Political Signals as Modified Market Signals

This article argues that political signals are modified market signals with generally predictable modifications that may be able to be corrected for with additional information.

Markets send social signals in a way that is harder to understand but more valuable than something like a survey. Market signals are more valuable because they are based on revealed preference rather than espoused or identified preference. Market signals are also more readily convertible into quantities and numbers because this is their original form.

Finally, market signals are more truthful, informative, precise, and useful than something like a survey because the market itself is an emergent entity which is expected to better calculate than any subgroup of individuals within the market. This is because the market calculation process involves all stakeholders and it has an objective and complex weighting system, which is the pricing and income system, which increases the voice of the people who are most likely to be correct.

The market speaks through price signals. Movements of price, preference, supply, and demand, do not occur in English. Political signals are a modified market signal because there is a market for policy but it is subject to special rules which are a modification or regulation of a free market. These rules include winner-take-all politics, one person one vote, the decoupling of voting from productivity, donation caps, regulation of organizational coordination, and more.

Political signals are also market signals in the sense that money and preferences ultimately drive politics. The good thing is that we can hear signals fairly clearly through the political process. For example, if Bill says he supports an pro-abortion policy and his favorability drops, there is a sociopolitical signal against that policy. The explanatory power of a politician’s policy stance on his favorability amounts to quantifiable favorability of the policy itself.

The bad thing is that the political voice, the opinions of our elected leaders, unelected judges, and so on, are known to deviate and misrepresent the voice of the underlying market.

Perhaps another good thing is that the manner of this deviation is fairly predictable in direction, but unfortunately it is not particularly predictable in magnitude. The bias of the political process is to favor itself and its own interests as all social entities tend to do. The political voice, therefore, has a bias in favor of slower liberalization, greater risk aversion, and general favor of the public sector, but it’s not clear how strong this bias is.

Demand for fiscal conservatives and libertarians (in the form of votes, donations, volunteering services and so on) are expected to signal demand for relatively rapid economic liberalization and vice versa, but the signal is expected to be systematically weakened by the political process.

The distortion in the political signal is also an almost direct predictor of the inefficiency of political choices. The degree to which policymakers are inefficiently selected should correlate with the degree to which inefficient policies are selected, ceteris paribus.

How do we minimize the distortion and consequent inefficiency in the political signal? Liberalize the political market. Raise donation caps, commoditize votes, legalize coordination, and so on. Competitive government or polycentric government and anarcho-capitalism are longer run solutions, but keeping a more economically liberal political system is an intermediate step.


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