Ben Chu in the Independent describes 5 possible Brexit outcomes. The only interesting ones are 4 and 5.
Brexit 4 is, “Leave the single market and customs union with no free trade deal in place and trade with Europe under World Trade Organisation rules.” Brexit 5 is, “Leave the single market and customs union with no free trade deal – but unilaterally scrap all import tariffs.”
He thinks 4 will make us poor, and 5 is politically impossible because the exporters will make a fuss. I think we will end up with something between 4 and 5, with lots of bluster and threats but ultimately low-ish tariffs because British and EU politicians are not completely self-destructive. But I am a very optimistic person. Of course the tariff structures will be ridiculously complicated and riddled with special interest exceptions.
This is funny, from Brexit 3, which is a comprehensive free trade deal that will somehow require a strong customs border: “There would additionally have to be a customs border between Northern Ireland and the Republic, with potentially serious political consequences.” I think any such border would be for appearances only and eyes would be blind to any goods moving across it. This is because trade deals are not really there to improve anyone’s economic prospects. They are to win favour with voters, so only outward appearances matter. They do not need to be properly enforced. Nobody in charge actually cares about smuggling.
Incidental note: I was thinking of this song when I wrote the title.
Postscript: Further to that, and with apologies to anyone not familiar with the best Megadeth album:
Give me sov’renty, give me liberty,
True autonomy, unilat’rally,
Strong economy, Brexit if you please,
Master all of these, EU on its knees
I master five Brexits, I master five Brexits
I’ll get my coat.
Ok, maybe the time as not quite arrived just yet but it is an idea I have long liked, and it seems I am not the only one:
You could open up futures markets in passports, you could have derivatives.
– David Card, professor of economics, U.C. Berkeley
The notion gives me the giggles and it has much to commend it. Yes, I used to be a futures trader 😉
What do you think is going to happen with the economy?
What do you mean by disaster?
Depression, unemployment, reduction in living standards, banks going bust, hundreds of thousands not being able to pay their mortgages. Perhaps even the breakdown of the state.
Just about everywhere in the Western/developed world.
Why do you think that?
Because of government deficits, government debts, private debts and money printing.
And why should that lead to disaster?
Because eventually people will stop lending to the government. At which point the government will be unable to pay it’s bills. At which point it will have to stop spending money on things like pensions, health, education, defence. At which point you’re going to get riots.
What from old people, sickies and children?
More from people who thought they might need the state at some point in the future.
Anyway, can’t they just print the money they need?
Well, they’re already doing that. But money printing eventually leads to inflation. Inflation dislocates the economy. It becomes impossible to plan because you no longer know how much you can buy for and how much you can sell for. At that point you no longer know what activities are profitable and what unprofitable.
But there’s been plenty of printing in the last few years and very little inflation. Hey, look at Japan.
Maybe. There’s been plenty of inflation in assets such as houses, shares and precious metals. Indeed, according to Jesse Columbo there’s hardly an asset class out there that isn’t currently in a bubble. And bubbles eventually pop.
Do they? I give you Japan again.
Yes, they’ve been printing money and keeping it all together for 25 years. But there’s been no growth.
And anyway they are getting ever more desperate. At time of writing they are considering helicopter money. This is part of a progression from low interest rates to no interest rates to negative interest rates.
So, they will have negative interest rates and then they will have ever-more negative interest rates and where Japan goes we will follow.
Yes, but… oh I don’t know. It just doesn’t sound right.
Where the Japanese lead we follow. Perhaps not so neatly.
Government can and should be a force for good; the state exists to provide what individual people, communities and markets cannot; we should employ the power of government for the good of the people. Time to reject the ideological templates provided by the socialist left and the libertarian right and embrace a new centre ground in which government steps up – and not back – to act on behalf of the people.
