Monumental; earth shattering; stupendous. The enormity is taking time to sink in, as a relatively certain future shatters into a thousand alternative scenarios. Some final thoughts for the day.
Markets
That the European stock markets fell further than the UK's suggests that the consequences of Brexit for Europe are potentially more uncertain and more consequential than for Britain.
Xenophibia or national pride?
David Cameron gave a terrific concession speech this morning; it was a rare example of a political leader putting the good of the people he was elected to serve ahead of himself. Resigning for the good of others is unceasingly rare and in the US almost unheard of. As one of the conservative pundits on one of the Sunday morning talk shows said, many years ago after some screwup or other: "ours is not a resigning culture". Doing the right and honorable thing, as Cameron did today, shows character and the values that make me proud to be British. When immigration is on a large scale and ill organized, pockets of homogeneous incoming groups form, do not assimilate and do not adopt the host countries values; they then feel (or are made to feel) excluded and separate, all of which is a recipe for the kind of unrest that, for example, the French have to deal with in the Algerian banlieue in the North of Paris.
The worldly rich and the uneducated poor
Pundits have been looking at voting patterns and have characterized the vote to stay as predominantly rich and educated and to leave, white, poor and uneducated (and by implication, ignorant). That's precisely the kind of patronizing condescension that makes the man in the street angry at, and distrustful of, the elites. And take note, the political class did a terrible job during the campaign of explaining complex questions in honest but simple terms. Instead, in a ludicrous attempt to make the issues intelligible they resorted to half truths, sound-bites and fear-mongering. It was pretty shameful.
Free trade and economic growth; who benefits?
Certainly trade benefits economies as a whole - no argument there. But who in their right mind would agree to a bigger pie if their slice was every smaller then the slice they used to get from a smaller pie? Trade and globalization has raised GDP; but it has also depressed middle class wages. No surprise therefore that many are less enthusiastic about trade agreements than economists, wealthy business leaders and others with sizable equity holdings and stock options, and politicians who hope to be invited (and paid) to lobby for those companies when they leave office.
Balance of power; East/West and inside Europe
Certainly a Europe that speaks with many voices is less powerful than one that speaks in unison. And not doubt Putin will be please at recent events. But to suggest as Richard Haass (President, Council on Foreign Relations) did today on the NewsHour that a shooting war between countries in Europe is now on the cards seems a little far fetched1.
Cultural insensitivity; zip it.
The day before the vote, Jean-Claude Juncker, the European Commission president, warned, rather injudiciously, that "out is out". It's unlikely that the British public took kindly to being threatened by the very unaccountable institution from which many were hoping to disentangle themselves. In the same vein, Barack Obama's ill-considered comment about "getting to the back of the queue" for trade negotiations if Britain left the EU probably made a lot of Brits (myself included) a little deaf to warnings of dire consequences (and now suspicious of his statement today that the special relationship will endure).
Junker and Merkle
And interesting aspect of the post Brexit rhetoric is the contrast between Angela Merkel (a politician) and Jean-Claude Juncker (bureaucrat). Juncker, who warned, perhaps injudiciously the day before the vote, that "out is out", said today that he wants Britain to complete the Article 50 withdrawal process as soon as possible. Angela Merkel, in contrast, said this afternoon "there is no quick key solution that we can take from this referendum decision. That would only divide Europe even more". One interpretation of this divergence of opinion is that Angela Merkel is accountable to an electorate while Jean-Claude Juncker is not.
An American-centric world view.
Most of the last two days I've been glued to the BBC. One of the fascinating aspects of watching the PB NewsHour has been the US-centric perspective. The claim Richard Haass made was that the widening of Europe to include the Eastern block ex-Iron Curtain countries into the EU was a carefully orchestrated plan by the US to weaken Russia. European agency in this telling was absent. My own perspective, living though this from the other side of the Atlantic was that this was an extension of Maggie Thatcher's "wider not deeper strategy" that John Major continued to promote in the 1990s. I'm not saying one or other is right, simply that these are quite different perspective on the same set of events.
