Are We in a Recession or Should I Say a “Banana”?

What is a Recession?

In the 1970’s Alfred Khan, an economist who was responsible for fighting inflation during the Carter administration, used the word “banana” as a substitute for “recession” when speaking to the press. His reasoning was that it made people nervous when he used the word “recession.” Apparently, he later switched to “kumquat” when a banana company complained. He was a funny guy.

We seem to be at a similar moment in history. First, let’s get the definitional argument out of the way. The National Bureau of Economic Research (NBER) uses a variety of factors to say whether the economy is in recession. Two consecutive quarters of negative GDP growth are among those criteria, but there are others. But to be honest, lots of people use the two quarter decline in GDP as a marker for a recession and you wont find many historical periods which had two such quarters that are not now considered to have been in a recession.

So what is the big deal?

Folks who root for the Democratic Party are reluctant to have the word “recession” associated with the Biden administration. Folks who cheer for the Republican Party are eager to tar the Biden administration with the term. The argument is pointless. The fact is the economy is slowing down and two quarters of negative GDP growth are a good marker for that.

Is a slow down bad thing?

In my opinion, a slow down is actually exactly what we need. More than a decade of loose monetary policy accompanied by aggressive fiscal stimulus, supply chain problems, and war have created the worst inflation in 40 years. The Federal Reserve needs to bring that inflation under control quickly before inflationary expectations become ingrained. That means higher interest rates with reduced demand for housing, cars, and capital investment. All of those mean a much cooler labor market. In the context of accelerating inflation these are good and necessary things. Ideally the slow down will be mild and brief, but make no mistake it is necessary.

What Should We Call the Current Phase in the Economy?

If it makes you happy you can call it a recession. If you prefer you can call it a temporary slow down (crossing your fingers and hoping for the best). Or you can follow Alfred Kahn’s lead and call it a “banana” or a “kumquat.” Whatever you call it remember it is not, necessarily, a bad thing.

Opportunities to Move Politics Toward the Center.

Vote in the Primaries

Opportunities to Vote for the the Center and Against Extremists

There are a number of excellent opportunities to prune the political tree of extremists today, August 2, 2022.

On the Democratic Side

Representatives Cori Bush (D-Mo.) and Rashida Tlaib (D-Mich.), both members of the so-called Squad are being challenged by more centrist Democrats in their primaries today. Please vote for the centrists. Representative Andy Levin (D-Mich.), a member of the Congressional Progressive Caucus is being challenged by Representative Haley Stevens (D-Mich.), who belongs to the more centrist New Democrat Coalition in a new district created by redistricting. Please vote for the more centrist candidate, Haley Stevens.

On the Republican Side

Donald Trump has, helpfully, compiled a list of candidates to vote against. (A specific list of 25 candidates Trump endorses in today’s primaries is included in this link.) He calls it endorsements. Absent any other information simply voting against these candidates would help move American politics back to the center.

Please Vote

Please vote in the primaries. If we have no centrist candidates to vote for in the general election, we have only ourselves to blame.

Inflation: What Should the Fed Do and How Far Should It Go?

U.S. Federal Reserve Bank

Inflation is about Monetary Policy

Inflation appears to be at the top of everyone’s mind lately. That is understandable given that current inflation rates are at 40 year highs. It is likely to play a major role in determining the outcome of the 2022 mid-term elections, despite the fact that there is much bi-partisan blame to be parceled out for the current high rates of inflation. There are, also, a lot of silly proposals on the table for combating it, e.g. price controls and gas tax holidays. There are also some ideas that may be reasonable policy suggestions, in their own right, but have nothing to do with inflation, e.g. lowering tariffs, allowing Medicare to negotiate some drug prices, or facilitating more domestic energy production.

Milton Friedman, a Noble prize winning economist famous for his work on monetary theory and policy, said that “inflation is always and everywhere a monetary phenomenon.” Things like supply chain problems, higher oil and gas prices, Russia’s invasion of Ukraine, the rapid snap back from the Covid 19 induced recession, and aggressive fiscal policy did play a role. They helped to kick start the current inflation, but in the absence of accommodating monetary policy they would not have caused persistent inflation.

