Limits of Power

This is not intended to be a political post. Indeed, I could easily have written these words four years ago, when Republicans were fretting over Joe Biden’s election.

Political partisans often freak out when their favored party loses at the ballot box, prompting them to take rash financial actions. But with Donald Trump set to return to the Oval Office on Monday, I’d advise sitting on your hands. The fact is, presidents are not omnipotent—and can face swift punishment if their actions unnerve the population. Consider:

• We may only have national elections every few years, but investors vote every trading day. Do folks disapprove of what the president is doing? Up go bond yields and down go share prices. My left-leaning professors at Cambridge would refer to this as a “capital strike.” Such big market movements make politicians sit up and take notice.
• We could also see a capital strike in CEO offices and boardrooms. Do business leaders dislike the direction that the president is taking the economy? They could opt to scale back marketing and capital spending, causing economic growth to slow and perhaps triggering a recession.
• Even consumers can go on strike. An extreme example: Think about what happened when fear of the future hit all of us during the early days of the pandemic. According to Bureau of Economic Analysis data, personal consumption expenditures shrank more than 10% in 2020’s first six months.
• A third of senators and all members of the House of Representatives are up for reelection in less than two years, and history tells us the ruling party typically loses seats. Right now, the Republicans hold the slimmest of majorities in the House. Today’s shocking revelation: Politicians like to get reelected—and at least some Republican congressmen will likely shy away from voting for legislation that could hurt their election chances in November 2026.
• Extreme policies are likely to be challenged in the courts, dragging out their implementation for months or even years.
• Resistance from federal government bureaucrats can also put a brake on radical change. On that score, readers might enjoy the British TV series Yes Minister. Inclined to blame the liberal “deep state” for resisting Trump? Yes Minister was partly inspired by the diaries of British Labor Party politician Richard Crossman.

My advice: Relax, grab the popcorn and enjoy the show. The media and White House decibel level may be higher than usual over the next few years. But I strongly suspect the movie won’t be so different from those we’ve seen before.