Haass also suggested that the terms of exit were all but set in stone (and weren't that good from the UK's perspective). That seems to demonstrate a surprising lack of understanding of the current dynamics of European politics. Indeed if things were so preordained, financial markets would not be concerned about uncertainty - but that's not what most economic commentators as suggesting.
1. a British understatement - translation: "You have got to be kidding - that's simply preposterous".
Friday, June 24, 2016
The Wake-up Call
Many interpret the Leave vote as xenophobic; while that clearly was a component, we may find, as we pick over the entrails of the campaigns, that fear and loathing alone would not have been sufficient to have given us the result that is, in essence, a repudiation of the EU project and a vote of no confidence in both seemingly unaccountable European institutions and national politicians.
Ask most people who their MEP is and I doubt many could give you an answer; nor, I suspect, do they much care; that's the opposite of the US where citizens are generally more familiar with their federal representatives than those who represent them at the state level.
Looking back
Perhaps one reason for the vote is that political leaders failed to see that they needed to re-sell the benefits of EU membership on an on-going basis. The burden of EU regulation was clear to small business owners; large businesses probably gained more than it cost them but those that didn't trade much with Europe may have seen only bureaucratic costs and constraints. And of course the media made hay with all the negatives because that's what the media does. So as a climate of resentment was being gently cultivated for years, politicians took the benefits for granted and failed to draw attention to them on a consistent and regular basis. And now that simmering cauldron of irritation has boiled over.
Britain has never been an enthusiastic European. It joined late (after being blocked by the French at the EEC's inception, which now doubt set the tone for Britain's relationship with European relations many years), it got the thin end of the wedge early on in terms financial flows, for example benefiting little from the Common Agricultural Policy (CAP) which rewarded French but not British farmers, it joined and then fell out of the exchange rate mechanism (ERM), a precursor to the single currency, and it stayed out of both the Schengen Area and the single currency. Taking Britain's membership of the EU as the default position was a mistake made by politicians not just during the campaign but for many years before.
Looking forward
That many European officials, politicians and business leaders are talking about a wake-up call suggests two things; first the realization that their assumptions about the inevitability of the European project may be flawed and that Europe in its current form faces an existential crisis; and second that despite the dire warnings issues across the board before the vote things look rather different after the fact.
What is clear is that we are in for a period of great uncertainty, something reflected in the market jitters over night and this morning. That being said, the FTSE recovered much of the shock-related "chute", down only 2.5%; if the markets are a guide and given that some of this may simply be an uncertainty discount, British businesses may suffer less than "Remain" had been suggesting. Of course it won't be plain sailing particularly for companies embedded in European supply chains (Airbus for example), but the flip side is that there is a strong economic incentive to make Brexit as painless as possible.
Of course, that is in stark contrast to the political; those working in European institutions (the European Commission, the European Parliament, and the ECB) have a strong vested interest in maintaining the status quo, regardless of the benefits to the citizens of European. Not only do their jobs depend on those institutions continuing in their current from, but they are emotionally invested in the project and will have a hard time seeing issues through any lens other than that they have been using for a generation. Ross and Staw (1993) have a very useful model in this regard
My guess is that as long as large businesses' profits are at risk from Brexit, economics will trump politics, particularly when politicians realize, as many now appear to be doing, that they do not have widespread backing from their electorates. Although punishing Britain for upsetting the apple cart may seem like a good way to keep things together, this is short sighted. If other countries (and many do) share many of Britain's concerns with lack of accountability and central government over-reach, forcing them to remain "in" will do nothing to enhance those politicians' re-election prospects in the longer term.
That's why it matters to Britain not to invoke Article 50 of the Treaty of Rome immediately; once done, the two year clock starts ticking, and time is Britain's friend. The longer Brexit implementation takes, the better the terms are likely to be. A rush to the exit will lead to ill-thought out arrangements, driven by those who want to make sure there are "consequences", to use Francois Holland's term, for leaving the club.
I suspect that over time, as emotions subside, and hopefully clearer heads prevail, proposals for a pragmatic arrangement that benefits both Europe and Britain may emerge. Whether Europe can get behind such a practical solution with one voice is an open question, indeed one that itself speaks to the long term viability of the European project.
Thursday, June 23, 2016
The Big Day Finally Arrives
Today Britons vote in potentially the most consequential and potentially irrevocable collective decision of a generation.