The Theory

In theory, all of the above would have resulted in some things becoming more expensive. Absent monetary accommodation, these price increases would have been accompanied by declining prices for other goods and services. If those price declines did not materialize, because of “sticky wages and prices” we would have seen a recession until the under-employment of labor and other resources forced a relative price adjustment.

Evidence Backing the Theory

Those who think this is just theory should take a look at the inflation rates in Switzerland. The inflation rate in Switzerland (3.4%) is about half that of the rest of Europe (8.6%), yet virtually all of the litany of other factors listed above were present for Switzerland. What is different? Switzerland does not use the Euro and Switzerland’s monetary policy is not controlled by the European Central Bank (the European version of the Fed). Also of note is Turkey, which runs its own, extremely loose, monetary policy and has an inflation rate of 78.6%.

The History: The Fed, The Energy Crisis, and Monetary Policy in the 1970’s

In the 1970’s the Federal Reserve Board attempted to avert a recession, in the aftermath of that decade’s oil price shocks, by expanding the money supply. The idea was to produce just enough inflation so that wages and prices for non-energy intensive goods could decline in real terms (but stay constant in nominal terms) while prices in energy intensive industries could increase in real and nominal terms. Done just right this results in mild inflation and no recession. Sadly, the strategy is nearly impossible to execute properly. The problem is that inflation, once started is devilishly difficult to stop. The result was the “stagflation” of the 1970’s, high inflation and low growth. It was not until Paul Volcker really put the screws to the system, in the early 1980’s, and drove interest rates over 20%, that inflation was finally crushed.

What Should the Fed Do Now?

The policy solution is straight forward, if somewhat distasteful. The Fed needs to reduce the rate of growth of the money supply and quickly raise real interest rates with all of the tools it has at its disposal.

Calculation of Real Interest Rates

Real interest rates are the difference between the nominal interest rate and the expected rate of inflation.

The 10 Year Real Interest Rate

In calculating real interest rates it is important to subtract an estimate of inflationary expectations rather than a historical inflation rate, like the CPI, from current interest rates. The problem with using calculated measures of inflation, like the Consumer Price Index (CPI), is that they are backward looking and the current interest rate is forward looking. If we use the current nominal yield on 10 year Treasuries of 2.9% and the Federal Reserve Bank of St. Louis’ estimate of average inflationary expectations over 10 years of 2.34%, the real 10 year interest rate is 0.56% (2.9 minus 2.34), or nearly zero.

The Short Term Real Interest Rate

If we use the New York Fed’s estimate of 12 month forward inflationary expectations of 6.8%, the real short-term (one year) interest rate is -3.8% based on the current nominal yield on Treasuries of about 3%.

However you look at it, real interest rates, despite recent Fed action, are still either extremely low or significantly negative.

What Should the Target Be?

How high should the Fed push real interest rates? Reasonable people can disagree about the target and the speed for getting there. My own preference would be to see real short-term (1 year) interest rates at about 1-2% and long term (10-30 year) real rates of 3-4%. Getting there will require nominal interest rates in the high single digits or possibly higher. I am not sure what the appropriate speed should be to reach this target but I am sure that it is faster than the Fed is currently moving.

Will this Mean a Recession?

Maybe, but the longer we wait before trying to bring inflation down, the deeper and longer lasting the recession will be. We have already waited too long.

Endorsement for June 7, California Primary for the U.S. Senate Seat.

Vote In the California Primary for U.S. Senate

The California primary for the U.S. Senate seat will be held June 7, 2022. It is an open primary with 20 candidates including Democrats, Republicans, Greens, Socialists, and independents. The top two vote getters, regardless of party, will go on to a general election. You would think that in a field that large the Centrist Independent Voter could find a truly attractive choice. Well, actually, it is not as easy as we had thought. Many of the candidates are running just to focus attention on a pet issue. While some of these issues are worthy, these candidates are not even trying to present themselves as viable general election candidates.

