Sunday, June 10, 2018

Stock market lessons for politics

"The average behavior of the market participant will not allow us to understand the general behavior of the market."

                                                          Nassim Taleb, "Skin in the Game"

The financial markets help explain democratic politics. Motivated buyers and sellers make the markets.

Stock markets do not move because the average investor changed his or her mind. Same with political movements. The average investors and the average voters don't buy or sell. They hold.

Housing prices boomed leading up to 2007, then collapsed in 2009-10. Most readers have a feel for that period. Readers who own stocks remember the same period and timetable. 

Relatively few people bought, sold, and re-bought houses during that period. Most people owned what they owned, hung on, and lived through it. The market in housing was created by people on the margins, who bought near the top with borrowed money, couldn't manage the debt, then needed to sell in distress.

There is a lesson there, summarized by Nassim Taleb, the author of The Black Swan, Fooled by Randomness, and his current book Skin in the Game. He does with market behavior what this blog attempts to do with political behavior: notice the obvious and interpret the implications. The average guy doesn't make the market. The motivated guy does. 

Prices drop dramatically when there is a rush to the exits. The metaphor to have in mind is a large theater with relatively small doors. People in the large room evaluate the safety of the room by glancing at the doorways, and the size of the scrum at the door, and whether the crowd is entering or departing.

Opposes LNG terminal
This brings us to politics. In southern Oregon many people are unhappy with the Jordon Cove pipeline project--a controversial plan to link a Natural Gas Liquification facility at the Port of Coos Bay with natural gas in mid-continent.  Most people don't know much.

A few people oppose it passionately. This was initiated locally by people whose property the pipeline would have crossed, plus some people near the port whose fishing boats or homes could be affected. This kernel of opposition got others involved, including people who generally don't like fracking or fossil fuels or who are alarmed by pipelines, i.e. generally the "environmental community", which is generally aligned with the Democratic Party. Small group. Larger group. Larger yet.

A candidate for the nonpartisan office of County Commissioner in Coos County, Katy Eymann, telephoned me requesting a large campaign contribution. She said she was firmly against the facility in Coos County, and if the facility weren't built then the pipeline going through my area would not be built either.

Pressuring Merkley
I said that her local allies--opponents of the pipeline--picketed my house and attempted to sabotage a fundraiser I was hosting for US Senator Jeff Merkley, the 2nd most liberal member of the US Senate. Not even Merkley was good enough for them, I told her. They were attempting to hurt the guy who was already out on a limb generally supporting every progressive, environmental policy out there. They make it impossible to elect Democrats in Oregon, I complained. They force them so far left they become out of touch with the average voters.

Her response was an instruction in politics. 

"Weren't those protesters just great," she said. "It worked!"  

They had leverage. Merkley has recently announced his opposition to the pipeline and terminal. 

Meanwhile, other Democrats are holding back. Democratic Governor Kate Brown and US Senator Ron Wyden have been neutral, recognizing that the project has economic development opportunities and support, particularly in Coos Bay and among union members.

Leftist picketers of Jeff Merkley's fundraiser wanted to communicate that there was greater political cost to him of failing to mollify their group than there was of attempting to stay neutral. He risked losing support of environmentalists generally if he didn't comply and that they were willing to cause that hurt. He needs their support.

Will this put Merkley at risk of looking extreme, of losing labor support, of being politically more vulnerable in the general election? Yes, probably. He will be called anti-jobs, anti-economic development, anti-Coos Bay. Opponents will point to this.

So why do it? 

Because if a decisively leftist US Senator like Merkley loses support from the environmental left--the voters whose interests he works every day to represent and whose supports he needs since he is already committed in opposition to the fossil fuel industry--then he would be doomed. They had leverage on him. They used it to move a leftist further left.

Greg Walden:  top NRA's top recipients of cash. 
Readers who cannot understand why background checks on guns--something that polls show has overwhelming popular suport--does not get passed can reflect on leverage from the gun-rights NRA right. Most Republicans don't care passionately about guns, but some 10% do. Opposition from this group means grave trouble to a Republican, so Republicans candidates fall into line and oppose gun restrictions. They mollify this cohort.

The average voter does not create the "political market," on guns because they are buy-and-hold Republicans. The political market is determined by the minority of persons entering or leaving the small door, i.e. the passionate gun rights Republican willing to sabotage a Republican if he or she isn't compliant.

LNG pipeline opponents and the NRA gun rights people are the ones "making the market" because they are the ones who insist on getting exactly what they want.

The price is set by the people at the door.


  1. Thanks for the interesting analysis. Clearly markets and political movements are led by engaged minorities, much like art, literature, science, technology, religion and other human endeavors. But what is your take on the pipeline? And is environmental activism really "leftist?" Trump and the Koch Bros have made climate change denial 'rightist' but at some point catastrophic wildfires, extreme weather events, agricultural collapse and rising sea levels affect people of all persuasions. In the case of the pipeline, some of the strongest opponents are Republican landowners. And Jeff was straddling a politically hazardous contradiction during the time that he was advocating 'leave it in the ground' and supporting Jordan Cove. Perhaps the folks who confronted him actually did him a favor.

  2. Modern civilization needs energy, a lot of it. Picture this world had we not discovered and made use of fossil fuel; pretty bleak.

    Now we are in danger of committing suicide if we don't find an alternative. The clock is ticking.

    You can't eat money. You can't breathe gold.


  3. I agree with Rick, the world needs energy and we have the alternatives: wind and solar. These energy sources currently have less long term cost (construction, maintenance and fuel) than fossil fuel energy. That has just become true in that last one to two years. The market should, and will, embrace this low cost approach. The dinosaur LNG project proposed for Coos County will require fracking gas, piping gas for thousands of miles, building a new 232-mile pipeline (across the property of unwilling landowners) and construction of an LNG terminal on the edge of the Cascadia Subduction Zone which is overdue for a 9.2 earthquake. This makes no sense or cents. I have the courage to run for County Commissioner to enhance the long-term economic future of Coos County, not sell the area out to a private company. The voters of Coos County have the unusual power to determine if this project proceeds. The Coos County Commission has the authority, under the Federal Coastal Zone Management Act to deny a necessary permit, which will KIL the project . to learn more visit my website at>.


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