So 2013 is off to a start that, if it portends anything for the remaining 363 days, will be much like 2012 in terms of the level of political discourse in the United States. One can hope not, but the congressional votes to avert a trip over the much discussed "fiscal cliff" seemed right in line with what we have seen of late; that is, the proverbial can got kicked just a little farther down the road with little real resolution of the underlying issues. We will be back again to a need for a last minute deal before the end of February when the debt limit again hits its ceiling.
Putting aside all the rhetoric and hyperbole issued by both U.S. Republicans and Democrats in recent weeks, there seems to be a fundamental issue at play that received far too little attention--a lack of agreement on the meaning of deficits and long-term debt. Higher levels of government spending, lower taxes, and more debt seems reasonable and desirable if, like the economist Paul Krugman, one assumes that spending and debt are (1) necessary to avert visiting even more misery on ordinary citizens, and (2) not really very harmful in the long run. Indeed, Krugman has famously called for even higher levels of federal stimulus with that explanation that long-term growth will allow for paying back the funds borrowed to finance it with ever cheaper dollars. The operative parts here are that it is important to avert as much misery as possible in the short run and that growth will take care of everything in the long run. Pretty classical Keynesian economics, at least to my non-economist ears.
On the other hand, if one assumes that rising debt will eventually become toxic (see Greece, Italy, and this piece by Steven Horowitz in The Freeman Online), or that economic conditions may not return to former levels of growth, then one can take a different view of using short-term spending to avert misery. The arguments used by the anti-Krugman economists go along this line by insisting that debt must at some point be repaid and that repayment itself will be a growing drain on a country's economic strength. The other side would respond by saying that the debt need not actually be repaid; what matters most is whether a country can continue to cover the service on the debt.
So, it seems that beneath the rhetoric are fundamental questions of economics that hinge, at some point, on what one expects to see in the future, something that is elemental to strategic planning in the non-governmental world. Which brings me to a new article by Christopher Dann, Matthew Le Perle, and Christopher Penvavel in Strategy+Business on "The Lessons of Lost Value." In their meta-analysis of factors contributing to a destruction in shareholder value (their sample were all for-profit companies), an underestimation of strategic risk turned out to be the single most predictive factor. Accurately gauging long-term strategic risk, or even baking tolerance of uncertainty around risk into strategic planning, requires reaching agreement within a management team, governing board or national legislature on how to understand the future.
But talking about what one expects to see in the future, as well as building models of how policy decisions (read: strategic bets) will fare given a range of scenarios, requires getting past the school playground-level of discourse we hear from the U.S. Congress. Just as in our work with clients, it is all about finding the right level at which to discuss weighty matters. And the events of very early 2013 bode poorly for doing just that in our national affairs.