Gov. Gavin Newsom selected Alex Padilla (D) to replace Kamala Harris when she became Vice President. California law requires an election to fill the seat at the next available election cycle. There are, therefore, two U.S. Senate elections going on in California this week: one to finish out Harris’ Senate term and one to succeed her.

Padilla is heavily favored to win enough votes in the primary to put him into the general election for both terms.

Among the challengers there is one candidate who, in our mind, should also be there. That is Jon Elist. A Republican, he characterizes himself as a pragmatic conservative. There is a small amount of overlap between his positions on issues and those of the Centrist Independent Voter. On those issues he does address, he takes advantage of his newcomer status to remain vague on what he actually would support. I am sure that during the general election he will be forced to be more explicit about his policy preferences. Nevertheless, we find his attempt to seek the crossover vote rather than cater to the hard right as refreshing, and would like to see him on the ballot in the general election.

We, therefore, endorse Jon Elist in the June 7, 2022 California primary for the U.S. Senate.

Gun Control

Gun Control Legislation

The Centrist Independent Voter policy position on gun control supports the Heller decision by the Supreme Court. That decision made it clear that there is a constitutionally protected, individual, right to bear arms. It also clearly states, as President Biden noted last night, that that right is not unlimited.

Now that Congress is considering passing legislation to codify some of the limits on gun rights, I think that CIVPAC should take sides on what those limits should be. Here is my list:

1) Banning the sale of high powered, semi-automatic rifles (i.e. assault weapons), or at a minimum raising the age to purchase these guns to 21, with waiting periods for anyone else wishing to purchase an assault weapon;

2) Banning the sale of high capacity magazines and bump stocks;

3) Raising the age to purchase any gun to 21;

4) Universal background checks with no loopholes for gun shows or online sales;

5) Red Flag laws that can prevent those who are under court orders from getting guns;

6) Regulation of “ghost guns,” (unregulated firearms that anyone-including minors and prohibited purchasers-can buy and build without a background check);

7) Making those who, through negligence or intentionally, allow their firearms to be used by others, legally liable for crimes committed with those firearms. This would, also, apply to those who illegally sell firearms.

Why Not Remove Liability Protection for Gun Manufacturers?

Much of this list overlaps with President Biden’s proposals. One thing that is missing is removing liability protection for gun manufacturers, for the use of guns in the commission of crimes. I view that part of the Biden package as a reward to the plaintiffs’ bar. The plaintiffs’ bar is to the Democratic Party what the NRA is to the Republican Party.

The reason why the liability protection for gun manufacturers exists in the first place is because many believe, with some justification, that without it law suits would effectively make the sale of firearms prohibitively expensive. Many view removing this protection as a slow form of banning the purchase of guns altogether. We do not hold automobile manufacturers liable if one of their cars is used to rob a bank or kills someone in an accident caused by the driver. It is not necessary to provide this kind of protection for automobile manufacturers because no one believes a jury would hold automakers liable under these circumstances. The same cannot be said for juries trying to find someone to punish after a mass shooting in which the perpetrator is dead.

At the same time, it would not be unreasonable to hold manufacturers accountable if they intentionally marketed legal guns that could easily be converted into illegal guns, when there was a way of manufacturing the gun that could easily prevent this from happening. The key here is to find a good faith method of regulating the industry that is not a gift to the plaintiffs’ bar and provides clear guidelines to the industry about what is legal and what is not.

For a thoughtful history of the Second Amendment and battles over gun control, see Gunfight: The Battle Over the Right to Bear Arms in America, by Adam Winkler. Winkler is a professor at the UCLA School of Law and has been ranked as one of the twenty most cited legal scholars in judicial opinions, including landmark Supreme Court cases on the First and Second Amendments.

Legislative Resolution of the Debate on Abortion Rights

Legislative Solution to Abortion Rights

The Centrist Independent Voter policy position on abortion rights is that if Roe/Casey is overturned, we should attempt to re-establish those same rights legislatively. The position is also that we should not take that opportunity to either expand or contract those rights.

Susan Collins(R) and Lisa Murkowski (R) have jointly introduced legislation in the Senate to accomplish exactly this objective. This link also provides their defense of this legislation.

