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Why Politics is Linked to the Stock Market

Guest Post by Daphne Holmes.

There has been a lot of discussion recently, about how big business has too much influence on government. Of course, Democrat pundits are quick to point the finger at Republicans, accusing them of being in the pocket of big business, a charge that the Republicans also level at the Democrats.

If you look closely and objectively at how our government does whatever it is that it does, it becomes pretty obvious that both parties are well beyond being “in the pocket” of big business. The truth is, you’d be hard-pressed to find any area in which the political parties and big business aren’t one and the same. While the Republican Party’s stated platform is more closely aligned with the swelling movement demanding smaller government and less intrusion into our private lives, that platform has to a great extent become a philosophy rather than a consistent practice.

Let’s look at how the process works, oversimplified of course, in a few steps:

Stock prices drive legislation

Say the shareholders in Corporation “A” want to increase their dividends. The way to do this is to either tap an undeveloped market or increase the company’s share of an existing market. Right off the bat, the company discovers that there are government regulations in place that impede their efforts. Some of those regulations make perfect sense, such as those that make it illegal to sabotage a competitor.

Naturally, the company is under pressure from its investors to proceed with the expansion or product release. Since it will cost far less to donate to elected officials than to re-gear the expansion or abandon the product, the company hires lobbyists to “grease the wheels” by offering much-needed financial support to those elected officials in charge of regulating the company’s operations. The promise of a few hundred thousand (or a few million) dollars to a campaign fund goes a long way toward convincing a candidate to reconsider his or her position on a piece of legislation. Corporations large and small have come to view those contributions to be a normal cost of doing business.

Legislation is met with resistance

Special interest groups with unique agendas stage their own campaigns to impede expansion. Every possible rationale for halting the process comes into play, often appealing to the public’s emotions rather than good business practices, science, or common sense. These special interest groups find ways to appeal to those emotions, so their own funding continues to increase.

The end result is that we have extensive legislation and regulation drafted and passed, only to be challenged ad infinitum, rewritten, and then challenged again. The never-ending cycle, with moneyed interests on both sides, keeps the conflict alive with an increasingly complex mountain of laws and regulations. The more laws and regulations we have in place, the more our elected officials justify investigations, large staffs, and committees - all funded by the lobbies. In the end, stock prices fluctuate accordingly, thus perpetuating the cycle.

Who profits from this cycle?

  1. The businesses’ investors. To them, money spent on lobbying efforts and legally-rationalized bribes are a drop in the bucket compared to the billions they hope to earn from their companies’ ventures. So long as their profits and dividends remain high, they are happy to accept the cost of doing business.
  2. The lobbies that represent opposing factions. The lobby machine can be likened to the arms dealer who sells to both sides of a war. There is no incentive for the conflict in either theater to be resolved. On the contrary, so long as there is conflict, the lobbies are assured of making their money.
  3. The elected officials. They are able to remain in office and exercise their own power as long as there is some reason for them to take a stand. Ironically, our elected officials’ primary efforts are devoted to fighting against something, rather than working for a free and prosperous country.

Who loses?

The American people are the biggest losers in this game. With almost every new piece of legislation and new regulation, our freedoms are limited a little bit more. Elected officials could clean up the mess in a heartbeat, but there is no incentive for them to do so. On the contrary, they recognize that their own jobs and power could be in jeopardy if they decide not to play. As a result, change is slow in the relationship between politics and the stock market.

About the Author

Daphne Holmes contributed this guest post. She is a writer from www.ArrestRecords.com and you can reach her at daphneholmes9@gmail.com.


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