in February that it would “taper off.” He doesn’t know what the hell he’s talking about. He just keeps telling us to be patient and that things will get better. That’s not optimism; that’s stubborn denial. The Democrats always want to spend their way out of a problem, and when you’re in an inflation crisis, that’s like pumping gasoline onto a raging inferno. Just this month, Gavin Newsom started sending out $1,050 checks to California residents to “help with inflation.” That makes the problem worse! When too much money is chasing too few goods, giving people more money only drives the prices up further!
Yesterday, the Associated Press released a new poll revealing that 46 percent of Americans now call their personal financial situation “poor,” up from 37 percent in March. For perspective, in March 2020, as the Covid-19 pandemic was shutting down American society, 38 percent said their personal financial situation was poor — and that number actually improved slightly in the subsequent months. Now, just 23 percent of respondents say they feel the U.S. economy is “good,” and intriguingly, “The drop since September came primarily among Democrats, from 46 percent then to 35 percent now.”
In other words, even the people who are most instinctively sympathetic to the argument that the economy is doing well aren’t buying the happy talk coming from the White House. Not that President Biden is changing his approach.
On Tuesday, Biden was interviewed by CNN’s Jake Tapper, and he scoffed at JPMorgan Chase CEO Jamie Dimon’s assessment that the U.S. is either already in a recession or will enter one in the near future.
“Look, they’ve been saying this now how — every six months, they say this,” Biden said. “Every six months, they look down the next six months, and say what’s going to happen. It hadn’t happened yet. It hadn’t been — there has — there is no — there’s no guarantee that there’s going to recession.”
As you probably know, the U.S. has experienced two consecutive quarters of negative GDP growth, which for a long time was the traditional definition of a recession.
Biden continued, “I don’t think there will be a recession. If it is, it will be a very slight recession. That is we’ll move down slightly. . . . It is possible. Look, it’s possible. I don’t anticipate it.”
The president didn’t anticipate 19 months of high inflation, either.
Railroad companies and union leaders averted a national strike that would have sent fragile supply chains into disarray and hiked energy prices. The negotiations were concluded early this morning with a tentative handshake agreement that is expected to hold. While Labor secretary Marty Walsh handled the negotiations, Transportation secretary Pete Buttigieg was touring the Detroit Auto Show.
Buttigieg’s habit of missing important moments on the job was previously highlighted when he took an extended paternity leave and no know noticed he was gone.
The Hill claims you need to know five things, but only one really applies:
Rail workers will soon vote on the tentative deal, and if any of the unions reject it, the nation will once again brace for a railroad strike.
Workers had largely opposed the presidential board’s contract recommendations, which ignored their demands for better quality of life and working conditions.
A recent survey from the SMART Transportation Division found that 78 percent of the union’s railroad workers would have rejected that contract. Another survey from grassroots group Railroad Workers United found that 9 in 10 railroad workers opposed it.
The International Association of Machinists and Aerospace Workers said Wednesday that its 4,900 railway workers voted to reject the Biden administration-appointed board’s contract. It delayed a strike until Sept. 29 to allow more time for negotiations.
It’s unclear whether the revamped contract announced Thursday does enough to win over workers, who eagerly awaited the specific terms of the deal.
President Joe Biden paid a visit to the Detroit Auto Show floor Wednesday, taking the time to see the latest from America’s automakers up close. Among the most interesting parts of his stroll was when he got behind the wheel of the new 2023 Chevrolet Corvette Z06, started it, and gave it some revs. Later that day Biden’s official Twitter account published a tweet talking about the electric vehicles he saw firsthand that gave him “so many reasons to be optimistic about our future,” alongside a picture of the Z06. Unsurprisingly, car Twitter went mad.
In case you’re unaware, the Corvette Z06 is not an electric vehicle. It’s far from one, actually. Behind the cabin sits a 5.5-liter naturally aspirated flat-plane-crank V-8 that can rev all the way to 8600 rpm while making 670 hp and 460 lb-ft of torque. Unlike an electric car, it burns gasoline and makes a wonderful noise.
That is an egregious mistake. Biden’s tweet also claimed “As you know, I’m a car guy.” That is a lie given his administration’s policies that made gas prices skyrocket and made everything, including, cars, more expensive and less affordable. Biden’s Federal Reserve Board’s increasing interest rates, an effort to stop inflation that hasn’t been this bad in four decades, will make vehicles even less affordable by increasing borrowing costs.
