Category: Domestic Policy

How To Think Differently About Housing

The Daily Escape:

Sunrise, Outer Banks, NC – June 2023 photo by Stephen P. Szymanski

Wrongo and Ms. Right have 12 grandchildren, only one of which is still in high school. The other 11 are out of school and pursuing their careers or are finishing their education. Only one of the 12 owns a home. Their experience with real estate is representative of what most younger Americans face in today’s real estate market. Ben Carlson uses data from Redfin to show us that mortgage payments are way up over prior years:

The median mortgage payment was up by more than $1,000 over four years. Carlson reminds us that this is just the monthly mortgage payment, it doesn’t include insurance, property taxes or upkeep. This is part of the reason that housing affordability is more excruciating — the pace of the increases has happened so quickly. We’ve simply never seen prices and rates rise this fast in such a short period of time. And asking prices are up as well:

Note that at the end of May 2023, the median asking price was $397k, up from $300k in May 2020, a 32% increase in four years.

But high mortgage rates and rising home prices aren’t deterring all buyers. John Burns Research shows buyers still outnumber sellers by a wide margin in today’s market. They report that as of April, even with 7% mortgage rates, 78% of all real estate agents say that buyers outnumber sellers in their markets.

And for rentals, the national median rent for a one-bedroom apartment has climbed to $1,504, according to research from Zumper. That’s significant: It’s only the second time in history that it has risen past $1,500. But the median doesn’t represent what you’ll pay in big cities:

In America, buying an investment property near work is more lucrative than actually working. The growth of asset values has outstripped returns on labor for four decades. Last year, one in four home sales was to someone who had no intention of living in it. Investors are incentivized to buy the type of homes most needed by first-time buyers: Inexpensive properties generate the highest rental-income cash flows.

Harvard’s Joint Center for Housing Studies found that in 2019, the median net worth of US renters was just 2.5% of the median net worth of homeowners: $6,270 versus $254,900. There’s no better example than the economic challenges to America’s young persons than trying to find (relatively) affordable housing near where they work.

A very interesting article in the May 23 NYT Magazine suggests a possible solution to housing inflation. Vienna, Austria began planning it’s now world-famous municipal housing in 1919. Prior to that, Vienna had some of the worst housing conditions in Europe. Vienna’s housing program is known as “social housing” (Gemeindebauten), a phrase that captures how the city’s public housing and other limited-profit housing are a widely-shared social benefit:

“The Gemeindebauten welcomes the middle class, not just the poor. In Vienna, a whopping 80% of residents qualify for public housing, and once you have a contract, it never expires, even if you get richer.”

Vienna isn’t a small town. Its population is just under 2 million, and if it were in the US it would be our fifth largest city, between Houston and Phoenix.

The availability of Vienna’s social housing also helps to keep costs down even for private housing:

“In 2021, Viennese living in private housing spent 26% of their after-tax income on rent and energy costs on average, which is…slightly more than the figure for social-housing residents overall (22%).”

One of the reasons Vienna’s social housing works is that it is not means-tested; it is open to middle class people. And as a result, the residents care more about whether their grounds stay clean and beautiful. In the US we restrict public housing to the poorest of the poor, making public housing something to escape from, not to enjoy.

Meanwhile, 49% of American renters are paying landlords more than 30% of their pretax income, In New York City, the median renter household spends 36% of its pretax income on rent.

The key difference is that Vienna prioritizes subsidizing construction, while the US prioritizes subsidizing people, like with housing vouchers. One model focuses on supply, the other on demand. Vienna’s choice illustrates a fundamental economic reality, which is that a large-enough supply of social housing offers a market alternative that improves housing for all.

Calls for a federal social-housing plan in America might sound far-fetched but the US government is already deeply involved in the housing market. There’s generous support for homeowners and deliberately insufficient support for the lowest-income households. In 2017, the US gave $155 billion on tax breaks to homeowners and to investors in rental housing and mortgage-revenue bonds, more than three times the $50 billion spent on affordable housing.

For many, housing expense can be an economic burden. And it’s hard to even contemplate what it would mean to have it not be a problem. What’s mind-boggling is how social housing gives the economic lives of Viennese an entirely different shape.

Imagine where the rest of America’s young adults’ income might go if they were able to spend much less of it on housing. Vienna’s program is a look into a world in which homeownership isn’t the only way to secure a financial future.