Claiming to reject ideology is nonsense – May is advocating an ideology of “centrism”, statist, intervening in the economy, acceptance of perpetual borrowing and over-spending, coupled with greater intrusion by the state into the lives of individuals. Remember her Snoopers’ Charter, giving the state powers to intercept personal online data of every individual. Her conference speech last year, lest we forget, was panned by the Institute of Directors and described as “chilling and bitter”. May, whilst claiming the state is a “force for good”, is proposing to force companies to list foreign workers, an ominous and pointless intervention in the private contracts of business. She will also hint this afternoon at imposing price controls on energy companies, another interventionist policy for which the Tories rightly monstered Ed Miliband. Thatcher wanted to “roll back the frontiers of the state”. May wants “government to step up, not back”. So who do you vote for now if you want a balanced budget, free markets and to get the state out of your life?
Tim Worstall wrote, “The economic policies of the last 30, 40, years have led to the greatest reduction in absolute poverty in the history of our species.” This sounds about right, but on its own the assertion will not convince the types of people I might want to persuade towards my way of looking at the world, the people who accept the litany that inequality is increasing and that must mean that the rich are making the poor poorer. A lot of these people are not Marxist true believers, they just imbibe the world-view of the BBC by default. To them, a claim such as “poor people are richer than ever before” sounds like a strong claim that needs strong evidence.
I often point people to Human Progress. Its headline evidence is often a bit specific, though. Today’s headlines are about malaria, seafood consumption, China’s environment, primary school attendance and teenage pregnancy in Africa. These are all good wealth indicators but I could be accused of cherry-picking.
Then I found a graph showing absolute numbers of people living in extreme poverty since 1820. Extreme poverty means living on less than $1.90 per day, adjusted for price differences and inflation. The graph is made by combining a 2002 (peer-reviewed!) study and numbers from the World Bank. It does leave the question of how many people are living on other, similarly low incomes. Another chart has a green line showing “poverty” being $25 per day of income. The trend is in the right direction. There are many more charts along these lines put together by Max Roser.
Mr. Worstall also recommends Branko Milanovic’s blog, and an article by him presenting data about who is getting richer and who is not.
The real surprise is that those in the bottom third of the global income distribution have also made significant gains, with real incomes rising between more than 40% and almost 70% [between 1988 and 2008]. (The only exception is the poorest 5% of the population, whose real incomes have remained about the same.)
Those 5% must live in some truly awful places.
I have ideas for future study. I want to correlate increased economic freedom with poor people getting richer in a way convincing to people with the default BBC world-view. And I heard somewhere that fewer people than ever are less than one failed harvest away from starvation. That is a compelling image; it would be useful to be able to back it up.
Between watching other things last night my television briefly showed me Ross Kemp in Africa talking to a park ranger about elephant poachers armed with AK-47s. In voiceover he said that in the last 10 years 1000 park rangers have been killed. I looked it up. The Game Rangers Association of Africa are quoting the same figure. The International Union for the Conservation of Nature are saying the same thing, adding that the numbers are as reported by co-operating countries to the International Ranger Federation.
My first thought was to wonder how the nature conservationists think it is worth that much human life to protect some animals.
But as David Moore succinctly puts it in response to a Tim Worstall post about “waste [disposal] crime”, this is really another case of “government regulations creating massive incentives to bypass government regulations”.
Now there are objections. A one-off legal ivory sale intended to reduce the price of ivory apparently increased demand for poached ivory because researchers Prof Solomon Hsiang at the University of California Berkeley and Nitin Sekar at Princeton University, “think the legal sale reduced the stigma of ivory, boosting demand, and provided cover for the smuggling of illegal ivory, boosting supply”. This strikes me as a problem with one-off sales specifically, which are distinct from the long-term balance of supply and demand seen in a free market.
