how markets “think” about politics

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As I write, US stocks are plunging. I have no idea what will be happening by the time you read this post. However, stepping back from the moment, what does it mean that Wall Street indexes rose after Trump won the 2024 election but fell last week? Or that Ukrainian government bond prices rose from October 2024 until last week and then fell rapidly?

One view is that markets have wisdom–or at least predictive value–because they aggregate information from many people. Investors think critically and rigorously because their money is on the line. The recent trends make sense on their face and confirm that markets are rational.

A different view is that capitalism involves a class struggle, and capital markets rise when the upper classes expect their interests to prevail. This model has no trouble explaining why business leaders, including registered Democrats, would tell Steven Rattner that they like Trump. They were not predicting prosperity for all but expecting to profit for themselves.

I would endorse a third model. Friedrich Hayek had a genuine insight: individuals have limited cognitive capacity and diverse motives. Therefore, individuals cannot reliably assess whole societies, let alone predict the future of anything large-scale. However, says Hayek, within our own domains of experience and expertise, we can reasonably predict specific prices. After a tough spring, farmers will expect the price of wheat to rise.

Prices allow us to plan efficiently. Many people do not seek to maximize wealth but to accomplish something else, such as holding onto a valued job or retiring soon. Nevertheless, the result of all their private planning is a market that is–in certain respects–efficient.

However, markets also create opportunities to profit by correctly predicting the large-scale situation. In turn, such predictions require assessing the present. For example, to guess how the US economy will fare over the next four years, it’s necessary to evaluate Donald Trump as a leader. One can buy bonds and other securities partly on the basis of such predictions. In this way, an accurate evaluation of Trump could pay off financially.

But Hayek’s defense of markets would not encourage us to trust the aggregate results of such thinking. Just because many people trade securities, it does not follow that their overall understanding of the present or their predictions for the society as a whole are reliable.

On the contrary, each participant in a market who tries to predict how a whole economy or country will perform is subject to the same cognitive limitations that–according to Hayek–beset us as voters and policymakers.

Markets do respond intelligibly to news. Wall Street indices fall every time Trump announces tariffs and rise whenever he seems to back off. But these changes are not predictive. In fact, we can easily predict market shifts as soon as we know what Trump says. The market adds little new information.

It’s true that putting money on the line gives an individual a motivation to think rigorously and critically. But motivations do not solve cognitive limitations. The businessmen who confided in Rattner said that they didn’t like “woke stuff” under Biden. Such feelings should not directly influence their market behavior under Trump. Nevertheless, their hostility to “woke stuff” could affect their stock trades by influencing their moods or by leading them to consume news and information that is tilted in favor of Trump. As cognitively limited creatures, we must rely on limited sources and a priori models–also known as ideologies.

In recent months, CEOs reported rising confidence in the economy, while consumers’ confidence slipped. A closer look at consumer confidence reveals that it fell by 28 points among Democrats but rose by 32.8 points among Republicans between January and February. So we can compare three changing predictions: those of corporate bosses, Democrats as consumers, and Republicans as consumers. Why do the Democrats diverge from the CEOs and the average Republicans?

  • The CEOs tend to have different values from the Democratic consumers. If everyone agreed that Trump’s tax policies will boost corporate profits but hurt the environment, CEOs would be more positive than representative Democrats.
  • The CEOs have different information from Democratic consumers. They are awash in data about their own balance sheets, plus business-oriented news. Democratic consumers are seeing negative assessments of Trump.
  • The CEO’s and the Democrats probably hold different mental models of such fundamental issues as the role of government and businesses in our society. Everyone holds such models, without which we cannot absorb new information.
  • Partisan identity is working as a powerful heuristic. Americans are using the party of the incumbent president to predict the economy. This may be unwise, but human beings must use heuristics, and a party label does convey relevant information if you combine it with a model of the society.
  • Some people act performatively. I would probably answer almost any survey question about Trump in a way that made him look bad, even if I didn’t completely believe the literal truth of my response. Some may even buy financial instruments to make a point–witness the popularity of Trump’s cryptocurrency.
  • Finally, the information that people absorb may reflect political agendas. Rupert Murdoch, Jeff Bezos, and other media barons want to affect public opinion, although their impact is uneven because news consumers are sorted ideologically.