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Monday Wake Up Call – June 5, 2023

The Daily Escape:

Blue Ridge mountains, NC – June 2023 photo by Michele Schwartz

It’s getting to be long enough into our economic recovery that we’ve started to ignore the monthly jobs report by the Bureau of Labor Statistics (BLS). Luckily, Simon Rosenberg doesn’t let us forget: (brackets by Wrongo)

“The…BLS jobs report is out and it’s another good one – 339,000 net new jobs, [plus] 432,000…upward revisions from previous months. With this new data my monthly jobs tracker clocks in at:

-33.8m jobs – 16 years of Clinton, Obama

-13.1m jobs – 28 months of Biden

-1.9m jobs – 16 years of Bush, Bush and Trump

Biden’s 13.1m jobs is almost 7 times as many jobs as were created in the 16 years of the last 3 Republican Presidencies, combined.”

Since the end of the Cold War, the US has seen 49 million new jobs created. Remarkably, 47 million of those 49 million jobs were created under Democratic Presidents.

On the Democratic Party’s watch we’ve seen strong economic growth. OTOH, during the same time, Republican presidents have overseen three consecutive recessions. It’s not a stretch to say that the GOP’s economic track record over the past 30 years has been among the worst in US history.

Consider Biden’s record of economic growth:

  • GDP growth under Biden is 3+%, or 3 times what it was under Trump.
  • Almost 7 times as many Biden jobs as last 3 GOP Presidents combined.
  • Best post Covid economic recovery among the G7 countries.
  • Lowest unemployment rate in a peacetime economy since WWII.
  • Lowest poverty/uninsured rates ever.
  • Real corporate earnings up in 2022.

Despite what the GOP is saying to the press about their being deficit hawks, the federal deficit went up every year under Trump, and has come down every year under Biden. Rosenberg adds this helpful chart of GDP growth by president:

So why is it that Americans aren’t convinced that the economy has improved since the pandemic? In a new poll from the AP-NORC, asking if the nation’s economic conditions are in good shape, the percentage who agree is down from 30% last month to 24%. Only a third of Americans in the new survey approve of how Biden’s handling the economy, while two-thirds disapprove.

In the survey, Democrats were more likely than Republicans to view economic conditions favorably, but just 41% of them say the economy’s good and only 7% of Republicans agree. And both numbers are down from the previous month for both Parties.

Now this may be at least partially due to the Republicans scare tactics about the Debt Ceiling. The Hill reports that this AP-NORC poll is in line with other recent surveys that suggest most Americans think the country’s economy is in poor shape, Other polls also indicate low confidence in the economic leadership team.

Axios suggests a different way to view the economic issue. They looked at Federal Reserve survey data from 2017-2022, which shows that people think they’re personal economy is doing just fine, while they think the national economy is in terrible shape:

This is most likely because of the media’s awfulizing about our economy. Obviously, consumer prices are high, but inflation is coming down. But even if inflation went to zero, today’s prices will still be much higher than Americans were accustomed to pre-pandemic, so people will be complaining.

And we can’t discount the negative impact of Congressional dysfunction about the Debt Ceiling, or all the news bunnies crying about our unsustainable national debt.

Still, our economy continues to do better than even the economists think. The May employment report marked the 14th straight month that more jobs were created than economists expected. Our GDP continues to grow (it’s up more than 5% from its pre-pandemic peak), even after accounting for inflation.

The average US employee now makes $33.44 per hour, 17.5% more than before the pandemic. The stock market is up 10% so far this year, but still, Americans aren’t buying it. Axios’ Felix Salmon reports that while Americans say that they’re broadly happy with their personal finances (above chart), in other polls, a majority consistently think (erroneously) that we’re currently in a recession.

Time to wake up America! Things are rolling along reasonably well, even if they’re not fantastic. We have the best job market in 50 years, and there’s no recession on the horizon. As the Rolling Stones said: “You can’t always get what you want…”. Maybe it’s time to look at the glass as half full.

To help you wake up, watch and listen to Alan Jackson cover Eddie Cochran’s 1958 “Summertime Blues” in 1994. The Blue Cheer had the radio hit with it in 1968. Wrongo loves three versions of this song: Blue Cheer, the Who, and this Allen Jackson cover:

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Sunday Cartoon Blogging – June 4, 2023

Diversity, equity and inclusion initiatives or DEI, are intended to address inequities against historically marginalized groups and individuals who are working within an organization. DEI are three closely linked values that work together to be supportive of different groups of individuals, including people of different races, ethnicities, religions, abilities, genders, and sexual orientations.

DEI has recently come under fire. It’s at the center of some political battles being waged by Republican governors Greg Abbott and Ron DeSantis. Several Red states are considering or have passed legislation targeting DEI in public institutions. Texas passed a bill with a rider banning the use of state funds for DEI programs in universities and colleges. A similar bill to ban spending on DEI in public universities has been advanced in Iowa.

But Chick-fil-A? The same Chick-fil-A that’s given millions of dollars to anti-LGBTQ hate groups? The Chick-fil-A that conservatives circled the wagons around a few years ago after liberals criticized the owners for being haters?

