November 3, Eastern Time is the official voting day of the US general election. Many people are concerned about the impact of the final result of the general election on the cryptocurrency market. When talking about politics, we often fall into the vicious circle of “keyboard politics”. To this end, this article strives to objectively introduce the US general election situation from the perspective of economics and the impact on various markets under different election conditions.
Viewing the US General Election from the Angle of Economics
In Western economics, there is a branch of political economy, which mainly uses economic analysis methods to study how the government operates. The two most famous theories are the median voter theorem and the Condorcet paradox.
What is the median voter theorem? Let’s look at the actual situation of the US election. We know that the US presidential election uses the Electoral College system. Each state allocates a certain number of electoral votes in proportion to the population. Each state has the so-called winner-take-all system. The candidate who gets the most popular votes in each state directly wins all the electoral votes in that state. There are a total of 538 electoral votes. Whoever gets half of the votes, or 270 electoral votes, will become the next president of the United States.
In each general election, the 50 states in the United States can be divided into the following three categories:
A. The deep blue states that firmly support the Democratic Party are mainly concentrated in the densely populated and economically developed West Coast and Northeast, including New York and California;
B. The crimson states, which are determined to support the Republican Party, are mainly concentrated in the vast Midwest and South of the United States;
C. Swing states or battleground states: The two parties are equal in power, and it is possible to vote for anyone.
The median voter theorem shows mathematically that if voters choose a point along a line, and each voter wants to choose the point that is most preferred by him, then the majority rule will select the point most preferred by the median voter . In terms of actual political implications, the median voter theorem states that if two parties each strive to maximize their chances of being elected, they must bring their positions closer to the middle voters.
Therefore, it is not the dark blue state California with 55 electoral votes or the traditional red state Texas with 30 electoral votes that really determines the outcome of the US election, but the swing state in the middle, so both parties will The vast majority of resources are concentrated in these states.
The following figure shows the distribution of votes for Hillary and Trump in 2016. Red is the state voted for Trump, and blue is the state voted for Clinton. In addition, there are six dark red states: Iowa, Ohio, Wisconsin, Michigan, Pennsylvania, Florida—this is the comeback state that the Democratic Party expected to win at the time, but eventually lost unexpectedly.
Among them, Pennsylvania, Ohio, Michigan, and Wisconsin are well-known “rust belts” in the United States. Because Trump promised to bring jobs back to the United States during the campaign, white workers in these “rust belts” voted for their support. Trump. In particular, the three states of Pennsylvania, Michigan and Wisconsin have been regarded by the Democratic Party as the “blue wall”. The total number of electoral votes in the three states is 46, but Trump has less than one vote in these three states. The slight advantage of percentage points won all 46 votes. This is the advantage of 92 votes. It is the victory in these three swing states that successfully made Trump complete the “reversal victory.”
However, the three states put together, Trump’s popular vote is only 10,7000 more than Hillary, which is only 0.09% of the total votes at the time. This is exactly what the median voter theorem tells us: the result of an election depends only on the attitude of the voter in the middle, and has nothing to do with whether the group of the middle voter is in the majority.
The results of the 2016 U.S. election made people surprised. In particular, Hillary Clinton had nearly three million more popular votes than Trump, but in the end he lost the presidency due to the Electoral College system. Therefore, some people reflect on whether it is more appropriate to change the electoral college system to a direct universal suffrage system. However, from an economic point of view, the democratic voting principle of simple majority may not be a solution to maximize social welfare.
Let’s take a look at the famous Condorcet Paradox and Arrow’s Impossibility Theorem developed later.
In the eighteenth century, the French thinker Condorcet put forward the famous “voting paradox”: suppose that the three alternatives of A, B, and C are faced with the three alternatives of a, b, and c, as shown in the figure.
Note: A (a ＞ b ＞ c) represents-A prefers a to b, and b to c. For example, in the current American society, there are three main political issues: the new crown epidemic, economic policies, and the issue of “black life is expensive”. A is most concerned about the new crown issue, followed by economic issues, and finally the “black life is expensive” issue. Of course, a, b, and c can also be three candidates, such as representing Trump, Biden and Sanders.
