In our strategy work, we often help clients flush out potential future scenarios based on facts already in evidence today.

Consider health care (for example).  Many of the president’s health care reform measures are already gaining steam, and will be hard to reverse.  The health care community is moving towards electronic medical records, an idea whose time has come independent of other components of health care reform. The health care sector is in a bit of a funk, as it is hard for businesses to predict what the rules of the game will be in a year or two. But health care is the exception, not the rule.

Generally, futurists view the political landscape based on which party is in control of the executive and legislative branches.  As a nation, we are gripped by the nightly reporting on poll numbers, debates and the latest sex scandal. It is the Tea Party vs. Protest Wall Street. The unfortunate truth is that the balance of power has become completely neutralized.

The U.S. populace is so displeased with both parties, neither can win a clear majority, and the result is stagnation.  Congress passes legislation that is neutralized by executive order or by bureaucrats at the Federal Trade Commission, FDA, EEOC and other agencies where politics trump responsibility.

This neutrality was clearly evidenced by the “super committee” that was a super disappointment. Congress is too big and dysfunctional to agree on anything so the thinking was that a smaller group could find consensus. No compromises were forthcoming in a political climate so polarized that the two sides couldn’t even agree on minor details like saving the country and the world from economic doom. Details, details.

This principle is so simple it is obvious. In the absence of any clear evidence to the contrary, it could be argued that we should run our businesses under the assumption that there will be little regulatory change.

It is ironic that based on the absence of any new action, $1.2 Trillion in spending cuts and tax reductions expire in 2013 (as agreed to the last time the government was on the brink of collapse). [i] The only thing the two sides can agree on is that such cuts to defense; Social Security and Medicare are “draconian.”

It beats the alternative. We simply can’t believe that the situation in Europe is so bad, that “austerity measures” are being used, as nations cannot meet their debt obligations. I only got a B in macroeconomics but I am pretty sure Italy and Greece paying 7% interest on their debt is problematic[ii]  The writing is on the wall, and the ramifications for both parties are extreme: much higher taxes on the wealthy and deep cuts to entitlement spending.

So what is there to be learned from all of this gridlock? First, if your business is reliant on government, you had better diversify into the private sector quickly (especially if you do business with the military).  Second, we should expect the status quo from Washington.  Our representatives are simply too inept, and too political to change.

Some political experts are even suggesting that an independent could emerge during the Presidential campaign, which would threaten our two party system (it may not happen this year but is almost certain to happen in future years). As an American, I find that troubling but perhaps it would do us some good.

Here we go again. A wave of uneven economic new items about housing, employment and equities have made some entrepreneurs queasy. Should companies shift their forecasts based on the latest economic headlines?

To get caught up in the conventional wisdom and buzz offered by analysts and the news media can be a trap. Emotions govern our thinking on many levels.  The electronic age has brought new volatility to markets, and has created a fertile environment for both arbitrage by institutional types, and droves of individual investors moving in unison to support some conventional wisdom about energy prices, gold, or the stock price of Intel or Apple.

It is as if our economy is a large rubber band susceptible to large swings based in part on the national mood.  Our current reality is that if the economy is growing at a 4% clip it is perceived to be expanding, but at 2% we feel as though it is sluggish.

Our thinking often crystallizes around “the economic cycle” which cannot be evaluated independently. The economy is merely a component of a spider web of stressors that can be deeply affected by social, economic, cultural, political and military events.

U.S. history is riddled with periods of growth and decline steered by such mood swings.  After the panic and fear of the Great Depression, and World War II, the United States settled into a period of profound optimism and growth. They were happy days in America, as the Wonder Bread/Leave it to Beaver era reigned in conformity and stability.

With scant warning, the JFK assassination inflicted a deep wound, a precursor to two decades of volatility and violence, as our nation slid into a deep funk. It took twenty years for the pendulum to swing back again. On the heels of the U.S. hockey team’s Gold Medal in the 1980 Olympics, Ronald Reagan proclaimed “it was morning in America” during his State of the Union in 1984 alluding to the nation’s restored optimism.1

The Dow Jones Industrial Average shot up by a factor of eight times from 1982 to 2000 only to lose half its value between 2000 and 2008 as the market crashed again.2  A similar bubble occurred in oil futures, with oil reaching $145 per barrel in July in 2008, only to fall within a year to trade in the $50 range. Clearly, bubbles represent investors overreacting to markets and accepting a new perception of normalcy and a different tolerance for risk. The entrepreneur must be conscious of this tendency, and make measured decisions based on facts.

While I am not one to offer economic forecasts or investment advice, I believe overreacting to current news items could be limiting. While many sectors of the economy are indeed sluggish, others have great upside and are worthy of investment.

[1] The Fourth Turning by William Stauss and Neil Howe -  Broadway Books

[2] Animal Spirits by George Akerlof and Robert Shiller- Princeton University Press 2009