They’re taking MAGA fire for creating a DEI policy and hiring someone to oversee the program. MAGA suddenly realized that Chick-fil-A had gone woke! But their program has been around since 2020. On to cartoons.

Nobody is safe:

Signs are everywhere:

MAGA says ya can’t help trans kids:

Our PolyCrisis government:

It’s a very old game, but Trump’s surrounded:

The Sacklers win:

Victory lap for Biden:

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The Two-Edged Sword Of Federalism

The Daily Escape:

Mount Evans Road, 14,100′, Idaho Springs, CO – May 26, 2023 photo by Reid Neureiter

Here at the Wrongologist, we often talk about Constitutional rights, but we rarely talk about Federalism. So today, let’s lean into federal vs. states’ rights. We’ll start with the recent Supreme Court decision in Sackett vs. EPA, which concerned the power of the EPA to regulate wetlands. Last week, the Supreme Court concluded that the Clean Water Act only applies to wetlands with “a continuous surface connection” to bodies of water.

This defined what waterbodies are considered waters of the United States (WOTUS), an issue that has been in the courts for years. The ruling narrowed the scope of the Clean Water Act, and severely limits the federal government’s ability to regulate wetlands.

Justice Samuel Alito’s opinion affirmed the principle that bureaucrats cannot broadly define statutory language. Alito’s opinion struck a blow for federalism. Federalism is a system of government in which the same territory is controlled by two levels of government. The US Constitution originally divided the exercise of political power between one national and many state governments. The national government is given control over matters affecting the whole nation. All other issues were reserved to the states.

  • Article VI of the Constitution contains the Supremacy Clause, which says that when the laws of the federal government are in conflict with the laws of a state’s government, the federal law supersedes the state law.
  • Article I, Section 8 of the Constitution describes specific powers which belong to the federal government. These powers are referred to as enumerated powers.
  • The Tenth Amendment reserves to the states those powers that are not delegated to the federal government.

The Sackett vs. EPA decision is another step in the Right-wing program to move as much federal government rule-making authority as possible to the states. This is the continuation of Nixon’s efforts to shrink the federal government’s power by devolving decisions to state and local governments. The best recent example of this is the Supreme Court’s Dobbs decision on abortion that wiped out the precedent set in Roe v. Wade that guaranteed a national right to abortion and passed that responsibility back to the states.

At the same time, the Right is moving to nationalize policy on social issues, from what books to allow on library shelves to limits on transgender rights, a rollback of state environmental actions, and an attack on anything that can be labeled as “woke.”

So we’ve got Red states pushing to centralize decisions about social and cultural issues in Washington, while the Right-wing Supreme Court pushes devolution of voting rights, abortion rights, and indeed national agency rule-making (EPA) to the states.

This 2023 brand of two-way Republican federalism is upending the delicate balance of power between the federal government and state governments. It raises questions about the allocation of authority, cooperation, and the ability of the national government even to define what is a pressing national issue.

Today’s Washington gridlock makes policymaking nearly impossible. That has shifted much of today’s policymaking to the states, where the Parties often have comfortable majorities. Many states (39) have government trifectas, with one Party controlling the governorship while holding majorities in the legislature, making policymaking simpler than in a divided and polarized US Congress.

Interest group activists have followed this trend and focused their efforts on these 39 states. Much of a state’s policies – abortion, voting rights, gun control, immigration, LGBT rights, healthcare, or taxation – are on widely divergent paths. For example:

  • In Democratic states it is easy to vote; in Republican states there are many barriers to voting.
  • In Democratic states fewer people are medically uninsured; in Republican states there are more uninsured people.
  • In Democratic states access to abortion is easier; in Republican states it is harder, if not criminalized.

Although federalism (for now) seems to protect the country from presidents amassing power in dictatorial ways, anti-democratic figures (think DeSantis and Abbott) are able, because of the resurgence of state-level policymaking, to transform Republican states into laboratories against democracy.

The Covid pandemic also put federalism to the test. The response to the pandemic highlighted the tension between national coordination and state autonomy. While the federal government provided guidance and resources, the implementation of measures like lockdowns, mask mandates, and vaccination campaigns, was largely left to individual states. This decentralized approach led to significant variations in pandemic response across the country, creating challenges in coordinating efforts and potentially exacerbating the spread of the virus.

Federalism properly implemented, brings government closer to the people and holds it accountable. But when badly implemented, you get the USA in 2023: A country trending toward autocracy.

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America’s Playing Default Chicken

The Daily Escape:

Ice and clouds, Yellowstone Lake, Yellowstone NP, WY – May 2023 photo by Joethehiker

Wrongo doesn’t know about you, but he’s starting to think that the “bi-partisan” Debt Ceiling negotiations aren’t going to stave off a default on the US’ debt obligations.

