The Political and Economic Signals that We May See a Roaring 20’s After All

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By Arik Ben-Zvi and Steve Weber

Back in the summer of 2022, we put together a set of scenarios that tried to map our plausible futures for the US political-economy over the two-year time horizon. Our framework was that four distinct scenarios could be in play, largely depending on how two critical uncertainties played out: 1.) If the US economy was able to navigate a “soft landing” from inflation, or whether it would fall into a sustained recession; and 2.) If US domestic politics was able to trend toward a less deeply polarized condition, or if it was going to move further down the path of internal strife.

While we cannot yet definitively say which scenario we are heading toward, there are a number of important signals suggesting that polarization may be easing while the economy may be bouncing back. We called that future “Roaring 20’s After All.”

Here are just a few of the signals pointing that way:

On the political front, the midterm elections are being widely interpreted as a repudiation of the most extreme and divisive candidates. This includes the defeat of every Secretary of State candidate in battlegrounds who ran on an “election denial” platform; the defeat of the highest-profile Trump-aligned gubernatorial and senate candidates in key states like PA, AZ and NV; and, on the Democratic side, the loss of districts in suburban NY, CA and surprising challenges in places like WA and OR that may serve as a warning about their own vulnerabilities on issues like crime (and Democrats should not forget the message of the VA gubernatorial election in regards to education).

If the political class concludes that voters won’t support candidates they view as too extreme, it will empower more centrist voices in both parties, and create room for greater bi-partisan cooperation over the coming years. 

On the economic front, the most recent CPI report indicated that perhaps inflation is beginning to ease, which would comport with data from places like shipping costs, housing and rent, used and new autos and other sectors that have seen easing pricing dynamics for a number of months. In the meantime, job growth remains robust and GDP has returned to growth in the most recent quarter. 

To be sure, there are conflicting signals including the ongoing crisis in the crypto markets, continued lay-offs in the tech sector, troubling signs coming out of China, the possibility of a serious recession in the EU and the deep uncertainty about the war in Ukraine. Nevertheless, the overall landscape appears to be pointing in a much more optimistic direction than it was just a few short weeks ago. 

So what does this mean for companies trying to plan for the period between now and the 2024 elections? 

We’d offer a few thoughts for consideration:

  • Watch for signs of emerging technological paradigms. If the US economy actually avoids recession given all the headwinds, it is going to be, in part, because emerging technologies are achieving scale and driving productivity boosts across sectors. There are some indications that AI, in particular, is advancing at accelerating speed and being integrated into more and more core business processes. That would make some sense given the pressures created by the pandemic. If that is, indeed, part of what’s happening in the economy it could unlock a new growth era in which some of the tech giants (particularly those who relied principally on advertising) continue to struggle, while new players emerge to power the next chapter of the digital age.
  • Prepare for institutions to become cool again. The Fed has taken a lot of heat from both right and left over the past year. But if inflation eases and interest rates can start to come down over the course of 2023, a lot of people will have to acknowledge that the central bank may not have been perfect, but overall did a pretty great job navigating this crisis. For that matter, the Biden administration’s economic policy team (which has also taken hits from both sides of the aisle) will look quite good. Against that backdrop, being a political candidate or business leader associated with “the Establishment” may be less of a scarlet letter than it has been over the past few cycles. Competence may become an attractive attribute again. 
  • Maybe you don’t have to pick a side. Over the past few years, CEOs have been tied up in knots trying to figure out how to navigate the increasingly bitter culture wars. That challenge won’t just go away. But it may be that space is opening up to steer a balanced middle course. In a country where the voters of red states like Kentucky and Kansas are rejecting attempts to deeply restrict abortion access, while suburban NY voters are expressing a desire for stronger efforts to combat rising crime rates, and black and Hispanic voters are increasingly seen as swing constituencies who are prepared to support candidates of either party that deliver on pocketbook issues – companies may be able to find a balance that reflects a middleground that may be emerging. 
  • New challenges to business may emerge. A world where culture war tensions mitigate a little won’t necessarily mean smooth sailing for business. Indeed, some of that energy may flow into competition between the parties to see which can be “tougher on Big Tech,” “tougher on trade with China,” “tougher on prescription drug prices,” and “tougher on crypto fraud.” Each party will come at these issues with their own agendas and rationales, but the end result could be both partisan attacks on certain business interests, as well as some bipartisan coalitions that come together on areas of common concern. 
  • National politics and state politics may not mirror each other.  At least for the next two years, if the signs of relative moderation at the national and Federal level turn out to be robust, that won’t immediately be matched with moderation in many states. It may turn out to be the opposite.  While some of the energy of polarization will be diffused nationally, lots of it will get re-directed toward state legislatures and governors. Florida vs. California may be the new battleground, in ideological and policy terms. And that may require some adept maneuvering.  The ‘balanced middle course’ that many businesses will find easier to adopt at the national mood, might be harder to sustain at the state level.
  • Be open to the possibility of both an economic boom AND a change in power. Conventional wisdom would dictate that if the economy comes back strongly in 2023 then Democrats should reap the political benefits in 2024. But that may be too simplistic. Recall that in 2000 VP Gore was running against the backdrop of one of the most remarkable economic growth eras in modern history, yet still lost to George W. Bush. Voters came to believe that economic growth was being powered by the innovation of the private sector coupled with the reliability of the nation’s economic institutions (including the Greenspan Fed), which allowed them to vote on the basis of different considerations. A 2024 election featuring a GOP candidate that is less provocative than Donald Trump, coupled with an economy that feels like it’s in the early innings of an expansion era could ironically create the conditions for a change election that is less about ideology and more about personality and broad visions for an emerging economic era. 
  • The return of “boring” politics. Our entire social and traditional media complex has been fed for years by increasingly outlandish and bitter political discourse. If that starts to dissipate it will actually create a challenge for a lot of businesses, as well as a shake-up of the culture. If voices like MTG and Lauren Boebert on the right and The Squad on the left are less central to each party’s identity and forward-looking national strategies, what will we fixate on? External adversaries like Russia and China? Big business? Corporate ‘villains’ like SBF and Elon Musk? Or perhaps Americans simply pay less attention to national affairs and focus more on entertainment, self-care or their local communities. 
  • What to do about China? This scenario will present political leaders of both parties with an even more vexing challenge regarding China. On the one hand, if voters are expressing antipathy to extreme candidates, then being overly bellicose toward a superpower with deep economic ties to the US may not play well. On the other hand, a more self-confident, economically strong US may feel compelled to leverage its strong position to weaken an adversary (especially if China experiences a deep recession, which some indicators suggest is possible). Should that come to pass, companies may be under more pressure, more quickly than they had ever anticipated to re-engineer their supply chains across the Pacific.

Of course, all of this could yet change dramatically.  But just a couple months ago, the very possibility of a less polarized politics and a robust economy felt virtually impossible. That has changed and businesses and parties would do well to consider what that future could look like in their corner of the world and prepare themselves accordingly.