We live in a country where the (currently) ruling political party and most of the national media have a symbiotic relationship. (Jen Psaki started work at NBC News this week.) One of the problems with this dynamic is that when the ruling class decides something is important — say, emphasizing the issue of abortion as the midterm elections approach — it tends to squeeze out everything that the ruling party doesn’t want emphasized. …
But there are a lot of other things going on in this world, and one issue that seems spectacularly under-covered — a ticking time bomb, if you will — is that starting at 12:01 a.m. Friday, about a day and a half from now, if there isn’t a new labor deal between freight-rail unions and employers, the U.S. economy will be . . . derailed.
Maybe there will be an eleventh-hour deal; I suspect many casual observers simply assume that a deal will get done because the consequences of even a brief work stoppage would be so far-reaching. But freight companies are already halting certain shipments in preparation for a potential strike, so in some ways, the consequences of a strike are already here.
The American Association of Railroads said this week that it’s begun taking steps to secure the shipments of hazardous and security-sensitive materials, such as chlorine used to purify drinking water and chemicals used in fertilizer. It also warned that “other freight customers may also start to experience delayed or suspended service over the course of [this] week, as the railroads prepare for the possibility that current labor negotiations do not result in a resolution and are required to safely and securely reduce operations.”
A freight-rail strike will also bring commuter-rail services to a halt in some areas: “Virginia Railway Express said if there is a strike it would immediately stop all of its commuter train service because Norfolk Southern owns the tracks for VRE’s Manassas Line, and CSX owns the tracks for its Fredericksburg Line.” Across the Potomac in Maryland, “Since CSX owns and maintains the Camden and Brunswick lines in addition to dispatching MARC trains, any labor strike would result in the immediate suspension of all MARC Camden and Brunswick Line service until a resolution is reached.” It’s the same story for Metra, the commuter-rail system serving the city of Chicago and its surrounding suburbs, and Metrolink, the commuter-rail service that serves southern California.
The U.S. Department of Transportation estimated that a freight-rail strike would cost the economy about $2 billion a day, but that’s just a big, abstract figure in most people’s minds. What Americans will notice is all kinds of products getting scarcer and more expensive (again). As our Dominic Pino notes, crude oil, natural-gas liquids, refined products, petrochemicals, and plastics are transported by rail, meaning that a disruption in freight-rail service is likely to spur a gas-price increase (again). The average price for a gallon of regular unleaded gas nationwide is currently $3.70, which is better than the $5 per gallon price of mid June, but it’s still high by historical standards.
Once again, if you read local press or trade publications, you realize how many things in this country grind to a halt if there’s a freight-rail strike. From EnergyWire:
Chemicals make up the second-largest category of rail freight after coal — 55,000 carloads a week — and there aren’t enough trucks and barges to handle the volume, said Jason Miller, a professor in the department of supply chain management at Michigan State University.
A prolonged strike would have a bigger impact on the economy than the shutdowns during the Covid-19 pandemic, Miller said.
“At least during Covid, you able to keep [chemical] production going, oil production going,” he said. “You can’t do that with a rail strike.”
A painful example of supply chain concern can be found in soybean farming. Hungry markets in Asia and elsewhere count on soybeans to make the ships in the Gulf of Mexico and the west coast.
“It’s gonna be devastating because just about all of the soybeans that are produced here go to a crush plant, and that crush plant is in Hastings, and they send two unit trains of soybean meal per week to the Pacific Northwest,” Greving said. He sits on the USDA United Soybean Board. “That is loaded on bulk vessels there and shipped to Southeast Asia.”
The price of oil affects everybody, farmers included. A rail shutdown would also stop the delivery of corn to most ethanol plants.
Remember, many of the world’s food markets are still reeling from the effects of the Russian invasion of Ukraine and the near-complete shutdown of Ukraine’s food exports.
Because the fuel is so heavy and takes up so much space, rail is the only economical way to transport it from mines to power plants: The average coal train consists of 140 cars that each hold about as much coal as could fit on ten trucks. Even if coal could be shifted onto trucks, the trucking industry itself has also been experiencing labor shortages, and there’s not much excess truck capacity to absorb rail freight. . . .
“Coal stockpiles are already at historic lows in the United States,” said [John Ward, the executive director of the National Coal Transportation Association, a trade group representing coal shippers and buyers]. “Any further interruptions could be disastrous for power generation.