Every talking head is still saying that at the last minute, Biden and McCarthy will agree to…something. Something that prevents a government shutdown, and a default on payments for the country’s outstanding debt.

But is that real or hopium? In any negotiation, the idea is to find a point (or multiple points) of leverage that bends the other side toward your viewpoint. That helps the two sides to meet at some place in the middle.

So who’s got the leverage in the current Debt Ceiling negotiation? No one. Biden surely has no leverage over the House Republicans. Republican Speaker McCarthy has some leverage over Biden but has little leverage with his own House members. The Senate leaders, Majority Leader Schumer and Minority Leader McConnell, who normally have leverage to help resolve Debt Ceiling standoffs, are bystanders in this game of Default Chicken.

We’re in a high stakes game of chicken because nobody can deliver their side to the table. Politico reports:

“White House aides privately estimate they may need to deliver as many as 100 Democratic votes to ensure an eventual debt limit deal can pass the narrowly divided House…”

But few Democrats will support the deep cuts to social programs that Biden might be forced to agree to. McCarthy knows that a portion of his GOP House members will vote against ANY compromise bill. House Republicans have already called the legislation they passed last month (lifting the Debt Ceiling in exchange for deep spending cuts) the floor, not the ceiling to the negotiation. Dan Pfeiffer quoted Rep. Matt Gaetz (R-FL):

“I think my conservative colleagues for the most part…don’t feel like we should negotiate with our hostage.”

So Gaetz thinks that Biden and the Democrats are his hostages. If they are, how do they negotiate with the terrorists on the other side?

The positions are clear. The White House is open to budget negotiations but opposed to debt ceiling brinkmanship. Republicans threaten default if their budget demands aren’t met. They’re planning to pull the pin on this grenade and then blame Democrats for making them do it.

Recent polling from ABC and The WaPo gives Democrats a narrow advantage: An equal number of voters from each party—78%—would blame the opposite party for default. While 37% of independents say they would blame Republicans and 29% would blame Biden, with 24% blaming both parties equally.

The Democrats’ negotiating position appears to put them in the worst of both worlds: If the Debt Ceiling is breached, the polls show that they will share the political fallout with Republicans. Otherwise, they may have to agree to significant cuts to crucial programs like welfare and food stamps, which will badly hurt them with their base.

Either way, the Dems will complain about the financial wreckage caused by Republican extremism, and hope voters agree with them. The simplest way out is to agree to a temporary debt ceiling increase as we have many times in the past, to allow both sides to continue negotiating.

Sadly, McCarthy and the House Republicans seem to prefer default to compromise. They’re using passing a new Debt Ceiling as leverage to cut spending for Social Security and Medicare while increasing the defense budget. That’s their idea of “fiscal responsibility”. Sure, our military budget is 10 times Russia’s and three times China’s, but Republicans want grandma to tighten her belt.

At the end of the day, we’re stuck playing Default Chicken: The US must pay the bills it has already incurred as they mature. McCarthy can’t be seen by House Republicans to be giving concessions to Biden. After all, they think their job is to save the country from excess spending, not from the consequences of default. Rep. Marjorie Taylor Greene (R-GA) said on Wednesday that no one in the House Republican conference is concerned about the potential of a US debt default:

“Regular Americans … don’t worry about the government shutting down.”

Negotiating with terrorists is very difficult. The pressure on Democrats to cave to Republican demands for massive spending cuts will become harder to resist. If somehow they do resist, chances are we’ll see America default on its debts.

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Saturday Soother – May 20, 2023

The Daily Escape:

Daffodils, Laurel Ridge, Litchfield CT – May 2023 photo by Dave King

The oil industry enjoys special economic status in the US. That is demonstrated by the tax breaks and outright subsidies we give them. Hannah Dunlevy notes that:

“In 2020, the explicit and implicit fossil fuel subsidies cost the United States $662 billion, around $2,006 per capita. Cutting just two tax breaks for the fossil fuel industry — the intangible drilling costs subsidy and the percentage depletion tax break — could generate $17.9 billion in government revenue over ten years, according to Congress’s non-partisan Joint Committee on Taxation.”

Biden’s fiscal year 2024 budget proposed cutting some of tax subsidies for oil and gas companies, which would save the US $31 billion over ten years. It will probably not survive the current Debt Ceiling and budget discussions.

One hidden subsidy that the oil industry enjoys is when wells are no longer productive – they are idled. If it’s no longer profitable to return idled wells to production, they need to be plugged. And the cost of plugging a well can be $100,000 or more.

