An Investor's Mental Preparatory Guide for the Democratic Debates

Editors’ Note: As always, our political commentary is non-partisan by design. We favor no party, elected official or politician and assess political developments solely for their potential economic or market impact.

Just in time for next week’s first round of Democratic presidential primary debates, candidates are releasing campaign pledges in droves. We have multiple climate change plans, criminal justice reform packages, infrastructure proposals and a host of others. There are so many words and blog posts that we are sort of surprised the Internet hasn’t collapsed under the weight. One candidate wants to basically declare currency war on trading partners. Another wants to do 100 “big” things in 100 days.^[i] Several want to more-or-less pack the Supreme Court and/or abolish the Electoral College. Universal health coverage proposals are, well, universal, though details vary among candidates. It is a lot to digest. Thankfully, investors don’t have to sift through 24^[ii] candidates’ Medium archives or campaign websites in order to make wise portfolio decisions. In our view, doing so would be at best pointless, as very, very few of these proposals are likely to take effect as outlined today. At worst, obsessing over policy pitches now could be harmful, given politics’ tendency to drive emotional decision-making.

You don’t need us to point out that campaigns heighten people’s feelings. That is what they are designed to do, as emotion tends to have much greater mass appeal than logic. But when assessing politics from an investment standpoint, it is vital to shut emotion off. All the feelings campaigns inspire can easily boil down to fear or greed. Those two emotions are at the root of just about every investment error in the books. In the political realm, fears often stem from partisan bias, whether conscious or not. Only by being conscious of bias, turning it off, and greeting every candidate in every party with equal skepticism do we think investors can arrive at sensible decisions. Let that be your trigger warning. 

We have discussed at length before the impossibility of handicapping the primaries’ winner—never mind the general election—this far in advance. Early polls are seldom predictive and are based mostly on name recognition. We reckon that explains two certain snow-haired gentlemen’s entrenched spots at the top of the list, as well as the blitz of proposals from the other 22^[iii] as they try to garner media attention. Only once the primaries begin and the field starts narrowing does it become possible to assign probabilities. Even then, general election polling faces the hindrance of shy Trump voters who would rather not face ridicule for admitting their political preferences. A similar phenomenon surfaced in Australia just last month.

But let us pretend, for argument’s sake, that you could know the winner today. In our view, it still wouldn’t justify studying every last detail of all policy proposals and parsing the pros and cons. As the old saw goes, how do you tell if a politician is lying? Their lips are moving!

Far be it from us to tar and feather 24 humans with allegations of deceit. But we do think there is a strong case to describe their proposals as fairy tales, not presidential blueprints. The primary electoral system’s incentives favor embellishment and flights of fancy. Candidates don’t win with appeals to pragmatism. Only promises for big change rally the base—especially within the party that doesn’t hold the White House—and the base represents the lion’s share of primary voters. Candidates don’t need to start appealing to centrists and independents until roughly next August or September.

Until then, saying you will do things you have no intention of following through on—and things you know the separation of powers prevents you from doing—is a much better campaign trick than saying what you will do. People want vision. They don’t want reality. Reality is boring. Reality is, “My fellow Americans, if you elect me, I will immediately get stuck in the bureaucratic morass that is the Federal government, and my ideas will flounder! I will submit proposals to Congress, and they will drown in committee! I will support radical proposals until my poll numbers tank! After that, I will run every last proposal through focus groups until it is watered down beyond all recognition! If it doesn’t poll well, I won’t support it! I will also issue dozens of Executive Orders that amount to telling regulators and Congress to study things! Nothing will change, and when it doesn’t, I will blame people with no control over the situation in order to make myself look good! Lastly, my top priority will be my own re-election in four years!”

Do you know anyone who would vote for that?

One easy way to tell all of these proposals are about appealing to the party base: Most amount to overly detailed promises to undo all policy changes of the past two and a half years. #Resistance has been the name of the game for the opposition party since President Trump’s election. What better way to show your #Resistance cred than promising to wipe away all the policies you have verbally #Resisted? It is probably music to primary voters’ ears. But we suspect the eventual nominee will have to shift their message radically if he or she wants to win next November, lest they alienate the voters whose lives and livelihoods have improved over this same period. We are skeptical of giving politicians and policies credit for much economically and still don’t see the tax cuts as a huge driver—they created winners and losers. But many in the country have found something to like. If that weren’t the case, Trump’s net approval rating wouldn’t be positive or neutral in 24 of 50 states—a figure we suspect may be understated, given the aforementioned shy Trump voter phenomenon.

If the general election campaign features a candidate—Trump, Democrat or Independent—who runs on pledges to infringe on property rights, trample free commerce or, yes, declare currency wars, then the time will come for investors to weigh carefully the likelihood that radical promises could become equally radical laws. It will depend not only on state-by-state polling, but also House and Senate races. All are unknowable today. While the chatter could provoke uncertainty and weigh on investor sentiment, it is impossible to know, now, how the 2020 election will impact stocks.

So whether you love or loathe what these candidates are pledging, we encourage you not to get too excited. If you, like us, find entertainment^[iv] in the early portions of a campaign, then by all means, tune in and get your kicks. Just make sure you aren’t logged into your investment account when you do.