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A Big Advantage of a Two Party System December 5, 2008

Posted by A Texan In Grad School in Uncategorized.
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Stability.  In countries that have a plethora of political parties, governments are often formed by coalitions of 2+ parties.  This can lead to instability if one or more of the member parties decides to defect to a new coalition.  This is the case in Canada right now.  Prime Minister Stephen Harper, who leads a minority government, is facing the possibility of a vote of no confidence.  This is because the Liberals and New Democrats have partnered with the separatist Bloc Quebecois.  The opposition parties are claiming that the recent economic troubles in Canada are Harper’s fault.

Markets don’t like uncertainty.  This is one of the most important lessons any policy-maker can learn.  Articulate a clear plan with little discretionary policies.  Then, stick to it.  If markets learn to trust you then they will be relatively stable, even if your policies aren’t the best, you will at least have less volatility.  The last thing Canada (or any country for that matter) is internal legislative power struggles.  People need to know who is in charge so they can structure their finances and businesses accordingly.  As this article points out, a lot of the opposition’s claims are just demagoguery.

Update: The Economist has an excellent summary of the events.

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