2nd Derivative Thinking

In mathematics there’s something known as the derivative. In simplest form, it is defined as the rate of change or more simply the slope of the tangent line. While the line may meander around a graph, the derivative tells us to which direction that line is heading. In world events, we can also break down the news in terms of a derivative. When a story like “the U.S is supplying arms to the Ukrainians” at face value, it means just that. At the first derivative level we ask our selves “why” are we doing this. What general consensus from the current administration will tell us, it is because Putin = Bad and by supplying weapons to the Ukrainians we can hurt him. This is all true and may seem all well and good to most first derivative thinkers, the entire Biden team included. However to those of us who made it out of Calculus I and onto higher levels of math, derivatives do not end after the first.

Naturally, after the first derivative comes the second. The second derivative represents the rate of change of the rate of change. The most common example of this is acceleration, if a Z06 Corvette is can go 60mph in 1.9 seconds 60 mph is the first derivative but how fast it got there, acceleration, is the second. While most cars can get to 60mph, it is how fast the Corvette gets there that is most important. In politics and world events it is one in the same, the second derivative should be the most important metric about the actions that are being taken. In Ukraine, our support and sanctions against Russia are doing more to hurt the U.S. and our allies and are putting America in a position to be less influential going forward.

What we have seen in Ukraine is the U.S. thinking in terms of the first derivative at best and Russia thinking in terms of the 2nd. The Biden administration, with all their experience and “adults in the room” brain power, have only been able to sanction Russia to little effect and commandeer a few wealthy Russian’s yachts. The Russians, meanwhile, had to have known this reaction was coming. They absolutely knew the sanctions were coming, we are playing out of the same playbook as before. They probably guessed they would have been cut off from SWIFT. And they probably can’t believe Europe and the U.S. are still buying their oil and gas, they were prepared for a complete ban on it!

When it comes to thinking about the rate of change the U.S. can only think in terms of where things are at. Russia is invading Ukraine, that is bad and I want to punish Russia, so let’s sanction them. This has the effect of slowing down the Russian economy (also ours but let’s ignore that) so all is good, right? Wrong.

Russia meanwhile expected this response and planned for it, 2nd derivative thinking. Before the Olympics, Putin and China’s Chairman Xi met and declared their ever loving friendship. One could only speculate based on events after the invasion that both countries discussed the degradation of America’s status at this meeting. They likely talked about SWIFT and China’s Cross-Border International Payments System (CIPS) replacement. They likely talked about where Russia’s eastern oil may go once the United States banned it. China is currently buying it for a 40% discount. All this has the effect of slowly cutting away at the dollar’s grasp of its world reserve currency status. Something China and Russia can agree on.

If America can’t stop thinking in terms of the first rate of change and not in terms of the rate of change of the rate of change, our global dominance will stop. Our reaction to the War in Ukraine should have been followed with the cost-benefit analysis of our support of Ukraine and sanctions against Russia. Our reaction only should have been implemented if it future our influencing. Pumping more oil and gas would be a good start. Depressing oil prices for everyone, not raising prices to Russia and increasing their profits while at the same time giving China a discount, is 2nd derivative thinking. For their climate change reaction, a barrel of oil pumped here produces a hell of a lot less carbon than a barrel pumped overseas.