Cozen Currents: Biden Goes Off-label

The Cozen Lens

• Young voters and progressives are a weak spot for President Biden’s re-election bid, particularly as Israel’s war with Hamas has left the Democratic Party deeply divided.
• As the presidential election draws closer, the Federal Reserve continues to stick to its higher-for-longer approach, which could lead to interest rate cuts later this year being perceived increasingly through a political lens.
• With Congress becoming more dysfunctional in recent years, respective administrations have relied more heavily on executive actions to regulate, and deregulate, as the case may be, their partisan agendas. The resulting pendulum has resulted in significant uncertainty for the staying power of a broad array of major policy actions as well as the companies responsible for complying with them.

The Future of the Progressive Movement

Young Voters and the Democratic Party. Though young voters are more likely to identify as progressive, they’re increasingly a weak spot for President Biden.

• Polling shows that a majority of voters 18-29 years old have progressive views on major issues including guns, climate, economic inequality, and LGBTQ rights. At the same time, Biden’s edge among young voters is slipping and younger Democrats are more likely to hold negative views of the party and less likely to call themselves strong Democrats. Rather than a partisan “re-aligning,” this dynamic has been described as a “de-aligning” with young voters moving away from labels.
• Biden has sought to solidify the support of young voters. In recent weeks, the White House announced the cancellation of $7.4 billion in student loans, bringing the total value of loans forgiven to $153 billion and is reportedly planning to reschedule cannabis. He has held events with noted progressives such as Senator Bernie Sanders (I-VT) and Rep. Alexandria Ocasio-Cortez (D-NY).
• In a world where progressives are less likely to see themselves through the lens of political parties, it will be a defining challenge for Democrats to earn their votes and keep them energized.

Mixed Primary Results. Both progressives and mainstream candidates have each won some battles for the future of the Democratic Party.

• Rep. Summer Lee (D-PA), a member of the progressive Squad in the House, defeated Edgewood, PA Council Member Bhavini Patel by over 20 percentage points in a race where the war in Gaza featured as a major issue. Patel was outraised by Lee, whose victory and list of endorsements reinforces the strength of the Squad.
• Progressives suffered a major defeat in California’s all-party US Senate primary this year when both of the more left-leaning candidates failed to advance to the general election. Rep. Adam Schiff (D-CA) and Republican candidate Steve Garvey claimed the top two spots, locking out Reps. Barbara Lee (D-CA) and Katie Porter (D-CA). Schiff is virtually guaranteed to win in November.
• The next major Democratic primary to watch will take place in Oregon’s deep-blue third congressional district on May 21st. It’s a three-way race among state Rep. Maxine Dexter (D), the more mainstream candidate, and opponents former Multnomah County Commissioner Susheela Jayapal and Gresham, OR Council Member Eddy Morales. Jayapal is the sister of House Progressive Caucus Chair Pramila Jayapal (D-WA).

A Divided Party. Israel’s war with Hamas has split the Democratic Party.

• Many progressives and young voters oppose US support for Israel in the Gaza war and call for a ceasefire.
• Student protests against Israel and the Gaza war have dominated the news in recent weeks, deeply dividing Democrats. Last week, a group of 21 House Democrats led by Reps. Josh Gottheimer (D-NJ) and Dan Goldman (D-NY) sent a letter to Columbia University’s board of trustees calling for Columbia to bring an end to pro-Palestinian demonstrators’ campus encampment. On the other side, members of the Squad have backed the protestors. Rep. Ilhan Omar (D-MN), whose daughter is involved in the Columbia protests, visited campus last week, making remarks seen as deepening polarization.
• Democrats’ divisions over the Gaza war recall the ways in which the Vietnam War split the party in 1968, sparking violence at the Democratic National Convention in Chicago and contributing to the election victory of President Nixon. Failure to unite the Democratic coalition risks costing Biden votes in November. Over 500,000 Democratic primary voters have voted “uncommitted” as a protest of Biden’s policy towards the Gaza war. The Biden campaign last week tapped Rep. Ro Khanna (D-CA), who voted against US aid to Israel in April, to make the case to Wisconsin college students that they should vote for Biden in November regardless.

Powell's Predicament

Mixed Signals. The economy facing the Federal Reserve has become increasingly complex, offering no obvious path forward for its interest rate policy.

• Entering the start of the year, there was an expectation that the Fed would cut rates several times, and the question was when and how many. Now, the question is shifting to whether the Fed will cut rates at all, with more analysts starting to believe the Fed will leave rates unchanged in 2024.
• Inflation has continued to be sticky over the last several months, and though growth has largely remained robust, the latest GDP reading suggested this could be moderating. Given that inflation appears to be the key determinant right now for when and how much the Fed may cut rates, there is some discussion about the possibility of the US entering a period of stagflation as the Fed continues to pursue its higher-for-longer approach.

Politics and Economics Collide. The challenge for the Fed, and Federal Reserve Chair Jerome Powell in particular, is further muddied by the presidential election.

• Given this confluence of events, some argue Powell may cut rates before the election to boost President Biden’s reelection chances, thereby saving his job, as former President Trump is expected to replace him. The Fed may cut rates, but it is unlikely to be politically motivated. Powell is an institutionalist and will want to protect his legacy and the Fed’s image as an apolitical institution, a desire likely magnified by the Supreme Court’s increasingly partisan perception. Powell would much rather be remembered alongside Paul Volcker than Arthur Burns, making difficult decisions to fight inflation instead of currying political favor.
• While Biden and Powell operated with a hand-in-glove relationship at the start of Biden’s term, the president has been reluctant to pressure Powell to cut rates. Biden’s silence on the issue has even frustrated other Democrats who want the president to use the bully pulpit more actively to lean on the Fed chair.
• Despite the low likelihood of any political motivation for Powell behind any rate cuts ahead of the election, political blowback will likely be impossible for Powell to avoid if he does choose to cut rates before November, with the last opportunity being the Fed’s September meeting. Still, to minimize the potential attacks, Powell will likely only look for a cut if there is a strong consensus among the Beltway economic intelligentsia. Doing so will mitigate the chance for broader criticism that Powell is taking a risk that can be construed as an attempt to help Biden.