This is not a simple model, but it does have a simple core. It is methodologically individualist, presuming that the decision-makers are human beings rather than classes or other abstractions. Regardless of their interests and social positions, these individuals are cognitively constrained and not primarily concerned with assessing the whole society. When they do make general assessments and predictions, these decisions reflect their mental models (which, in turn, often reflect their social positions), limited information, and concrete issues that are salient for them at the time. As a result, markets respond intelligibly to widely reported breaking news but have little predictive value.

See also: The truth in Hayek; making our models explicit; social education as learning to improve models; how intuitions relate to reasons: a social approach; etc.

the future, in utilitarianism and pragmatism

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In 1993, Cornel West wrote that “the future has ethical significance” for pragmatists. “In fact, the key to pragmatism, the distinctive feature that sets it apart from other philosophical traditions—and maybe its unique American character—is its emphasis on the ethical significance of the future” (West 1993, 111). He quotes John Dewey and Josiah Royce to that effect.

At first glance, this claim seems mistaken. What about utilitarianism, which teaches that an act, policy, rule, or institution is good to the extent that it improves happiness in the future?

For philosophers, utilitarianism is a type of consequentialism. In general, consequentialism focuses on the future by assuming that our responsibility is to make things better in the long run. Utilitarianism is the version that equates “better” with greater net happiness. Therefore, isn’t utilitarianism as much concerned with the “ethical significance of the future” as pragmatism is? And isn’t pragmatism a form of consequentialism?

I agree with West that pragmatism has a distinctive focus on the future. Utilitarians believe that we know today the criterion for evaluating future states. We already know what happiness is, and we will find out later whether our current actions promote future happiness. Our concern with the future requires predicting the effects of the present on outcomes that we value today.

In contrast, pragmatists presume that values will change as a result of continuous learning. We cannot know today the criteria by which the outcomes of our present acts will later be judged.

Dewey writes that the “present meaning of action” is the “only good which can fully engage thought.” He is against measuring this present meaning in terms of “a remote good” or “future good,” whether that “be defined as pleasure, or perfection, or salvation, or attainment of virtuous character.” This sounds like a focus on the present to the exclusion of the future. But Dewey adds:


‘Present’ activity is not a sharp narrow knife-blade in time. The present is complex, containing within itself a multitude of habits and impulses. It is enduring, a course of action, a process including memory, observation and foresight, a pressure forward, a glance backward and a look outward. It is of moral moment because it marks a transition in the direction of breadth and clarity of action or in that of triviality and confusion. Progress is present reconstruction adding fullness and distinctness of meaning, and retrogression is a present slipping away of significance, determinations, grasp. Those who hold that progress can be perceived and measured only by reference to a remote goal, first confuse meaning with space, and then treat spatial position as absolute, as limiting movement instead of being bounded in and by movement. There are plenty of negative elements, due to conflict, entanglement and obscurity, in most of the situations of life, and we do not require a revelation of some supreme perfection to inform us whether or no we are making headway in present rectification. We move on from the worse and into, not just towards, the better, which is authenticated not by comparison with the foreign but in what is indigenous. Unless progress is a present reconstructing, it is nothing; if it cannot be told by qualities belonging to the movement of transition it can never be judged (Dewey 1922, 281-2)

This is rich but abstract. For me, at least, Ruth Ann Putnam helps make Dewey’s view more concrete. She defines “inquiry” as a process that begins when we perceive a problem—something that requires action. “Values typically enter into the beginning of an inquiry on an equal footing with facts,” and they emerge on an equal footing as well, but potentially changed by being explored and compared by groups of people. She writes: “the facts are value-laden, and the values are fact-laden” (Putnam 1998, 7).

