"I think the market had basically factored in that there was going to be a change in the political landscape," said Ted Weisberg, a New York Stock Exchange floor trader at Seaport Securities.This table from the current Economist helps explain why the markets think like that. To translate it into another equation: unified government = high federal spending = big government. And markets (unsurprisingly) don’t like big government - it sucks labour and capital away from entrepreneurial wealth creation.
"Whether you have the Democrats controlling the House or controlling both houses, you still have a Republican leader in the White House and that still means gridlock," he added.
Gridlock would limit the power of either party to push through legislation perceived as partisan, an environment acceptable to the markets.
Of course, the likes and dislikes of the money markets should not dictate political judgement (though it would be a foolish politician who completely ignored them). But they may well be right to divine that divided government is, generally, good government.
For example... Under a Democrat President, Bill Clinton, and a Republican Congress, the US budget deficit was brought under control. Yet under a Republican President, George W. Bush, and a Republican Congress it has escalated, in part thanks to pork-barrel projects like the $223m Alaskan ‘bridge to nowhere’.
This shouldn’t surprise us. After all, the Founding Fathers intentionally built extensive checks and balances into the US constitution in recognition that ‘power tends to corrupt, and absolute power corrupts absolutely’.
One of the greatest problems in the UK is that power is over-concentrated and over-centralised in the executive - and, de facto, in the office of the Prime Minister. There is almost no limit on his authority, as our legislature is weak. The Prime Minister has a built-in, whipped majority in the House of Commons, while the second chamber, the House of Lords, is deliberately left to moulder as an emasculated body with no democratic accountability, and little remaining hereditary droit de seigneur.
Those who argue against proportional representation on the grounds that it produces ‘weak government’ are missing the fundamental point. A coalition government which embraces majority opinion is far more likely to produce good, stable government than one-party rule based on the consent of little more than one-third of the voting public.
The art of good politics is all about dialogue: a constructive dialectic leading to a workable synthesis. The tribally confrontational British political system is designed to make such dialogue as rare and unnatural an event as possible. If we’re lucky our Prime Ministers speak in monologues; more usually it’s a soliloquy.