If the Democrats in the Senate were to embrace this proposal, they might well be able to muster the votes necessary to overcome the filibuster. In addition to Collins and Murkowski, Shelley Moore Capito (R) is pro-choice. I believe seven more Republicans can be found who would settle for this legislation rather than risk having the Senate rules changed to eliminate the filibuster and seeing the Democratic version of this legislation pass and seeing the Court packed with liberal justices.

Remember some conservatives objected to the Roe decision because it represented an overreach by an activist court rather than because of the content of the decision. Reversal of Roe combined with a legislative answer to the issue constitutes victory for these judicial conservatives.

Democrats who want to use this issue to end the filibuster and pack the Court should remember that they will not always be in control.

Democrats who turn down this compromise, because they hope to gain a political advantage in the mid-terms, should remember that their refusal to even consider the compromise will hurt them. They should also remember that while support for abortion rights similar to those laid out in the Collins/Murkowski legislation is widespread, support for unlimited abortion rights is far less popular.

A final reason for Democrats to embrace the Collins/Murkowski bill is that it would make a Supreme Court decision on the issue currently before the court moot. If the Collins/Murkowski bill became law, the Mississippi law before the Court would clearly be illegal. The Court does not issue decisions if the issue is moot. That would address the concern that the Alito draft decision, if adopted, would set a precedent that would undermine other court decisions such as contraception and same sex marriage rights. If the Democrats wait until the Supreme Court delivers their final decision they will have missed this opportunity.

2022 Utah Republican Primary for the U.S. Senate

2022 Utah Republican Primary for U.S. Senate

The Republican primary for the U.S. Senate seat is scheduled for June 28, 2022.

Mike Lee, the incumbent U.S. Senator from Utah, has gone from a Trump skeptic to a Trump enabler.

If the Utah Republican Party nominates Lee for the U.S. Senate race in 2022, it is likely that the Centrist Independent Voter will endorse his independent opponent, Evan McMullin, in the general election. The Utah Democratic party has chosen to forego nominating a candidate and has endorsed McMullin. McMullin is a center-right candidate and is attempting to forge an alliance of Democrats, independents, and disgruntled Republicans. If Lee wins in the primary this strategy might well succeed, as noted in this article in the Economist.

The other Republican candidates for this seat , according to Ballotpedia, are Becky Edwards and Ally Isom. Of these, Becky Edwards appears to have the stronger chance of defeating Lee based on polling data.

Edwards is reliably conservative and hardly a centrist, but she does not have Trump’s endorsement and has the best chance of defeating Lee. The Centrist Independent Voter, therefore, endorses Becky Edwards in the Republican primary for the U.S. Senate seat from Utah.

To see other Centrist Independent Voter endorsements in the primaries visit 2022 Primary Endorsements. To see Centrist Independent Voter endorsements for the general election visit 2022 General Election Endorsements.

2022 General Election Endorsement for Ohio Senate Race

2022 Ohio Senate Race

Centrist Independent Voter Endorsements for the 2022 General Election

Because of limited time and resources, we are focusing on a relatively small number of elections in 2022. If you have an election you would like us to take a position on, contact us through the feedback button on the side or bottom of this page or use the contact us page. We will be adding more general election endorsements as the primaries conclude.

Ohio General Election for the U.S. Senate Seat

The Republicans have nominated J.D. Vance for this seat. We endorsed Matt Dolan in the Republican primary. Dolan did better than expected, by not good enough to get the nomination. Vance has a number of strikes against him. First, he has Trump’s endorsement. If Vance wins, Trump will use that fact to strengthen his hold over the Republican Party. Second, Vance has come to embrace what some refer to as Conservative Nationalism. As best we can determine, this means conservative on social issues like abortion, protectionist on trade, anti-immigration and isolationist on international affairs. In a particularly egregious example of his isolationist views, he has made it clear that he is indifferent to Ukraine’s fate. Anyone who has examined the Centrist Independent Voter’s philosophy section or the public policy section would conclude that the Centrist Independent Voter could not endorse J.D. Vance.