I have followed the reporting by the BBC, watched the final debate, and listened to advocates and experts. And I while I am in favour of remaining part of the EU, the two campaigns and all the discussion have been so superficial and insubstantial as to leave me little more informed than when the discussions began.
The final debate on Tuesday night was long on sound-bites and short on engagement with the points the other side made. How anyone can make a reasoned decision given the paucity of information is a mystery.
What I think I know is this: leaving would likely lead to a reduction in exports to Europe as the EU punished a defector, and fewer imports in retaliation. As a result there would be reduction in GDP and unemployment might rise. In the longer run, whether the UK could compensate for this with an pivot to the Commonwealth and other countries outside Europe is hard to say. Economic migration would be reduced though the economic impact might be negative or possibly a wash. EU constraints (aka red-tape) on small business would become less burdensome, which would amongst other things give business more labour market flexibility which would degrade working conditions and depress wages.
Whether greater "local autonomy" makes much more than a feel-good difference is unclear. Since Britain is a net contributor to the EU budget, there would be a financial saving for UK taxpayers. The City would could lose its place as the financial centre of Europe, and the finance sector would shrink. But on the other hand that might reduce the upward pressure on London house prices. If Britain were to leave, Scotland much secede from the UK in order to stay in the EU. The UK's "out-sized influence" might be reduced as it is no longer an "influencer" of affairs in Brussels, but it is still the worlds 5th largest economy, still has (for the moment) a seat on the UN Security Council, and still has a variety of institutions that play an historically influential role in world affairs. But as Britain's role in shaping European issues declines, to the extent that Europe becomes more factious and burdened with internal problems, countries outside the UK might find it easier to deal with and bilateral WTO based trade, not to mention broader relations, might benefit. And finally Europe itself; were Britain to leave, other countries might be inclined to follow, and the entire European project might well be up for a major revision and re-negotiation. Ironically would be exactly what the UK had wanted but was unable to achieve in its recent attempt at renegotiations; but then, outside of Europe, it would no longer be able either to influence that debate or benefit from any new deal.
Ultimately it seems that in the swirl of speculation, claims and counter claims, one must simply find a narrative that is consistent with ones priors and emotional response to the issue and call that a reason to vote one way or the other.
I have followed the reporting by the BBC, watched the final debate, and listened to advocates and experts. And I while I am in favour of remaining part of the EU, the two campaigns and all the discussion have been so superficial and insubstantial as to leave me little more informed than when the discussions began.
The final debate on Tuesday night was long on sound-bites and short on engagement with the points the other side made. How anyone can make a reasoned decision given the paucity of information is a mystery.
What I think I know is this: leaving would likely lead to a reduction in exports to Europe as the EU punished a defector, and fewer imports in retaliation. As a result there would be reduction in GDP and unemployment might rise. In the longer run, whether the UK could compensate for this with an pivot to the Commonwealth and other countries outside Europe is hard to say. Economic migration would be reduced though the economic impact might be negative or possibly a wash. EU constraints (aka red-tape) on small business would become less burdensome, which would amongst other things give business more labour market flexibility which would degrade working conditions and depress wages.
Whether greater "local autonomy" makes much more than a feel-good difference is unclear. Since Britain is a net contributor to the EU budget, there would be a financial saving for UK taxpayers. The City would could lose its place as the financial centre of Europe, and the finance sector would shrink. But on the other hand that might reduce the upward pressure on London house prices. If Britain were to leave, Scotland much secede from the UK in order to stay in the EU. The UK's "out-sized influence" might be reduced as it is no longer an "influencer" of affairs in Brussels, but it is still the worlds 5th largest economy, still has (for the moment) a seat on the UN Security Council, and still has a variety of institutions that play an historically influential role in world affairs. But as Britain's role in shaping European issues declines, to the extent that Europe becomes more factious and burdened with internal problems, countries outside the UK might find it easier to deal with and bilateral WTO based trade, not to mention broader relations, might benefit. And finally Europe itself; were Britain to leave, other countries might be inclined to follow, and the entire European project might well be up for a major revision and re-negotiation. Ironically would be exactly what the UK had wanted but was unable to achieve in its recent attempt at renegotiations; but then, outside of Europe, it would no longer be able either to influence that debate or benefit from any new deal.