A couple of years ago Simon Jenkins argued in favour of ivory farming, and Will Travers responded with some impertinent arguments and some teenage emotional outpourings echoed by the commentariat that seem to amount to little more than “why can’t we all just get along?” Case in point:
I think Simon Jenkin’s proposal is wrong & morally offensive. Surely we need to banish forever the premise that animals on this planet are for here for the purpose of human beings’ exploitation & use – that their body parts are commodities to be farmed & harvested!
It does sound awfully easy when typed by a middle-class Guardian reader coddled in his air-conditioned public-sector office or a newly-vegetarian thirteen-year-old girl.
Here is how this middle-class libertarian blogger would solve it from his air-conditioned office: Abolish Cites, legalise the trade, and privatise the reservations so that the owners have an incentive to keep producing ivory, therefore preserving the species. There will still be poachers, but at least the profits could fund some proper security.
Addendums: Ivory is in the news very recently and I commented there; we do seem to talk about ivory a lot here; this is a small problem compared to, say, mosquito borne illness (which I am planning to write about soon).
A perfectly justified question to put to John McDonnell in the light of this report from the Telegraph:
John McDonnell welcomed the financial crash and called himself a Marxist, newly found footage shows
John McDonnell, Labour’s shadow chancellor, welcomed the financial crash that wrecked Britain’s economy and insisted he was a Marxist, newly uncovered footage shows.
Mr McDonnell, who is Jeremy Corbyn’s closest political ally, is seen in the 2013 video saying that the economic upheaval proves the faults with modern capitalism.
At one point Mr McDonnell, who was a backbencher at the time, says of the crisis: “I’ve been waiting for this for a generation!”
The comments are documented in a YouTube video viewed less than 60 times which was posted on the website on March 16, 2013.
Here is that video: John McDonnell MP Speaking at communities against the cuts meeting 16-3-13. The relevant extract is between 07:10 and 07:35.
In a video entitled “John McDonnell MP Speaking at communities against the cuts meeting”, the man now in charge of Labour’s economic policy is seen discussing the crisis.
“We’ve got to demand systemic change. Look, I’m straight, I’m honest with people: I’m a Marxist,” Mr McDonnell is seen saying at one point.
“This is a classic crisis of the economy – a classic capitalist crisis. I’ve been waiting for this for a generation!
“For Christ’s sake don’t waste it, you know; let’s use this to explain to people this system based on greed and profit does not work.”
Most of the comments I have read seem to think that his “welcoming” the financial crash of 2008 is the main story. I don’t see it that way. He could reasonably claim (added later: he has claimed) that it was said as a self-mocking joke about the way Marxists have been predicting the imminent demise of capitalism for years and only now, it seems, has it finally happened. No, I think the damning part is “I’m honest with people: I’m a Marxist.”
My title for this post was also intended as a historical joke. There is no doubt about what party Mr McDonnell belongs to, the Labour Party. The doubt that arises in many people’s minds is whether under Jeremy Corbyn’s leadership this is still a party normal people can vote for without going the full Venezuela. We know he is now and has long been a member of the Labour party, but someone will inevitably now ask Mr McDonnell, “Are you a Marxist?”
In 2013 his straight and honest answer was “Yes”. If he answers “No” three years later, will people believe him? When did he change and why?
If he answers “Yes”… this man is Shadow Chancellor of the Exchequer.
Update: Mr McDonnell appeared on Question Time last night. He was asked by David Dimbelbly if he was a Marxist, in the light of that video. Watch the first half minute of this clip to see how he responds. At 15 seconds in we have:
Dimbelby: “Are you a Marxist?”
McDonnell: “No, I’m a socialist.”
Dimbelby: “Well, why say, ‘I’m a Marxist'”?
McDonnell: “Because actually I was trying to, I was demonstrating, a prediction of the capitalist crisis at the time.”
Anna Soubry’s lengthy attack on him afterwards becomes tedious, but she got a solid round of applause for her initial indignant restatement of fact in the face of this farrago: “You said, ‘I’m a Marxist'”.