In the good old days, it wasn’t uncommon for utilities to have a 60- or 90-day supply of fuel, but I don’t know anybody who has that luxury now. If it became an extended strike, the consequences could be dire.” Should utilities burn through their stockpiles, they’ll have to slow down generation to save supply, which could lead to power shortages during times of peak demand. Prices would jump for as long as the supply backlog lasted.
The worst-affected places would be states like West Virginia and Missouri, which generate around 90 percent of their electricity from coal and don’t have the opportunity to switch to natural gas on short notice. Even states with large gas supplies will struggle, though, since gas markets are also tight as producers export large quantities of gas to Europe.
In case you’re wondering, no, trucks cannot pick up the slack. The American Trucking Association says it simply doesn’t have the spare trucks or manpower. “Idling all 7,000 long distance daily freight trains in the U.S. would require more than 460,000 additional long-haul trucks every day, which is not possible based on equipment availability and an existing shortage of 80,000 drivers,” ATA president and CEO Chris Spear wrote in a letter to Congress. “As such, any rail service disruption will create havoc in the supply chain and fuel inflationary pressures across the board.”
In other words, the strike scheduled to begin in, what, 36 to 40 hours after you read this, would be a far-reaching economic calamity.
And, in the eyes of some analysts, the country is in this spot because of the Biden administration’s decision-making, which aimed to maximize the leverage of its union allies:
“That this might occur right before the midterm elections is entirely self-inflicted by the Biden administration, where two of President Biden’s National Mediation Board [NMB] members took the bizarre step in June of terminating board-guided mediation two months early and starting the 90-day countdown to a possible rail strike,” Scribner told FOX Business, calling the move “unprecedented.”
If the NMB had stuck to the original schedule, Scribner says, the cooling-off period would have ended in mid-November. But instead, the board decided to cut things short.
If this was indeed some deliberate Biden administration strategy, you must wonder how well it thought this through, or whether the administration’s plan counted on a deal being reached by now. Because if there’s anything we know Joe Biden is loath to do, it’s suspending Amtrak service.
By the way, the potential railroad strike is mentioned in the 29th paragraph of today’s newsletter over at Politico. Today’s Axios newsletter does not mention the potential strike at all.
Here’s how we got to the precipice of a nationwide freight-rail strike: These negotiations began in November 2019. The Railway Labor Act is a special set of rules, separate from the National Labor Relations Act that most industries operate under, which applies to railroads and airlines. Contracts under the RLA do not have set deadlines, and negotiations are open-ended.
There are, however, mechanisms within the RLA that can be used to force deadlines. After over two years of negotiations, the unions requested that the National Mediation Board, an independent federal agency, get involved to help settle the dispute earlier this year. They got what they wanted — the NMB got involved — but it was still unable to yield a resolution. The NMB offered arbitration as an option, which the carriers accepted, but the unions rejected.
On June 17, the NMB, which has a 2–1 Democratic majority, released the parties from mediation without an agreement after only two months. The NMB’s two Democrats are a former flight-attendants-union president and a former Teamsters attorney, respectively. (Two of the twelve unions covered by national freight-rail bargaining are Teamsters affiliates.) The board’s lone Republican voted against releasing the parties from mediation.
Once the parties were released, which is what the unions wanted, deadlines under the RLA started to come into effect. There’s a 30-day cooling-off period after mediation, during which strikes and lockouts are illegal. The president then has the power to appoint a presidential emergency board (PEB) to help resolve the dispute. President Biden did that on July 18. Both the unions and the carriers thought Biden’s appointees were fair and experienced.
The PEB, on August 17, issued a report containing non-binding independent recommendations, which started another 30-day cooling-off period for parties to negotiate a deal. Carriers wanted a 17 percent raise, unions wanted a 31.3 percent raise, and the PEB recommended a 24 percent raise. Carriers wanted to significantly restructure health benefits, which are very generous for rail workers; the PEB recommended largely keeping the benefits status quo. Unions requested three additional holidays; the PEB recommended against them, though it did recommend on additional personal day of paid leave.
The day after the report came out, carriers said they would accept deals that followed the PEB report’s recommendations. They have kept their word, and they have made agreements with nine of the twelve unions.
The agreements include the 24 percent pay increase (the largest in the history of national bargaining), maintaining the status quo on health benefits, the additional day of paid leave, and, in the case of maintenance-of-way workers, a more generous travel-expenses policy that the union president praised in glowing terms. Even unions that had previously voted to approve strikes, such as the American Train Dispatchers Association, saw the PEB’s recommendations as reasonable and made deals with the carriers based on them.