Ultimately it seems that in the swirl of speculation, claims and counter claims, one must simply find a narrative that is consistent with ones priors and emotional response to the issue and call that a reason to vote one way or the other.
Tuesday, June 14, 2016
The news cycle of tears
The reporting of news-worthy events evolves. Here I suggest a model for television news reporting that has been increasingly widely adopted. I will explore the model in the context four television outlets, Fox, MSNBC, CNN and the BBC.
The premise on which this model is based is that information is developed in a linear fashion, a straight line function of available resources. If the news-gathering resources are constrained and constant, the rate at which information is acquired is constant and the accumulation of information (the integration of the rate of acquisition) is linear. I posit also that the demand for news falls exponentially over time. In this diagram I suggest a relationship of the form 1/exp(xt) with time, measured in hours and x parameter that characterizes the rate of interest "decay".
The scope for quazi-informed speculation is defined a Nt*(Nt-1) where N is the number of facts available at time t. The zone of speculation is defined at the product of scope and demand. Of course baseless speculation is always possible (and often found) but is not a feature of this model. Here I confine myself to speculation that is at least to some degree rooted in facts.
From the figure it is clear that as we move away from the instant at which the story breaks, the zone of speculation increases. Of course not all news organizations will make use of the space offered; the function represents an outer envelope within which news organization may chose different levels of speculation depending on their business models.
For example, the conservative BBC generally chooses to stay fairly close the axis, waiting for confirmation and corroboration before using limited data to make speculative assumptions.
The business model employed by the more sensational media outlets (Fox for example) is to exploit the envelope to the full before moving on as facts narrow down the speculative domain. By focusing its narrative at the widest part of the envelope for each new story, and then moving on before the speculation is dis-confirmed by additional data it is able to generate the greatest scope for agenda-based reporting. The model is analogous to the rhetorical device "I'm not saying, I'm just asking" as a means to making a point without the need for data. And there can be little doubt that the "tear-drop" mode of the zone of speculation has been increasingly successful.
In the diagram below, for the purposes of illustration I have modeled a lower limit in blue and an upper limit in red. The units might be the the degree is venal self interest.
Fox generally occupies the region near to the upper edge of the envelope while MSNBC takes a position the diametrically opposite to Fox's.
CNN by contrast has has little in the ways of a political agent to guide and constraint its speculation allowing it to wander more randomly and more widely in the available speculative space.
And the more conservative BBC generally speculates later, and stays closer to the x-axis.
Of course the is a simply a theoretical model; I leave it to others to test it empirically. But at least the model is something worth speculating about...
The scope for quazi-informed speculation is defined a Nt*(Nt-1) where N is the number of facts available at time t. The zone of speculation is defined at the product of scope and demand. Of course baseless speculation is always possible (and often found) but is not a feature of this model. Here I confine myself to speculation that is at least to some degree rooted in facts.
From the figure it is clear that as we move away from the instant at which the story breaks, the zone of speculation increases. Of course not all news organizations will make use of the space offered; the function represents an outer envelope within which news organization may chose different levels of speculation depending on their business models.
For example, the conservative BBC generally chooses to stay fairly close the axis, waiting for confirmation and corroboration before using limited data to make speculative assumptions.
The business model employed by the more sensational media outlets (Fox for example) is to exploit the envelope to the full before moving on as facts narrow down the speculative domain. By focusing its narrative at the widest part of the envelope for each new story, and then moving on before the speculation is dis-confirmed by additional data it is able to generate the greatest scope for agenda-based reporting. The model is analogous to the rhetorical device "I'm not saying, I'm just asking" as a means to making a point without the need for data. And there can be little doubt that the "tear-drop" mode of the zone of speculation has been increasingly successful.
In the diagram below, for the purposes of illustration I have modeled a lower limit in blue and an upper limit in red. The units might be the the degree is venal self interest.
CNN by contrast has has little in the ways of a political agent to guide and constraint its speculation allowing it to wander more randomly and more widely in the available speculative space.