The middle classes in the UK and America are getting richer again. Inequality is diminishing. There are many problems, of course, but they are primarily down to the fact that the impact of the Great Recession ended up dragging on for years, with the previous misallocation of resources and capital wiping out a decade’s worth of productivity gains.
– Allister Heath
So why the rise of populism? While wages are finally improving, there has been no return to boom times. Millions of younger people are despairing at exploding housing costs, fuelled by government-created low supply and rock-bottom interest rates; older workers are facing a nightmarish pensions crisis, also created by ultra‑loose monetary policy.
Voters feel culturally disconnected; they rightly voted for Brexit because they realised that democratic control was being destroyed by technocratic unaccountability. The welfare state’s inherent defects mean that people feel caught up in a Hobbesian war for resources – school places, hospital beds – of all against all, especially with high levels of immigration. But the middle classes should direct their ire towards politicians and central bankers, not free markets or technology.
Douglas Carswell makes some excellent points about the perils of any post-Brexit trade agreements with the EU:
So let’s spell it out. Access to the single market means being able to trade with single-market countries. Membership means being bound by single-market rules.
Why is this difference so important?
Because access is consistent with the vote to leave the EU. Membership isn’t.
Access clearly doesn’t require membership. Countries around the world trade with the single market. Many do so freely, with no tariff barriers, via bilateral free-trade agreements. Britain can do the same. We don’t need to be part of the single market to trade freely with it.
In fact, we will have freer trade once we leave the single market. Because the single market doesn’t enable commerce, but rather restricts it.
The single market is a permission-based system. It stops suppliers from selling things people want to buy unless they conform to standards set by bureaucrats in Brussels. Rather than remove trade barriers, the single market creates them. Not between countries, but between producers and consumers.
The effect is to limit competition. Big corporations with expensive lobbyists rig the rules to shut out disruptive innovation from upstart rivals. Economic progress is impeded.
Indeed, and as Peter Lilly wrote not all that long ago:
How important are trade deals? As a former trade minister it pains me to admit – their importance is grossly exaggerated. Countries succeed, with or without trade deals, if they produce goods and services other countries want. Thanks to the Uruguay Round, tariffs between developed countries now average low single figures – small beer compared with recent movements in exchange rates. So the most worthwhile trade agreements are with fast growing developing countries which still have high tariffs.
Quite so. The sooner we are out of the EU the better.
Globally, therefore, adoption of American farming techniques could increase agricultural productivity so much that a landmass the size of India could be returned to nature, without compromising the food supply to our apparently “peaking” global population – the world’s population is likely to peak at 8.7 billion in 2055 and then start to decline. Last, but not least, tens of millions of agricultural laborers in Africa and Asia will be freed from back-breaking labor, migrate to the cities and create wealth in other ways.
– Marian L. Tupy & Chelsea Follett
There is nothing new about this; it mostly started fifteen years ago, in 2001, and again the Irish were the main target. Ireland in the early 1990s had a high general corporation tax rate of 40%, but it introduced a special low 10% rate for finance companies in its Dublin-based International Financial Services Centre (IFSC). The Commission ruled that this was effectively an improper subsidy to the finance industry under the State Aid rules, and ordered its abolition.
That was really the root cause of the EU’s current row with Ireland, because the Irish response to the IFSC being declared illegal was to reduce all its corporation tax to 12.5%. Because that wasn’t targeted at a particular company or industry sector, it wasn’t illegal State Aid and so the EU Commission could do nothing to stop them, much as it wanted to.
So the EU Commission’s current action against Ireland over Apple is largely “Round Two”, a repeat of what it did fifteen years ago.
– Richard Teather
Private businesses very seldom mount a principled defence of their behaviour. This is why libertarians like to stress that they are pro-market and not pro-business. Business people, being self-interested like anybody else, will attempt to make the most of the circumstances and the majority of them won’t hesitate in accepting legal privilege; indeed many lobby aggressively for it.
– Alberto Mingardi