The Democrats easily nominated Tim Ryan. The Centrist Independent Voter endorsed Ryan in the Ohio Democratic Primary. Ryan is a center-of-the-left politician. For our tastes he is far too pro-union, but Ohio is heavily unionized. For a review of his positions on other issues visit ontheissues.org. He is, also, a member of the Problem Solvers Caucus in the U.S. House of Representatives, which marks him as more centrist than many Democrats. He is certainly more centrist than his opponents in the Democratic primary.

There is no question that Ryan is something of a long shot. However, a win for Ryan would strongly buttress the case, to both parties, that extremism loses, moderation wins. Tim Ryan therefore gets our endorsement for the U.S. Senate seat from Ohio.

Draft Abortion Decision

Supreme Court Draft Decision

I just finished reading the introduction to the draft Supreme Court decision on the Mississippi abortion law. I highly recommend reading it before leaping into the debate on this issue.

The Centrist Independent Voter position on Abortion is in our policy position section.

I don’t agree with the conclusions presented in the introduction. I do think that the Court did have the choice of holding that Roe and Casey were settled law and that therefore the Mississippi law was unconstitutional. They could also have decided that, in line with Casey, the Mississippi law did not constitute an “undue burden” and was therefore acceptable.

How Broad are the Implications of this Decision, if Adopted?

I do agree with the author that this draft decision, if adopted, would not spell the end of other Supreme Court decisions on sexual relations, contraception, and marriage. All of those decisions addressed due process and individual liberty in situations that did not potentially affect an “unborn life.”

Where Do We Go From Here?

If this decision is adopted, the correct course of action is not packing the Court or eliminating the filibuster. Packing the Court will only lead to an ever larger Court, as each side gains enough power to add more Justices who favor their views. Breaking the filibuster means national legislation that will flip back and forth as each side gains a legislative majority and the Presidency.

The correct course of action is, first, to get busy at the the state level and pass legislation that secures some level of abortion rights. On this effort a willingness to compromise would be helpful. The second course of action is for Democrats to realize that they could have a solid 60+ majority in the Senate, if they became a true center left party and ignored the wishes of the progressive wing of the party. Once that is accomplished, we can have a national legislative compromise on the issue of abortion that securely establishes a reasonable degree of protection for abortion rights. This will probably resemble a legislative version of Roe.

The Pennsylvania 2022 Primaries

The Pennsylvania 2022 Primary: May 17, 2022

The race for the U.S. Senate seat from Pennsylvania, currently held by Pat Toomey (R) is heating up. Toomey is not running and there is a big field in both the Republican and Democratic primaries.

The Democratic Primary

The four candidates in the Democratic primary are: Conor Lamb, Alexandria Khalil, Malcolm Kenyatta, and John Fetterman. Khalil, Kenyatta, and Fetterman all seem to be competing for the progressive vote. Conor Lamb is reliably left of center on most issues. He is also a member of the Problem Solvers Caucus in the U.S. House of Representatives, which earns him our endorsement in the Democratic primary. The Philadelphia Inquirer, also, identifies him as the most moderate candidate in the race.

The Republican Primary

The seven candidates in the Republican Primary are: Kathy Barnette, Jeff Bartos, George Bochetto, Sean Gale, David McCormick, Mehmet Oz, and Carla Sands. Oz managed to secure Donald Trump’s endorsement which excludes him from our endorsement. Oz has no political or public policy experience and he would not have gotten our endorsement even if Trump had not endorsed him. While there isn’t anyone remotely centrist running for this seat as a Republican, the least extreme candidate appears to be Jeff Bartos. On the basis of this dubious distinction Bartos is able to garner our endorsement for the Republican primary.

Our overall recommendation is, therefore, to vote for Conor Lamb in the Democratic primary, if you can. Unfortunately, Pennsylvania is a closed primary state and you have to register by May 2, 2022. If you have to vote in the Republican primary, our recommendation is Jeff Bartos.

For an up-to-date summary of all Centrist Independent Voter endorsements to date for the 2022 primary season visit the Candidates page.