But SMART-TD and the Brotherhood of Locomotive Engineers and Trainmen (BLET), the two largest unions, are still unsatisfied. The cooling-off period that started when the PEB report was released has almost expired, and strikes and lockouts are permitted beginning at 12:01 a.m. on Friday.
SMART-TD and the BLET say they are more concerned about working-conditions issues, not wages. But the unions have essentially asked for concessions from carriers through national bargaining that are not typically part of national bargaining. The PEB addressed this multiple times in its report.
Unions asked for a minimum of 15 days of paid sick leave. The PEB said that would be “best resolved in the grievance and arbitration process, not by an overly broad and very costly proposal.”
SMART-TD and the BLET asked for changes to attendance policies and meal allowances. The PEB said, “We agree that updating is needed, but the submissions do not clearly indicate the particular update that we should recommend.” It remanded the issue back to the parties to negotiate.
SMART-TD and the BLET asked for changes to rules pertaining to scheduling. The PEB found merit both in their arguments and the carriers’ arguments to the contrary, and it did not make a recommendation. Instead, the members of the board said, “We believe that a six-month period for bargaining, beyond which time any Party may invoke arbitration, is sensible.”
Some issues are negotiated locally, not at the national level. The PEB said the issue of crew size, for example, should be negotiated at the local level. Local unions can negotiate with individual carriers to secure concessions for their members regardless of what the PEB says about national bargaining.
In other words, accepting the recommendations from the PEB report would not preclude the unions from getting what they want in further negotiations and possible arbitration. What it would do, however, is avoid a crippling rail strike.
The recommendations can’t be all that bad for labor since nine of the twelve unions have already made deals based on them. Remember: It was the unions that wanted to be released from mediation; it was the unions that rejected arbitration; and it was the unions that wanted the PEB.
Also remember: It was the two Democrats on the NMB who released the parties from mediation after only two months; it was President Biden who appointed the PEB, with his appointments praised by unions and carriers alike; and it was Secretary of Labor Marty Walsh who was supposed to have a handle on this situation and coax the unions to an agreement.
If there’s a nationwide freight-rail work stoppage on Friday and the economy grinds to a halt, sending gas prices up and stranding cargo all over the country, remember that the ball has been in labor’s court to accept independent recommendations from a board appointed by President Biden.
That board recommended a 24 percent pay increase over five years, which would be the largest such increase ever. It recommended the preservation of platinum health benefits. It recommended an additional day of paid leave and the preservation of eleven paid holidays, which is two more than the average union-represented worker receives and four more than the average transportation-sector worker receives. And it allowed parties to continue to negotiate or go to arbitration on other issues that were still outstanding.
Congress can step in and prevent a strike. Senator Roger Wicker (R., Miss.), the ranking member of the Commerce, Science, and Transportation Committee, has been calling for the adoption of the PEB’s recommendations. Senator Richard Burr (R., N.C.) has introduced a joint resolution that would adopt the recommendations of the PEB as binding and avert a strike. All Congress has to do is pass it.
Democrats control both houses of Congress and the White House. An eleventh-hour deal is still possible, and parties could elect to extend the cooling-off period again, but if unions and carriers are unable to make a deal, and Congress doesn’t step in to prevent a strike, the economic consequences that follow will be on the Democrats and their union allies.
Curious, isn’t it, that labor unions misbehave while Democrats in charge. (Except for the air traffic controllers strike, which Ronald Reagan ended by firing the strikers, and the Act 10 protests, which Gov. Scott Walker should have responded to by firing state employees.)
Where will President Joe Biden and congressional Democrats get the money to finance their large expansion of subsidies for green energy and extension of Obamacare subsidies for the upper middle class?
The simple answer is: “From hardworking taxpayers.”
But the new taxes would fall more heavily across specific industries and parts of the country. The largest tax in the bill, the new “book minimum tax,” accounts for $222 billion of the more than half a trillion dollars of expected new tax collections. The book minimum tax would hit manufacturing disproportionately.
According to recent government estimates by the Joint Committee on Taxation, manufacturing would bear 49.7% of the book minimum tax, despite accounting for only about 11% of the economy.
More specifically, the nonpartisan committee estimated that 16.1% of the tax would fall on chemical manufacturers and 6.9% on transportation equipment (mostly automobile) manufacturers.
Since the committee released those estimates, Senate amendments to the legislation likely have reduced manufacturing’s share of the tax somewhat. However, even using a conservative estimate, manufacturing likely still would bear at least 2.5 times as much of the burden of the tax, relative to the sector’s size as a share of the economy.