The Trump Factor. Given Trump’s dislike for Powell, a question in recent months has been how he may look to reshape the Fed and when he may replace Powell.

• Recently, Trump advisors have been exploring avenues to decrease the Fed’s independence, including increasing the White House’s role in setting interest rates policy at the Fed. Trump has not publicly endorsed the ideas, and there is some divide within his camp. Still, his history of attacking the Fed and advocating for policy changes suggests he may not oppose them.
• As for Powell, these aides are also eyeing means to potentially remove Powell before the end of his term as chair in May 2026, either through firing him for cause or demoting him and replacing him with a sitting Fed governor. In the latter plan, the top candidates would likely be Governors Mikki Bowman and Chris Waller, both of whom were appointed by Trump. However, a hang-up with their appeal to the former president could be their more hawkish stances, as Trump will likely look for rates to be lowered if he returns to the White House.

The Regulatory Pendulum

The Managerial Presidency. A combination of increasing complexity and legislative deadlock has increasingly strengthened the power of the executive branch.

• The world of 2024 is an entirely different world from that of 1789: everything is just a little bit more complex these days. Not only that, but the expected role of government in the economy and society in that complicated world has vastly expanded as well (especially accelerating under FDR’s New Deal). In simple numbers, US government expenditure as a percent of GDP has risen from two to 36 percent from 1800 to now even as total real GDP has itself grown almost 2500 times over that duration.
• Congress writes laws that the president executes. With a total budget of over $6 trillion dollars and almost 3 million employees, if Congress sets out the broad strokes, that nevertheless leaves a lot of details to be filled in. The sheer scale of the undertaking means many decisions have been outsourced from lawmakers to the Executive Branch. Commentators have been flagging the increasing power of the executive branch since at least Arthur Schlesinger’s famous 1973 The Imperial Presidency all the way to modern MAGA concerns about the “deep state.”
• Compounding the issue, Congress’ ability to assert itself and conduct oversight has been shattered by partisan bickering under divided government and the filibuster in the Senate. Leaders of both parties also have seen the increasing impossibility of legislative action as a reason to offload powers to the presidency in the hope their party can take advantage after winning the White House. The growing traction of conservative legal theories about the unitary executive and the wide-ranging scope of immunity adds yet more fuel to the fire.

Everything, Everywhere. While an institutionalist at heart, President Biden has allowed, and at times even pushed, his administration to take bold, progressive actions that have impacted every major sector.

• One of the most contested areas between the parties concerns environmental policy, primarily governed by the Environmental Protection Agency, the Department of the Interior, and the Department of Energy. Under President Biden, these agencies have worked to install groundbreaking rules for power plants, vehicle emissions, oil and gas leases on federal land, fossil fuel drilling in general, protected species and land, and more.
• The financial sector is similarly exposed. The Consumer Financial Protection Bureau has released rules on open banking; the Federal Trade Commission has restricted the use of non-competes; the Department of Labor has proposed sharply increasing overtime eligibility; the National Labor Relations Board has made it much easier for workers to form a union; the Securities and Exchange Commission has propagated climate disclosure and market structure reforms, etc.
• Other relevant examples include the Federal Communications Commission’s installment of net neutrality, the aggressive actions taken by the Federal Trade Commission, and oversight of Medicare and Medicaid programs via the Department of Health and Human Services. Even outside of specific agency actions, the government has broad influence to shape markets via its procurement policies (e.g., on the requirements imposed on AI products the agencies buy).

A Jenga of Regulation. The polarization of politics means that rules are imposed, gutted, and restored with each election. Experts say that’s bad for the economy.

• Modern presidents issue Day One executive orders to reverse those installed by the opposite party. Political organizations methodically comb through ideas and proposals before the job even begins: the Heritage Foundation’s Agenda 2025 is just one 920-page example. This also means the actions of the modern federal government flow to a different rhythm. Besides these early executive actions, most regulations are governed by requirements laid out in the Administrative Procedure Act. The ability to expeditiously reverse rules via the Congressional Review Act means administrations have more pressure to finalize rules before the end of the term.
• The whiplash between federal agencies under different administrations causes significant uncertainty for economic actors, especially in industries with long time horizons and those that require significant upfront capital investment. Research behind a Policy Uncertainty Index shows when the measure jumps to 50 points, it creates an economic shock of such magnitude that it leads to a 1.5 percent decrease in industrial production, a 0.4 percent increase in unemployment, a 2 percent increase in commodity prices, and a 0.4 percent increase in consumer prices.
• This situation could become even more exacerbated in the future. If former President Trump is re-elected, he may well decimate civil service protections, permitting future administrations to staff executive agencies with loyal lackeys rather than nonpartisan professionals. Such an outcome would likely lead to mass firings and replacements with every new political party in the White House. The shift to the regulatory state correspondingly also shifts battlegrounds to the courtroom as political opponents sue to reverse rulemakings. One possible countervailing force hangs on the outcome of Loper Bright Enterprises v. Raimondo, a case before the Supreme Court that could end regulators’ ability to broadly interpret statutes as they deem appropriate.