The problem is that when wells start to decline, they are sold by Big Oil to smaller producers. When the well is sold, the plugging and cleanup liability passes to the new buyer. And often, the new buyer simply walks away from the uneconomic well, creating what the industry calls “orphaned wells”. But if a company doesn’t plug its wells before walking away, the cleanup costs will ultimately fall to taxpayers and current operators.

This has already happened with thousands of wells in California and may happen to millions more across the country. Pro Publica reports that there are more than two million unplugged oil wells scattered across the US. California is just the tip of the iceberg.

Petroleum reservoir engineer Dwayne Purvis laid out the reality at a recent conference. His research shows that more than 90% of the country’s unplugged wells are either idle or minimally producing and unlikely to make a comeback.

California is the canary in a coal mine. Shell and ExxonMobil recently agreed to sell more than 23,000 California wells which they owned through a joint venture, to a German asset management group IKAV for an estimated $4 billion. This means that a subsidiary of IKAV now owns about a quarter of California’s oil and gas production, largely in Kern and Ventura counties.

This ownership shift moves the subsequent environmental liability from Big Oil powerhouses to firms with smaller capitalization, increasing the risk that aging wells will be left orphaned, unplugged and leaking oil, brine and methane. For California and other states, this could repeat what was seen in coal mining, which led to taxpayers bearing all of the cleanup costs.

The oil industry has created layers of LLCs that are used to screen Big Oil from the dirty end of the oil business, like responsibility for cleaning up the messes that they make. And these firms can easily declare bankruptcy rather than pay for cleaning up orphan or idle wells.

ProPublica reports on an analysis by Carbon Tracker Initiative, a financial think tank that used the California regulators’ draft methodology for calculating the costs associated with plugging oil and gas wells and decommissioning them along with their related infrastructure.

The cost categories included plugging wells, dismantling surface infrastructure and decontaminating polluted drilling sites. That would cost California about $13.2 billion. Adding inflation and the price of decommissioning miles of pipeline could bring the total cleanup bill to $21.5 billion.

Meanwhile, Purvis estimates that California oil and gas production will earn only about $6.3 billion in future profits over the remaining course of operations; nowhere near sufficient to pay for the cleanup, even if those profits could be captured by the state.

That’s just California. These costs are what economists call “Externalities”. An externality is an indirect cost (or benefit) to a party (taxpayers) that arises as an effect of another party’s (Oil Companies) economic activity. The problem is that the price of their product doesn’t include the externalities. That means there is a gap between the profit of these corporations and the aggregate loss to society as a whole.

Republicans have a tried and true solution for this problem. Taxpayers pay the bills. We’re back to the “privatize profit, socialize the losses” game that corporations have played forever. Maybe the correct terminology should be socialism for the rich.

They prefer to call it keeping government off the backs of job creators.

Time to let go of California’s messy problem and find a few minutes to center ourselves before next week which will bring either financial Armageddon, or a diminished Biden. At the Fields of Wrong, we had a freeze last Wednesday that caused us to cover the newly planted vegetables and bring the Meyer Lemon tree indoors. Spring in Connecticut can always show up with a backtracking nod towards winter.

But on this rainy Saturday, grab a chair by a big window and listen to Debussy’s “Nuages” (‘Clouds’) from his “Trois Nocturnes”. Leopold Stokowski and the Philadelphia Orchestra made the first American recording of Debussy’s “Three Nocturnes” for a 1950 LP.

Here is the first “Nocturne”, a musical impression of slow-moving clouds:

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Links You Can Use

The Daily Escape:

Santa Rita prickly pear in bloom, AZ – May 2023 photo by Wilson Goodrich

Today Wrongo returns to his “Links you can use” format from several years ago.

First up, Bloomberg reports that Trump’s takeover of the GOP helped him to rewrite the rules on how primary delegates to the GOP presidential convention will be awarded. Since leaving office, Trump has gotten 10 more states to award delegates through winner-take-all primaries, even if the winner receives fewer than a majority of the votes. The number of winner-take-all states has grown from seven to 17.

Needless to say, if it’s crowded field and he gets the most votes, even if it’s only 30%, he’ll win.

Second, Republican governors have discovered that they’re getting significant political mileage out of championing people who have engaged in vigilante violence that dovetails with the GOP’s culture wars. Brian Klaas writes about the Right’s open embrace of political violence. In Texas, Governor Abbott has said that he was “looking forward” to pardoning Daniel Perry, who murdered a Black Lives Matter protester. Perry was sentenced to 25 years in prison. He had previously texted a friend that he “might have to kill” some people on his way to work.