Foreign manufacturers would not be subject to the new tax unless they have significant U.S. operations. Therefore, to remain globally competitive, U.S. manufacturers would face pressure to cut labor costs or scale back their U.S. operations. This would mean fewer jobs and lower wages in U.S. manufacturing.
Due to their states’ large manufacturing bases, workers in Indiana, Wisconsin, Michigan, North Carolina, and Kentucky would endure the biggest economic hit from the new tax. Manufacturing accounts for about 26.6%, 18.9%, 18%, 17.1%, and 17.4% of the economies of these five states, respectively.
Employment in U.S. manufacturing dropped by about 33% between 2000 and 2010. Since then, manufacturing’s steep decline has reversed slightly, but manufacturing jobs remain more than 25% below 2000 levels.
Indiana, Wisconsin, Michigan, North Carolina, and Kentucky combined have lost over 1 million manufacturing jobs since 2000. Largely because of deep losses of manufacturing jobs, total private sector employment in Indiana, Wisconsin, and Michigan fell 7.5% in this period.
A new tax won’t help America’s manufacturing states.
The proposed book minimum tax is a parallel tax system imposed on mostly larger companies based on their financial statements’ “book income.”
Business taxpayers would have to calculate their tax liability not once, but twice. First, based on their regular taxable income and second, based on financial statement income—and they’d pay the higher liability of the two.
The book minimum tax would be at a lower rate (15%) than the federal corporate tax rate, but the book minimum tax would not allow businesses to claim certain business deductions allowed under the normal corporate tax.
Because of its income threshold, the book minimum tax disproportionately would hit capital-intensive sectors such as manufacturing, where large-scale operations often are necessary to achieve the economies of scale needed to compete in a global economy.
Differences between financial statement accounting and regular tax accounting in the timing of the “realization” of income and when deductions could be claimed also would cause business taxpayers to arbitrarily owe the book minimum tax in some years.
As just one example, under the book income tax, companies would not be able to use net operating losses accrued before 2020. There are, of course, many reasons that companies experience tax losses in a particular year—including anything from high initial startup costs to pandemic-related government lockdowns. And so the tax code allows taxpayers to carry forward losses from previous years to offset current taxable profits.
Consider a company whose purchase of costly factory equipment in 2018 and 2019 pushed it into a taxable loss for those years. That company would hope to offset the cost of that investment eventually with higher profits in subsequent years.
COVID-19 shutdowns may have delayed those future profits, and now under Biden’s book minimum tax, the company could have to start paying tax even if it is still at a net loss since its 2018-2019 investment.
Many manufacturers expanded investment in 2018 and 2019 specifically because of federal tax legislation that removed impediments to business investments. The full expensing provisions of the 2017 Tax Cuts and Jobs Act allowed businesses to fully deduct expenses for things such as machines and equipment in the year capital was purchased and placed in service, instead of over a period that could last for two decades.
Or at least these manufacturers thought they’d be able to fully deduct those expenses.
With Biden’s book minimum tax, Uncle Sam would snatch away a portion of the deduction for capital expenses incurred by companies with unused net operating losses.
The timing of the new tax is unfortunate. The looming phaseout of full expensing between 2023 and 2027 only will worsen the U.S. tax environment for capital-intensive businesses such as manufacturers and conventional energy companies. Rising interest rates and borrowing costs also will make it more difficult for manufacturers and other businesses to invest and grow.
It’s not all bad news for manufacturers, though. Although many manufacturers would be hammered with new taxes under the Biden legislation, companies manufacturing components for solar panels, wind turbines, batteries, and electric vehicles would receive a windfall of new tax subsidies and access to dramatically expanded federal loan programs courtesy of the Inflation Reduction Act, their industry’s Washington lobbyists, and ultimately, your wallet.
It’s long past time for the federal government to get out of the business of picking winners and losers. Over the past couple of years, success or failure in America has depended far too much on what the government is doing for you or what it’s doing against you.
Sadly, this latest legislation is more of the same. More government handouts for some. More taxes, lost jobs, lower wages, and more IRS audits for the rest.
Up until three weeks ago, a recession was defined as a contraction in the economy lasting two consecutive quarters and inflation was defined as too much money chasing too few goods.
Economists, Presidents, Federal Reserve Chairmen, academics, and legislative leaders have held for decades that you do not raise taxes in a recession, and you don’t throw new spending on top of runaway inflation. It is not a partisan thing – Obama knew it and said so.
