The dramatic failure to read the true socio-political situation in the U.S. ahead of this week’s elections is a disturbing event. As the world digests the unexpected voting results and embarks on a reframing exercise, two narratives are having to change: a financial market one and a socio-political one.
The markets displayed an astounding degree of versatility and resilience this week. As soon as the joyous prospects of a Democratic sweep with its historic fiscal stimulus were gone, the legislative gridlock became just as welcome an outcome. The new perspective of a smaller stimulus was swiftly compensated by the anticipation of less taxes, a lighter regulatory environment and lower interest rates for longer.
Reframing the mainstream socio-political narrative will not be as easy. Until the elections, I read it as follows: ‘Like Brexit, the outcome of the 2016 U.S. presidential election was an accident. Citizens around the nation would mobilize like they never did before to seize the chance to set things straight in 2020. A ‘blue wave’ of decency, caring government and liberal values would bring fresh air to the U.S. and to rest of the world. The minority would need to learn and adapt because the vast majority – the one that sees the light powered by unstoppable progressive forces – is moving on, with or without them.’ A mix of arrogance, condescendence and self-righteousness has blinded many of those promoting this narrative. Ironically, democracy has delivered a message which those positioned as its great defenders could not hear otherwise.
The ‘OK-Not OK Matrix’ (1969) created by Thomas Harris may help explain the failure to see the socio-political situation and pave the way for better dynamics. The tool, which builds on Eric Berne’s ‘Transactional Analysis’, outlines four ‘life positions’ which drive the relationship between individuals (‘I’ and ‘You’): I am not ok/You are not ok (hopeless position); I am not ok/You are ok (inferior position); I am ok/You are not ok (superior position); and I am ok/You are ok (healthy position). The psychoanalytical approach seeks to bring parties stuck in an unproductive or counter-productive narrative in which they cannot understand each other to the healthy position. There, both sides treat each other respectfully as equal, listen to each other, ‘see’ and ‘hear’ each other, and tolerate disagreements. Achieving such a noble state takes time.
In the meantime, the financial markets have been right to be optimistic. The combination of a c.$1 trillion fiscal boost with a dovish Fed enforcing financial repression supports them. The expectation of greater political and geopolitical predictability under a new administration will further contribute to that positive sentiment. In addition, the outcome from the elections may lead to some political moderation assuming an ‘I am Ok/You are Ok’ approach is embraced. The global economy, and with it the industrial technologies sector, is set to benefit from these trends in the U.S. as well as in the other regions due to the expectations of a less antagonistic approach to global trade.
The stars are aligning for a strong 2021. Now on to the vaccines.