Over the weekend, Florida Governor DeSantis tweeted his support for Daniel Penny (Perry and Penny?) after Penny killed the homeless Black man Jordan Neely, on NYC’s subway. DeSantis didn’t hold back:

Lots of dog whistles right there from the governor. NBC 4New York reported that the legal defense fund had raised more than $2 million after DeSantis tweeted the link to Penny’s donation page. This shows MAGAs have found another way to wealth and fame as Daniel Penny now joins Kyle Rittenhouse as a violent millionaire funded by the Republican Right.

Brian Klaas wrote about a study that shows “Who Supports Political Violence?”, conducted by Miles T. Armaly, Assistant Professor of Political Science at the University of Mississippi and Adam M. Enders, an Assistant Professor of Political Science at the University of Louisville. Their findings show some key traits that predict support for political violence:

Perceived victimhood is highly correlated with support for political violence. This is different from actual victimhood. While previous research found that people who are actually being oppressed are more likely to turn to violence, this study shows that it doesn’t really matter whether someone is actually being oppressed; instead, the feeling of being oppressed is sufficient.

This was the strongest predictor of support for violence.

The next strongest correlate was a sense of “white identity.” And the two interact, as those who buy into the Right-wing narrative that white people are under attack in America (due to their loss of social dominance), are also likely to be the same individuals who feel perceived victimhood.

Also, past military service is correlated with a predisposition for vigilante violence. People who previously served in the American armed forces were more likely to express support for political violence than those who have not. None of this is good news for the US.

Third, the Debt Ceiling negotiations are resuming today in the White House after House, Senate and White House negotiators met for three hours Saturday, and then reconvened on Monday. Benjamin Studebaker worries that Biden may be about to repeat Obama’s errors in negotiations with Republicans in 2011:

“Back in 2011…Obama faced the same problem…Biden now faces. Congressional Republicans refused to raise the debt ceiling unless Obama agreed to budget cuts….Obama….Instead…cut a deal. He signed the Budget Control Act of 2011. It committed the federal government to…enormous cuts. Over the course of 2012, it became clear that these cuts would cause serious damage to the economy. So…Obama negotiated another deal that would save most of the cuts for 2013. Over the course of 2013, the same arguments were made again, but this time Obama was unable to secure another delay, and the cuts took effect.”

Sounds like what we’re going through right now. In 2013, we escaped the economic disaster, but at the price of the Fed adding several rounds of Quantitative Easing leading to our current economic situation. If Biden agrees to cut spending, the economy will again be damaged.

And the Federal Reserve will be pressured to limit the damage via lower rates or flooding the market with more dollars.

Republicans will, of course, oppose tax increases. That means the Biden administration won’t be able to raise taxes to help offset the growing deficit or pay for future expenses. Therefore it has to rely on the Federal Reserve’s monetary policies. The weaker economy created by rate hikes is an economy where the current tax rates will generate less tax revenue. That creates more political pressure to cut spending.

All of these stories look like rinse, lather, repeat. And not to the nation’s benefit.

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Saturday Soother – May 13, 2023

The Daily Escape:

Sunset, Monument Valley, AZ – April 2023 panoramic photo by Rich Vintage Photography

The ripples from Trump’s appearance on CNN continue. Politico reports that: (brackets by Wrongo)

“Nearly under his breath….Trump said that he and…Putin “used to talk about” Moscow’s intention to launch [an] invasion in Ukraine.”

What’s Trump talking about? The invasion happened in February 2022, more than a year after Trump left office. In fact, Russia didn’t even begin massing troops on the Ukraine border until March 2021 while Trump was already at Mar-a-Lago. Russia’s troops were partially withdrawn by June 2021, although the military infrastructure was left in place. The second build-up began in October 2021, lasting until the invasion in February 2022.

Politico says that Trump mumbled at some point, that he and Putin discussed Russia’s intention to launch a second, larger incursion of Ukraine. Was Trump talking to Putin about a possible invasion of Ukraine after Trump left office? If so, what are the chances that Trump shared his news with Biden?

Today, let’s spend a bit more time on one of the reasons why we must rebuild our energy grid. Wolf Richter of Wolf Street writes that in 2022, electric vehicles (EVs) made their first visible dent in US gasoline consumption: (parenthesis by Wrongo)

“Gasoline consumption in the US dipped by 0.4% in 2022…(vs.2021) to 369 million gallons per day…. below where it had been in 2002, and down by 5.7% from 2019, and by 5.9% from the peak in 2018, according to data from the Energy Department…”

Wolf reminds us that employment grew in 2022 by 4.8 million. And miles driven by all passenger and commercial vehicles, including those powered by diesel, ticked up nearly 1% to 3.17 trillion miles in 2022, according to the Federal Highway Administration:

Miles driven still haven’t recovered to 2019 levels (-2.8%). That’s probably due at least in part to reduced commuting during the Covid Work From Home times. Now, many office workers are either working from home entirely, or are going into the office on some days and working at home on others.