Three weeks ago, Sen. Joe Manchin reiterated his understanding of those two principles when he refused to go along with the third attempt to force “Build Back Better” through Congress before the Democrats lose their majority in the House this fall. The spending is inflationary and tax increases recessionary.
This week, three things happened that are not unrelated.
First, the administration sent out its economic advisors in an absurd media campaign to re-define “recession”; the day before the official GDP print was announced, Wikipedia changed its definition and locked that page. Twitter was bot-swarmed to give the impression of unanimity.
Second, the Biden coms team touted the recent slight easing of retail gasoline prices, implying that inflation was subsiding, the corner had been turned.
Third, Joe Manchin reversed himself and signed onto the same tax and spend bill he had opposed for nearly a year, cynically renamed and rebranded as an anti-inflation bill to give him cover – Build Back Blather.
It now seems pretty clear what the subject of those “intense” behind the scenes negotiations were: scripting the flip to save some Democrat Senate seats in peril. No surprise there.
You can change words, but not numbers. The energy industry relies on economic forecasts to plan future production, distribution, and inventory levels of crude oil and refined gasoline.
They do so because there is a tight correlation between the “P” in GDP and the consumption of gasoline – we drive to work, to shop, to meet medical appointments, to dine out, to vacation, to attend concerts and shows and theme parks, to go boating and trail-riding. We spend money at our destinations.
The same correlation works in reverse; gasoline consumption is a reliable indicator of a growing or shrinking economy, a proxy. The U.S. Energy Administration publishes weekly data on price, production, and consumption of refined gasolines in all blends by region – it’s a two-minute Google search.
From November of 2020 to July of 2021, the average daily consumption of gasoline rose by 12%, a clear indication of economic growth in the continued recovery from the pandemic lockdown crash that was confirmed by two consecutive quarterly GDP prints.
From November of 2021 to July of 2022, the average daily consumption of gasoline fell by 8%, a clear indication of economic contraction that was confirmed by two consecutive quarterly GDP prints.
And there you go. The industry sector hardest hit (so far) in this recession is overnight lodging…duh.
Anyone can gargle words and spit a lie into the sink. Yesterday’s flash poll found 65% of us aren’t buying recession-not-recession scam. As layoffs continue at 250k per week, the 35% might come around, but maybe not until their number is called – you just never know about these things.
I wrote Thursday that the Presteblog Misery Index — inflation plus U6 unemployment minus economic growth — is now at 17. There are those who claim that inflation is understated, and would be higher by the measure that was changed in 1990. The rationale then was that, for instance, cars are more expensive but better equipped and perform better (gas mileage, reliability, etc.), so direct comparisons are difficult with some products.
Nerenz adds that “business people look at economic data differently than economists do. They have to make forward-looking decisions with consequences, rather than backward looking analysis with no consequences.”
And there it is: the economy contracted again in the second quarter, by -0.9%, nearly twice the shrink expected by “the consensus”. Recession confirmed.
They tried their darndest, with “adjustments” from the July 19 Atlanta Fed forecast of -1.6%; but there is only so much lipstick that can put on a pig.
Q1 was first printed at -1.1% and later (quietly) revised to -1.6% and is more likely than not this will happen again as investment analysts digest and tear into the gory details of the adjustments; time will tell.
There is an old maxim that a recession is a depression if you lost your job or your business or can’t make rent, and GDP is the aggregation of billions of individual exchange contributions with winners and losers both numbered in tens of millions – your mileage will certainly vary.
Nothing will change until someone changes it and it not clear who that someone might be since the folks who could change it simply deny the recession is real – this year’s Big Lie.
An increase in interest rates depresses growth and the Fed just increased them 75 basis points with another 50 expected in September.
And it appears that Manchin and Schumer have struck a trillion dollar spending deal cynically called the Inflation Reduction Act after weeks of tense negotiations over what to call it.
And so it goes…
Meanwhile, inflation in June reached 9.1 percent, thanks in large part to gas prices being $2 or more per gallon more than they were before Biden’s reign of error began (graphic from the Wall Street Journal):
The most accurate unemployment number, the U6 (unemployed plus those not working as much as they want to) at the end of June was 7 percent. The Presteblog Misery Index (inflation + U6 unemployment minus economic growth) is now at 17, a ;evel that ended Gerald Ford’s political career. It should end Biden’s career, especially since it will get worse.
Ryan Grim @ryangrim
Steve Prestegard.com: The Presteblog 