See also: explaining Dewey’s pragmatism; Dewey and the current toward democracy; a John Dewey primer. Sources: Cornel West, “Pragmatism and the Sense of the Tragic,” in Keeping Faith: Philosophy and Race in America (1993): 96-106; John Dewey, Human Nature and Conduct: An Introduction to Social Psychology (Henry Holt, 1922); Ruth Ann Putnam, “Perceiving Facts and Values,” Philosophy 73, no. 283 (January 1988): 5–19

features of effective boycotts

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Classic boycotts have these features:

  1. A goal: What the boycott aims to achieve.
  2. A target: a decision-maker who is capable of doing something relevant to the goal.
  3. A demand: something that the target could agree to do.
  4. A cost: something that the target will lose if they don’t meet the demand.
  5. Negotiators: Individuals who can credibly agree to stop the boycott if the target complies sufficiently.
  6. A message: a description of the boycott that is aimed at relevant third-parties, such as observers who are undecided about the issue.
  7. Accountable leaders: people who decide on the previous six points and are answerable to those who actually boycott.

I am not posting this list to cast shade on the national boycott that took place on Feb. 28. I participated! And some of these components may have been in place. For example, people who boycotted through “Black churches with longstanding social justice ministries (like Trinity UCC in Chicago)” did have accountable leaders who articulated a message.

Also, it is possible that the seven features that made the Great Salt March and the Montgomery Bus Boycott succeed are not required in every successful action.

Nevertheless, we must think critically about strategy, or else we are less likely to win. I would recommend attention to the strategies that were so important to Gandhi and King.

A teaching case that I wrote for Johns Hopkins’ Agora Institute about the Montgomery Bus Boycott is available free here and can be used by voluntary groups as well as by students in courses. At its heart, it asks people to think about goals, targets, demands, methods, and decision-making processes.

See also: the current state of resistance, and what to do about it; strategizing for civil resistance in defense of democracy; building power for resisting authoritarianism; Rev. James Lawson, Jr on Revolutionary Nonviolence; three new cases for learning how to organize and make collective change; learning from Memphis, 1968; etc.

Google Ngram graph of the word oligarch.

the rise of oligarchy

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The public money and public liberty, intended to have been deposited with three branches of magistracy, but found inadvertently to be in the hands of one only, will soon be discovered to be sources of wealth and dominion to those who hold them… They [the assembly] should look forward to a time, and that not a distant one, when a corruption in this, as in the country from which we derive our origin, will have seized the heads of government, and be spread by them through the body of the people; when they will purchase the voices of the people, and make them pay the price. Human nature is the same on every side of the Atlantic, and will be alike influenced by the same causes. The time to guard against corruption and tyranny, is before they shall have gotten hold of us. It is better to keep the wolf out of the fold, than to trust to drawing his teeth and talons after he shall have entered (Thomas Jefferson, 1785)

In current parlance, I think, an “oligarch” is someone with great personal wealth who influences politics, whether directly or via media. Oligarchs are not publicly traded corporations, and the threat they pose to democracy is different. The rise of oligarchs is also different from income inequality. It’s not about whether the top one percent or the top 10 percent of a country has disproportionate influence but whether a few individuals are “wolves in the fold”–literally making political decisions without accountability.

In fact, wealth inequality may have declined globally since 1980, but we now have about 2,500 billionaires who collectively own about $15 trillion, which is equivalent to the GDP of China (population 1.4 billion people). Some are uninvolved with politics, but a fair number either derive their wealth from government or buy political influence. I count at least 17 countries that have been directly led by billionaires in the last decade (not including the UK, since Rishi Sunak is only worth about $850 million). There are many other countries in which billionaires wield influence without holding office.

Above all, the President of the United States is a billionaire. His sidekick is more than a third of his way to being a trillionaire. The owner of The Washington Post is about a quarter of the way there.

This situation is not exactly unprecedented. John D. Rockefeller was worth about $1.4 billion in 1937. Measured in current dollars, his fortune rivaled Musk’s today. And the Rockefeller wealth transmuted into political power. Three descendants became governors; one was also a vice-president.

However, there are distinctively 21st-century ways in which private individuals sway national politics, here and overseas. Both Musk and Trump are celebrities with massive popular influence. They have millions of followers who treat their wealth as evidence of brilliance and superiority to government. They purchase impunity from almost all forms of accountability. And they enrich themselves at the expense of the government. As Jefferson writes, they “make interested uses of every right and power which they possess, or may assume.”

Google’s NGram tool suggests that the frequency of the word “oligarch” in printed books has risen 13-fold since the millennium (see above). This is just one sign that we are living in an age of oligarchy.

See also: why is oligarchy everywhere? and why is oligarchy everywhere? (part 2).