And the more conservative BBC generally speculates later, and stays closer to the x-axis.
Of course the is a simply a theoretical model; I leave it to others to test it empirically. But at least the model is something worth speculating about...
Wednesday, June 8, 2016
Clinton or Sanders
In an email from Sanders the morning I realized (belatedly) why Sanders
will fight to the bitter end. Although has been in politics most of his
adult life, he's not a career politician - he's a conviction politician.
He's driven not by opportunities for him personally but by the vision
of changing society for the better. He sees this is an inflection point,
a once in a generation opportunity to make lasting and significant
change. His goal is not the presidency, but change itself, for which the
presidency and the campaign are but a means to an end. And he has
nothing to lose by fighting on; the worst that can happen is that the
status quo prevails.
Tuesday, June 7, 2016
Sanders or Clinton
It looks this evening as though Clinton will have a majority of pledged delegates. It is possible that Sanders could persuade the super-delegates to come over to his side to give him the nomination, given his better polling against Trump, but this is unlikely given that the super-delegates belong to the elite that stands to loose were Sanders to push through campaign finance reform. Moreover, they have already given their pledges to Clinton, and are nervous, perhaps, that the issues that Sanders has campaigned on are a shift too far to the left.
Of course that is only one reading of the situation; another, given the overlap between Trump and Sanders on international trade and campaign finance, is that the increasingly poor, disillusioned and disenfranchised middle class are rebelling and, as one establishment figure noted tonight, flocking to the "populist" candidates. For populist read "people who don't buy the elites' argument that things are too complicated for the humble man in the street to understand - so let us get on with running things (and profiting nicely from it)". I'm not unsympathetic to Trump's remark that the Clintons have turned turned fund-raising into a self-enrichment art form.
Since the most likely scenario is that the pledged delegates won't switch sides, Clinton will be the Democratic Party's nominee in the fall. So what can Sander hope to accomplish? Just getting his issues onto the party manifesto (or "platform") is no guarantee that Clinton if she were to be elected, would act on any of it. Sanders needs leverage.
When Clinton lost to Obama eight years ago, she needed to keep on his good side since, anticipating this campaign's run, a cabinet position would look far better on her CV than another few years in the Senate - she needed that "executive experience". So she was in no position to get her pet policies into Obama's agenda (even if she had any other than "stay the course", which is far from clear to me).
Sanders on the other hand now has a brand which he didn't a year ago, and could easily mount another campaign in four years time; and he has had no support from, and therefore no obligation not to stick it to, the party establishment. That's Sander's leverage; "adopt these policies or I will challenge you again in four years" (possibly as an independent).
That's my take. It'll be nteresting to see how this plays out over the next few days.
Of course that is only one reading of the situation; another, given the overlap between Trump and Sanders on international trade and campaign finance, is that the increasingly poor, disillusioned and disenfranchised middle class are rebelling and, as one establishment figure noted tonight, flocking to the "populist" candidates. For populist read "people who don't buy the elites' argument that things are too complicated for the humble man in the street to understand - so let us get on with running things (and profiting nicely from it)". I'm not unsympathetic to Trump's remark that the Clintons have turned turned fund-raising into a self-enrichment art form.
Since the most likely scenario is that the pledged delegates won't switch sides, Clinton will be the Democratic Party's nominee in the fall. So what can Sander hope to accomplish? Just getting his issues onto the party manifesto (or "platform") is no guarantee that Clinton if she were to be elected, would act on any of it. Sanders needs leverage.
When Clinton lost to Obama eight years ago, she needed to keep on his good side since, anticipating this campaign's run, a cabinet position would look far better on her CV than another few years in the Senate - she needed that "executive experience". So she was in no position to get her pet policies into Obama's agenda (even if she had any other than "stay the course", which is far from clear to me).
Sanders on the other hand now has a brand which he didn't a year ago, and could easily mount another campaign in four years time; and he has had no support from, and therefore no obligation not to stick it to, the party establishment. That's Sander's leverage; "adopt these policies or I will challenge you again in four years" (possibly as an independent).
That's my take. It'll be nteresting to see how this plays out over the next few days.
Subscribe to:
Posts (Atom)