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Leaders Indicating

Why Markets Now Use Politics to Predict Economics

Modi flies a kite at the 19th International Kite festival in Ahmedabad, January 11, 2009. Amit Dave / Courtesy Reuters

The normal rhythm of politics tends to lead most nations’ economies around in a circle, ashes to ashes. This life cycle starts with a crisis, which forces leaders to reform, which triggers an economic revival, which lulls leaders into complacency, which plunges the economy back into crisis again. Although the pattern repeats itself indefinitely, a few nations will summon the strength to reform even in good times, and others will wallow in complacency for years -- a tendency that helps explains why, of the world’s nearly 200 economies, only 35 have reached developed status and stayed there. The rest are still emerging, and many have been emerging forever.

Beginning in 2003, however, this cycle seemed to stop turning. The world economy entered a unique period of prosperity, driven by declining interest rates, rising trade, and surging commodity prices. These global tail winds were so strong that national leaders did not need to

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