Investors Assumed Democracy Would Endure; They’ve Been Right, So Far

Washington and Wall Street are different places, but they seemed like different planets this week.

At first glance, the reasons are obvious. Investors are seeing stronger savings and returns after Democrats took control of the Senate and won both seats in Georgia’s runoff election on Tuesday.

That means that the president-elect

Joe Biden

will be the 20th. His party will control both houses of Congress and thus will be able to provide an economic stimulus in the shorter term. On Thursday, economists from

J.P. Morgan.

The new $900 billion package is expected to increase growth this year from less than 4% to 5.3%.

If Democratic control also makes more regulation and higher corporate taxes more likely, any shift to the left by moderate Democrats in a closely divided Senate must be slowed.

In addition to these immediate reasons, investors’ indifference to the turmoil in Washington can also be seen as a vote of confidence in American democratic institutions. President Trump and many Republican leaders fought to overturn the post-election results, but they were repeatedly rejected by the courts, governors and state election officials of both parties. Since November, investors have assumed that power in the United States will change peacefully, as it has for centuries. Despite the violent disruption to the environment, this assumption was justified.

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But when markets react quickly to a threat to a country’s economic health, they are a poor barometer of the health of democracy. Investors are hungry for conditions conducive to growth and profit, but they do not know whether or not these conditions have been achieved by democratic means.

The world has shown this time and again in recent years. After China introduced a national security law in Hong Kong last summer, accelerating the democratic movement in the country, the Hang Seng stock index soared. Over the past decade, the governing parties in Poland and Hungary have continued to undermine the independence of the judiciary, media and civil society, yet both countries have grown faster than the European Union as a whole. The business community applauded the Indian Prime Minister’s economic policies.

Narendra Modi

even if it violates the rights of the country’s Muslim minority.

Venezuela and Turkey currently suffer from high inflation and economic stagnation, but markets and growth have been increasing for years, even though authoritarian leaders have eroded or destroyed democratic institutions. The markets financed [former Venezuelan leader Hugo] Chavez’s madness for a remarkably long time, he said.

Ricardo Hausman,

an economist of Venezuelan descent, currently at Harvard University.

The United States is not in the same category as Venezuela or Turkey. But his institutions are under pressure. In 2018, Freedom House, a nonprofit group that monitors the state of democracy around the world, said that political freedoms in the United States have declined due to mounting evidence of Russian interference in the 2016 election, violations of basic ethical standards by the new administration, and a decline in government transparency.

Checks and balances like an independent judiciary and the media survived four years of Mr. Trump’s attacks and ultimately held a free election despite his efforts over the past two months.

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The WSJ’s Jeffrey Sparshott curates the latest economic news, analysis and data for the week.

But American democracy has also been challenged in other ways that may threaten economic stability, including through increasing polarization. Influenced by the anti-government Tea Party movement, Republicans pushed the federal government to the brink of national debt in 2011. The politicization of containment measures, masks and science has exacerbated the impact of the pandemic on people’s lives and the economy.

It will be more difficult to develop policies that require a degree of bipartisanship and agreement on the facts if polarization continues in this country, he said.

Daron Acemoglu,

an economist at the Massachusetts Institute of Technology who studied how institutions affect growth.

A growing number of lawmakers have called for President Trump’s removal from office following Wednesday’s tumult on Capitol Hill. And the president admitted in a video on Twitter Thursday night that he would lose the 2020 electoral nomination. Shelby Holliday, WSJ, presents the latest news. Photo: John Moore/Getty Images

Polls show that a significant portion of Republican voters believe Mr. Biden’s victory was fraudulent, despite the lack of supporting evidence. Texas’ Republican attorney general, joined by 17 others, unsuccessfully petitioned the Supreme Court to block state certification of Mr. Biden’s victory. This week, more than half of the Republican members of the House of Representatives, including the Speaker…

Kevin McCarthy,

…voted against accepting the results of the two states where Mr. Biden won. If Trump’s influence continues, Republicans may be even less willing to cooperate with Biden and even more willing to challenge Democratic standards in future elections. If Mr. Biden’s agenda is hampered by Republicans in the Senate or in the courts… Democratic support for abolishing the Senate so laws can be passed with a simple majority and adding Supreme Court justices could increase.

But as Mr. Acemoglu sees it, the shock and condemnation that greeted Wednesday’s attempt to undermine a peaceful transfer of power has created an opportunity to soften this impact and end the polarization and erosion of trust in public institutions. As far as Democrats are concerned, this is the time to build bridges.

Capitol Raid

Email Greg Yip at [email protected]

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