Trump seems determined to add himself to a list of infamous peers — political leaders who refuse to leave office even after voters have made it clear it’s their time to go. Many Republicans seem determined to support him in this mission. If history is any lesson, this is a recipe for economic disaster. The US’s financial prowess is based largely on its political stability and the general rule of law investors and corporations expect. Trump refusing to concede, despite both the popular vote and electoral college indicating a clear loss, threatens to cause irreparable damage to America’s economic future.
As of this morning, with the announcement that at least 273 electoral votes will go to Joe Biden and Kamala Harris, they crossed the 270 threshold that is required to win. There haven’t been any credible allegations of fraud, which has been widely acknowledged everywhere from Fox News to CNN, and yet Trump is putting out numerous legal challenges out from Nevada to Pennsylvania (not to mention the two already swiftly thrown out by judges in Georgia and Michigan). As Michael Smerconish, political analyst said on CNN, echoing the sentiments of confused voters across the country: “I don’t see any basis in evidence that there is a theft underway… Where’s the beef?”
Trump often talks about being the best, at any number of things. And indeed, if he continues to refuse to concede, he’s going to truly distinguish himself globally as only the third global leader in modern history who has refused to leave office after losing an election. This puts him into rather strange company: the only two examples I could find were a. Gambia’s President Yayha Jammah, who lost by 10% after 22 years of rule, then refused to concede for a month before going into exile, and b. Laurent Gbagbo of Cote D’Ivoire, who refused to step down after losing by 4%, leading to civil unrest that led to over 3,000 deaths. He was arrested four months later, spent 8 years behind bars in the Hague, and ultimately charged and acquitted for crimes against humanity in the International Criminal Court.
Having previously referred to African nations as “shithole countries,” perhaps Trump admires African leaders more than we thought. If ultimately he refuses to leave office, Trump, like Gbagbo, could equally wind up in prison. Though if he’s actually looked at Africa’s economic track record lately — with countries like Ethiopia, Ghana, Rwanda, Senegal and Tanzania having 3+ percentage point leads on economic growth compared to the US for four years running, he should perhaps take a different chapter from the continent’s playbook.
This of course doesn’t count the many comparisons others have already made of Trump to dictators fighting to preserve their rule; most recently, and surprisingly, Republican Senator Mitt Romney recently compared Trump to Lukashenko of Belarus, who claimed to have won his election by 80% of the vote, and explicitly told the country there won’t be new elections “until you kill me.”
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So why is political instability so harmful for the US’s economic growth? Here’s three key reasons, with both short and long-term consequences.
- Much-needed pandemic relief will be stalled, sending us toward a broader and deeper recession.
It goes without saying that in normal times, widening inequality is bad for the hard-working Americans who contribute to our economic growth. What’s unique about this moment, however, is that we’re already in an economic crisis, where paying rent, buying groceries, and keeping the power and water on are the types of real concerns now faced by almost a quarter of all US households. By the end of this month, at least 5 million Americans will exhaust their unemployment benefits if no additional stimulus from the White House is approved. As the Washington Post notes, Republicans maintaining their Senate majority means “economists no longer expect [aid] to be more than $2 trillion like it might have been in a “blue wave” scenario, in which Democrats win the White House and the Senate.”
The clock is (and has been) ticking. Last week President Trump told reporters “We will have a tremendous stimulus package immediately after the election.” Though the polls are closed and the election is technically finished, it’s up to interpretation if Trump’s definition of “after the election” might actually mean after he’s finished contesting the election results by any means necessary, such that his energy continues to be distracted from his “day job” at this critical time for the US economy.
Even if you’re in the fortunate demographic where affording rent and putting food on the table are not currently a concern, the macro-picture paints a daunting view for all Americans. For example, we’re approaching the holiday season, where consumers across income levels typically spend $1,000 or more of disposable income on gifts as a reliable boost to our economy. If there’s sustained street protests and boarded-up windows, that’s an additional hit on consumer spending. Brian Nick, chief investment strategist at Nuveen, told CNN that there may be “no fourth-quarter growth without additional stimulus.” So even if we survive the next month, the damage to our economy is likely already done.
2. As a general rule, markets hate uncertainty.
Leading up to election results, Bank of America analysts predicted that US stocks could slide as much as 20% if there’s a contested election. This dip wouldn’t necessarily be a short-term aberration: as the US’s stock market and private investments waiver in response to political instability, so would its position as a global superpower. “The U.S. would probably never again regain its position as the center of global wealth and technology,” said Noah Smith in Bloomberg. “As when Russia lost the Cold War and fell into chaos in the 1990s, the collapse would be deep and long.”
3. As global investors lose confidence in the US, they can take their money elsewhere.
Any political instability is enough to makes capital flee markets and seek safer alternatives. Sustained instability could lead to an investment rearrangement in the form of an exodus of capital from the US — with the US dollar crashing and inflation surging — while countries like Japan, Australia, South Korea, Canada, and a number of European powers experience an influx of investment.
“There’s a terrifying risk that an unresolved election could put investors in “completely uncharted territory,” Daniel Ahn, BNP Paribas chief U.S. economist, told Bloomberg. “If there is a constitutional crisis, we believe that the loss of political credibility and standing of the United States as a stable country could threaten its status as a safe haven with unfathomable consequences for the economy and for markets.”
Political instability is a global phenomena — and increasingly impacting “developed” economies. For instance, in the midst of drama over Brexit, the British pound fell to its lowest levels in over 30 years. There’s nothing markets like less than uncertainty, and Trump inserting completely unnecessary uncertainty into the election process has clear spillover to the economy.
The US economy has suffered enough under Covid-19. 25% of Americans lost their jobs, and fully half of these people remain unemployed and struggling to pay their bills. But Covid-19, we hope, is a short-term phenomena that will ultimately go away. The decimation of over 120 years of political civility ending in the customary concession speech and phone call (the first was actually a telegram, from Bryan to McKinley in 1896) is a different matter. Once the trust engendered by this American political tradition is broken, it can’t be easily regained. Political stability is a major contributor to the US’s role as an economic superpower — and if Trump truly wants America to succeed, he needs to step down.
Thanks to Jasmine Rashid for her contributions to this piece. Full disclosures related to my work available here. This post does not constitute investment, tax, or legal advice, and the author is not responsible for any actions taken based on the information provided herein.