(1) If “a” and “b” are duel, the order of preference is as follows:
(2) If “b” and “c” are duel, the order of preference is as follows:
(3) If you take “a” and “c” duel, the order of preference is as follows:
So we get three social preference orders-(a>b), (b>c), (c>a), and the voting results show that “social preferences” have the following facts: social preference a is better than b, preference b is better Over c, prefer c over a. Obviously, this so-called “social preference order” contains inherent contradictions, that is, social preference a is worse than c, and a is not as good as c. Therefore, according to the majority rule of voting, a reasonable order of social preferences cannot be derived.
Subsequently, Arrow used logic and mathematics to demonstrate the “Condose Paradox”. His conclusion showed that in most cases, following the “minority obedience to the majority” method of voting through elections does not guarantee a satisfactory outcome. The leader of the majority. Or to be more precise, as the number of candidates and voters increases, “procedural democracy” will inevitably move away from “substantial democracy”.
In fact, Arrow’s impossibility theorem has withstood all technical criticisms, and its basic theory has never been subject to major challenges and can be said to be invulnerable. But Amatia Sen proposed a solution to overcome the problems derived from Arrow’s impossibility theorem—when everyone agrees that one of the options is not optimal, Arrow’s “voting paradox” “You can solve it easily.
For example, in the current general election, the public has three main choices: choose Trump, choose Biden, and choose not to vote because of anger or indifference. Obviously, if the people generally believe that “Trump election is not the best plan”, Arrow’s Impossibility Theorem can be easily solved, and “Biden’s victory” will become an election result that conforms to the wishes of the majority.
The impact of the U.S. election on traditional financial markets
At present, the US general election has entered the final sprint stage. Under the special background of the global economic recession caused by the epidemic, the result of the general election will have an important impact on the future global political and economic structure. When analyzing these issues in detail, the main key lies in two points: the candidate’s policy stance and future policy implementation resistance. The former depends on the position of the party to which the candidate belongs. For example, the Democratic Party is a left-wing party and emphasizes big government and social justice; while the Republican Party is a right-wing party that emphasizes the interests of small governments and enterprises. The resistance to the implementation of future policies lies mainly in the ownership of the two houses of Congress. For example, if the Democratic Party can control the majority of the Senate and House of Representatives in this election, then the resistance of the Democratic Party to implementing relevant policies in the future will be very small; if the Democrats in this election do not If you fail to control the Senate as you wish, then the implementation of future policies will encounter greater resistance.
First, let’s look at the policy differences between Biden and Trump, as shown in the table below.
The biggest policy difference between the two parties lies in tax and energy policies. For the left-wing Democratic Party, it emphasizes social justice and requires narrowing the gap between the rich and the poor in society. Therefore, it is necessary to increase tax rates for high-income groups and large companies, such as reducing the corporate income tax rate. 21% increased to 28%; the income tax rate of overseas subsidiaries of multinational companies increased from 10.5% to 21%; and the Republican camp supported large-scale tax cuts in order to increase corporate revenue and profits, and ultimately benefit economic development. Similarly in terms of energy policy, the Democratic camp supports green economy and new energy; the Republican Party supports traditional energy, achieves “energy independence” and revitalizes the coal industry. So we have seen Trump withdraw from the “Paris Climate Agreement” after he took office, suspend the “clean energy plan” under Obama and so on. Of course, because of the Democratic Party’s opposition to the development of traditional fossil energy, the interests of the traditional energy industry have been damaged, causing dissatisfaction among the workers in this industry.
Biden and Trump have differences and similarities in the four areas of minimum wage, medical insurance, financial supervision, and Sino-US relations. Regarding the minimum wage, Biden supports doubling the minimum hourly wage, while Trump has an ambiguous attitude. It is highly likely that he hopes that the state government will decide rather than federal legislation. In terms of financial regulation, the Republican Party has always supported financial deregulation. Trump After taking office, he also introduced measures to loosen the “Dodd Frank Act”. Biden did not make a clear statement on financial supervision, but he may be inclined to strengthen supervision after he took office. In the Sino-US trade dispute, both support toughness against China. However, the Democratic Party, as a supporter of free tradeism, firmly opposes imposing tariffs on China, and especially opposes “tariff sticks” on allies. Similarly, in terms of fiscal stimulus, the Democratic Party favors a large-scale fiscal stimulus plan and advocates a fiscal stimulus plan of 2.2 trillion US dollars, while the Republican Party advocates a smaller-scale fiscal stimulus plan. The Trump administration currently proposes a 1.8 trillion dollar fiscal stimulus plan. The US dollar economic stimulus package has not yet been passed by Congress.