So the data show that the economy grew and people drove more miles, but they bought less gasoline:

The above chart shows the impact of the various recessions on gasoline consumption.  The deep dip in 2020, and the 2021 recovery only brought gas consumption back to 2002 levels. Then they fell off again in 2022.

The question is why wasn’t there a further recovery in gas consumption from 2021 to 2022? One factor is the rising fuel economy of American vehicles. This started many years ago, and it continues today. But Richter says that the growth in ownership of EVs has dented US gasoline consumption:

“EV sales in 2022 grew to a share of about 7% of total new vehicle sales in the US. In California, EV sales in 2022 accounted for 17% of total sales. These numbers are starting to show up at the gas station as a decline in gasoline sales.”

Still a 7% share of market is small and for now, the impact on gasoline sales is also small in the US.

Another way to look at this is that while gas consumption declined, electricity sold to end-users in the US broke out of 15 years of stagnation and set a new record. The chart below shows that electric utilities have been a no-growth business for more than a decade, but now the volume of electricity sold is suddenly spiking:

Wrongo isn’t sure if these trends will continue, but continued growth in the number of EVs on America’s roads seems undeniable. EVs have lower energy costs and lower maintenance costs. That economic reality seems guaranteed to be sustained in the coming decades. The battery cost curve will continue to decline and the rare metals required in EV batteries are beginning to be helped by both new supply and changing battery chemistry.

Still, Wrongo isn’t a fan of EVs. Perhaps when EV charging stations become ubiquitous, he will reconsider. And there will be a place for the ICE engine for a very long time.

That’s enough for this week. It’s time for our Saturday Soother, where we disconnect from the crisis du jour and spend a few relaxing moments before charging headfirst into whatever next week brings. Here at the Mansion of Wrong, we’re off to the garden store to find vegetable plants for our puny garden.

It looks like a beautiful weekend in the northeast, so grab a chair outside and watch and listen to Manuel De Falla’s Danza from “La Vida Breve” (Life is Short or The Brief Life). It is from Falla’s 1905 opera. Here it is performed live at the ancient Roman Theatre in Cartagena Spain, by Paola Requena and Isabel Martínez who perform as the Carmesí Guitar Duo:

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About The Energy Grid

The Daily Escape:

Coyote Gulch, Escalante, UT – May 2023 photo by Chirag A. Patel

Wrongo and Ms. Right watched the Knicks vs. Miami and Ted Lasso rather than dipping into the political rally for Trump held by CNN. But other news outlets reported on it. Apparently, the live audience gave him a standing ovation as he entered the set. They laughed when he called E. Jean Carroll “a whack job” and belittled her claim of sexual assault:

Trump suggested that the US should default on its debt if Biden didn’t agree to the cuts that House Republicans want. He pledged to pardon many of those convicted in the Jan. 6 attempted coup. He refused to back Ukraine in its war against Russia.

For those who think that there’s an opening in 2024 among GOP partisans to either vote for someone other than Trump or gasp!, vote for a Democrat, you are sadly mistaken.

A big part of the press (obviously including CNN) just can’t bring itself to admit the truth about the current state of the Republican Party. And they don’t really see it as their job to engage in such denunciations, even to protect the nation.

America is chockfuckingfull of Republicans who are, as Hillary said, “deplorables”. And they’re not all in New Hampshire. It’s way past time for the press to acknowledge this sad fact.

But today, let’s talk about the US energy grid. Our transition from fossil fuels to a green energy future will require a huge investment in our current electric grid. This probably means we’ve understated the costs of America’s energy transition. From Haley Zaremba, at OilPrice: (emphasis by Wrongo)

“In order to keep up with the expansion of renewable energy production capacity, the United States will have to more than double the current size of the electric grid. Stimulus from both the public and private sectors are hitting their intended mark, and the clean energy sector is booming. However, much of the potential environmental benefits of electrification will be completely wasted if we don’t have the power lines and grid capacity to transmit that power from where it’s being produced to where the demand is concentrated.”

Zaremba quotes McKinsey, who say that building sufficient wind and solar farms to power the clean energy transition will require overcoming three major hurdles: Finding enough land at an affordable price, building up the power grid to support the influx of electricity, and fixing the archaic and inefficient permitting process that governs these processes.

America needs massive investment in our national energy simply to stand still, regardless of the source of electricity.

But it’s important to identify today the key energy sources of the future because that determines how we specify and build the upgraded grid. A grid based on renewable sources requires a denser network and more long distance direct current lines, while conventional grids need a relatively small number of very high capacity short distance alternating current lines (i.e. from a cluster of small modular nuclear reactors (SMRs) to the nearest city).

