The new math (and alphabet) behind the economics of political failure

A couple of years ago, in the wake of the market shocks of 2008, a colleague and I went around the world speaking to business and government leaders. In every conversation, the question was: "What’s next?" We responded by saying that the answer was better described with letters than numbers. We then drew out on ...

By , a former editor of Foreign Policy and CEO of The FP Group.
Mario Tama/Getty Images
Mario Tama/Getty Images
Mario Tama/Getty Images

A couple of years ago, in the wake of the market shocks of 2008, a colleague and I went around the world speaking to business and government leaders. In every conversation, the question was: "What's next?" We responded by saying that the answer was better described with letters than numbers.

A couple of years ago, in the wake of the market shocks of 2008, a colleague and I went around the world speaking to business and government leaders. In every conversation, the question was: "What’s next?" We responded by saying that the answer was better described with letters than numbers.

We then drew out on a sheet of paper a few letters: a "V", an "L", a "U", a "W," and a backwards "J". The idea was that each represented a graph of the path the U.S. economy would take. A "V" was a pretty conventional path for a downturn with a fall followed by a rebound with a similar slope. An "L" was a kind of disaster scenario. It meant that, like the old woman in the television commercial, once the market had fallen, it couldn’t get up. A "U" was a "V" with a longer period at the bottom, during which the economy was in a recession. A "W" was the tease and then heartbreak of the double-dip. And the backwards "J" was perhaps the most troubling of all because it also seemed the most realistic: the market would fall, be kept down for a protracted period and then, when it recovered, it would not recover to the levels it had enjoyed before. It suggested that this crisis was not just a momentary problem but a watershed and that, afterwards, America would not be the same again.

Well, our presentation would be a lot shorter today. Now, for the economy as a whole, we have two choices: a "W" or something that is a combination of the "W" and the backwards "J" — call it an "unfinished W." Because, denials of the politicians and pedants aside, in real world terms, most Americans at least feel like they are entering the double dip, the downturn we were promised would not happen.  The only real question now is whether the recovery that comes brings us back up to past levels or whether it only gets us part of the way there to a future of protracted slower growth.

In looking for the reasons why we are where we are, we gain some insights into which of these patterns we are most likely to follow. For example, there is the old algebraic formula that has once again seemed to govern here in the U.S., even though its meaning has seemed to change over the years.

The formula is R + D = W. In it, R + D represents America’s political arithmetic of Republicans plus Democrats. Interestingly, however, W is a variable that has meant different things for different eras. Initially, the W stood for the wins the U.S. was racking up economically and otherwise worldwide. Our political system in this era worked out to being a net advantage for the U.S. — always fractious but at critical moments, from commitments to war to the New Deal to the Great Society, capable of coming together to make elevating, energizing decisions.

In a later era, during the first decade of this century, with Democrats and Republicans almost evenly divided and new media and national attitudes reducing much of the political debate into a bitter, lowest-common-denominator stew flavored with acrimony and big floating chunks of foolishness, the "W" ended up standing for the middle initial of the then-president of the United States. In that case, the "W" no longer meant a win but, rather, a president who was both fiscally and internationally reckless.

Now, the W refers to a situation in which R and D end up cancelling each other out or producing a net negative result. The political process has produced measures that either compound problems or fail to address them. And the market, sensing the problem here, and seeing similar formulas that have zeroed-out leadership, decisiveness and progress elsewhere, has slammed us back onto a vertiginous downward trajectory.

Are there other factors fueling the downturn? Macro cycles? Core economic problems? Yes, of course. But in Europe, the U.S., and Japan, one common denominator is that the current round of concerns is dominated by the economics of failed leadership. When we went around saying it wasn’t numbers but letters on which people should focus, we didn’t know it but we were making an important point: the point that you have to look past the simple arithmetic. It’s not economics but politics that seems to be driving this current phase of the crisis.

The inability of America to come together to fund the government programs and reforms demanded by recovery, the inability of Europe to address its own structural flaws, the inability of Japan’s diet to produce any consistent series of major decisions to fuel change and compensate for the country’s demographic and other great challenges — these factors have led markets to think that the growth many companies have enjoyed the past couple years, the energy seen in emerging markets, the massive amount of capital available in the world, would not enough to fuel real, serious recovery.

All that said, while it is a "W" or an "unfinished W" for the economy as a whole, for the bottom third of the population, it is a "U" or, worse, an "L." They never rebounded even slightly. They have fallen away from the top of society like the jettisoned booster of a Saturn V rocket. And partial recovery hasn’t helped them a bit. For them, even the misleading uptick in the middle of a double dip would have been encouraging. But it never came, and now, wherever they look, the numbers don’t add up and the letters they see spell out a bleak future. That will remain the case until, once again, adding R and D in the same equation produces the positive by product of cooperation, compromise, reason, and good faith.

David Rothkopf is a former editor of Foreign Policy and CEO of The FP Group. Twitter: @djrothkopf

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