As far as the economy is concerned, the biggest impact mainly comes from the three major policy differences-taxation policy, minimum wage, and foreign trade disputes. If Biden wins the election and successfully implements the New Taxation Policy, it is likely to partially reverse the profit dividend of US stocks brought about by Trump’s 2017 tax reform, and the doubling of the minimum wage will also lead to a narrowing of corporate profit margins and ultimately lead to a decline in US stocks; but Biden’s victory also means that the suppression or reduction of risk appetite in Sino-US relations is a great benefit to the field of international trade. Of course, if Biden wins the election, but the Democrats do not win the Senate and Congress continues to split, then it will be more difficult to advance its tax increase policy, which is a big plus for the stock market.
Therefore, in general, the U.S. election will have four results due to the ownership of the presidential candidate and the two houses of Congress, and will have four different effects on U.S. stocks, as follows:
1) Optimistic situation: Trump wins election + unified Congress (advance tax cut 2.0, low probability)
This situation is one of the favorite results of the U.S. stock market, because the Trump administration will continue to promote tax reduction reforms. At the same time, if the vaccine is successfully put into the market at the end of the year and the further spread of the epidemic is controlled, U.S. stocks will usher in a rise;
2) Neutral and optimistic: Biden wins election + split Congress (improving foreign trade relations + tax increases are difficult to advance, and the probability is high)
In this case, subject to the improvement of trade relations, foreign tariffs may be reduced; on the other hand, subject to the constraints of Congress, it is difficult for the Democratic Party to pass tax increase bills in Congress. In this case, U.S. stocks will also usher in rise.
3) Neutral scenario: Trump wins election + split Congress (the policy is not much different from the current one, the probability is medium)
If Trump wins the election, the situation in US stocks will not be much different now, depending on when the impact of the epidemic on the economy will end.
4) Neutral partial pessimism: Biden wins election + unified Congress (improves foreign trade relations, but tax increases hurt profits, and the probability is high)
Although Biden’s victory in the election can change foreign trade relations, on the other hand, the Democratic Party’s tax increase policy and minimum wage policy will harm the profits of US companies; in the long run, it is not conducive to the continued rise of US stocks.
But for emerging market countries, from the perspective of a third party, the impact of the outcome of the US general election on their own financial markets is different from that of US stocks. Specifically divided into the following four situations:
1) Optimistic scenario: Biden + Unified Congress (short-term decompression of trade relations + weakening of the dollar, high probability)
2) Neutral and optimistic: Biden + split Congress (short-term decompression of trade relations + weakening of the dollar, but policy constraints, high probability)
3) Neutral: Trump + split Congress (not much different from the current, medium probability)
4) Pessimism: Trump + unified Congress (trade disputes may intensify + dollar strength, low probability)
3. The impact of the U.S. election on the cryptocurrency market
At present, the cryptocurrency market is not included in the mainstream financial market. Most institutional investors have not yet included cryptocurrencies in their asset allocation pools. Decisions in the traditional financial market will not affect the inflow or outflow of funds from the cryptocurrency market; on the other hand, cryptocurrency The currency market is still a niche market, and its total market value is still less than the total market value of a stock of Apple. Therefore, the impact of the US election results on the traditional financial market will not be passed on to the cryptocurrency market.
For this reason, when analyzing the impact of the U.S. election results on the cryptocurrency market, the correct analysis method is to analyze the specific policies of the Democratic and Republican parties in the cryptocurrency field, rather than “inferences” based on the traditional financial market.
In the previous analysis, the Democratic Party is a left-wing party and emphasizes big government and therefore advocates strengthening financial supervision; while the Republican Party is a right-wing party and advocates small government, represents the interests of business owners, and advocates supervision. Part of the policy views specifically related to the cryptocurrency field are summarized as follows:
From the above, we can see that the Democratic camp emphasizes more on strengthening supervision of cryptocurrencies, while the Republican camp is more open to this. Therefore, if the Democratic Party wins this election, the cryptocurrency market will be under certain regulatory pressure. In the short and medium term, it is not conducive to the rise of the cryptocurrency market, but in the long run, a healthy and regulated market will promote the further development of the cryptocurrency market. And will be included in the mainstream financial market, which is beneficial to the cryptocurrency market. If the Republican Party wins the general election, then the cryptocurrency market will be positive in the short and medium term, but in the long run, if the mainstream financial market wants to accept cryptocurrency, certain supervision is essential.
Comments
Post a Comment