Either option is expensive and each brings its own set of regulatory issues. Zaremba notes that:

“Building power lines alone is an enormous bureaucratic hurdle that can take years to gain approval. The  average review of renewable energy projects takes about 3.5 years, but there are cases in which a single transition line took over a decade to be completed…”

According to the US DOE, the country will need 47,300 gigawatt-miles of new power lines by 2035. That represents a 57% expansion of the existing grid. And the real issue is the glacial pace of the bureaucratic review processes which underlie permitting and oversight of clean energy projects as well as grid expansion.

Zaremba closes with:

“Fixing the presently nightmarish permitting and approval system will be integral to decarbonizing the US economy…and making sure that the efforts already underway to decarbonize the nation’s energy mix are not squandered. It’s great that wind and solar capacity are being added at a record-breaking rate, but it’s all a waste if, once completed, there’s no permit allowing them to plug into the grid – or if there’s no grid at all.”

As if on cue, on Wednesday Biden signed on to Sen. Manchin’s (D-WVA) plan to speed the approval of some fossil fuel projects and to hasten the construction of new transmission lines. The NYT quotes John Podesta, Biden’s senior adviser for clean energy innovation:

“Right now, the permitting process for clean energy infrastructure, including transmission, is plagued by delays and bottlenecks…”

Manchin’s bill has some holding their noses because it is so pro-fossil fuel. But should it become law, perhaps the US government will be able to speed up approval for at least some of the green energy projects.

In summary, there’s lots to do and no sure way to get it all done.

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Is Default Preferable To Compromise?

The Daily Escape:

Wild Ocotillo blooms with Agave buds, Anza-Borrego Desert SP, CA – May 2023 photo by Paulette Donnellon

Yesterday, Biden met with the leadership of the Congress to discuss the debt ceiling and the dangers of default. Wrongo is writing this before we know what if anything concrete, comes out of that meeting.

This is the third time in twelve years that a Republican House majority has tried to use the debt limit to extort a Democratic president into adopting policies that the GOP failed to enact through normal political means. This time around, like the past two times, Republicans say they want spending cuts, but as Nate Cohn wrote in the NYT:

“The 2022 midterm campaign didn’t show evidence of a resurgent conservative passion for spending cuts either. The debt-deficit issue had such a low profile in the national conversation that a question about it wasn’t even asked in exit polling.”

But absent real news, let’s take a look at the Republican position as outlined in the bill McCarthy and the GOP passed in the House. They’re pushing to pair $4.5 trillion in spending cuts over a decade with a one year, one time, $1.5 trillion increase in the debt limit. Their plan achieves most of its savings with spending caps for discretionary spending — the part of the yearly budget that isn’t automatic (like Social Security payments) — but it doesn’t say which discretionary programs should be cut and which should be spared.

Their plan caps government spending at last year’s levels. This would be a decrease of ~ 9%. A yearly increase is capped at 1% annually for the next 10 years. This action would save approximately $3.2 trillion. They haven’t offered any detail about where the cuts would come from, and there is no inflation adjustment to the spending cap.

But since the GOP has said it plans zero cuts in the defense budget and that there will be no cuts for veterans or for border security, cutting everywhere else will be very deep. The NYT estimates that if those programs remained untouched, the GOP plan would cut the balance of federal spending by an amount of a 51% cut across the board.

Seems unrealistic.

Social Security checks could still be issued because a 1996 law provides a means of circumventing the debt limit. It allows the Treasury Department to pay Social Security benefits, along with Medicare payments, even if there is a delay in raising the debt ceiling. It allows for the Social Security and Medicare trust funds to be drawn down to keep those benefits flowing until the debt limit is raised, and the trust fund replenished. It also prohibits those funds from being used to pay for any other government programs.

In the past, the usual political rhythm of fiscal crises is that the GOP House stumbles around for a while, and then, right before the deadline, Senate Republicans and Mitch McConnell come off the sideline. They cut a deal with the Democratic president and pass the deal in the Senate with a big bipartisan majority. They then leave town with the hot potato squarely in the Speaker’s lap.

It’s questionable if this will happen in May, 2023.

Biden should address the nation after the Tuesday talks. How about an oval office address that lays out the facts, along with a call to action: Call your representatives and tell them to pass a clean debt limit bill. He could detail for the American people the cuts the GOP are demanding in return for raising the limit. He could also say that he is willing to negotiate in good faith on the budget with House Republicans as long as the debt ceiling is a separate matter.

The compromise might be to have a temporary debt ceiling increase to allow both to move forward together. Sadly, for McCarthy and the House Republicans, default seems to be preferable to compromise.

This is zero-sum politics with the highest stakes. At the end of the day, all paths lead to the same place: The US will need to find a way to pay the bills it has incurred as they mature.

The question is how much damage will have happened along the way.

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