The Price of Brexit–An Economic Slump


July 20, 2016

The Price of Brexit–An Economic Slump

by The Editorial Board

It was always clear that Britain’s divorce from the European Union would be painful and costly. Nearly a month after the country’s ill-advised referendum on union membership, it is becoming clear just how bad it will be.

The British economy will slow noticeably this year and in 2017, the International Monetary Fund and the European Commission, the union’s executive arm, said in separate reports released on Tuesday. The IMF now expects 1.7 percent growth for 2016, down from its April forecast of 1.9 percent. It predicted a drop to 1.3 percent for 2017, almost a full point below its earlier forecast of 2.2 percent. The chief economist of the fund, Maurice Obstfeld, said that growth could be much lower if negotiations between Britain and its European partners drag on or become contentious.

The European Commission is even more pessimistic. It says Britain’s economy could shrink 0.3 percent next year under its “severe” scenario. Both bodies also warned that the uncertainty caused by Brexit will slow growth in the rest of Europe. The IMF lowered its forecasts modestly for global growth in 2016 and 2017.

British and European leaders need to take these forecasts seriously as they negotiate how to remove Britain from the union and structure a new economic relationship. Britain trades extensively with the E.U., and London is the biggest financial hub in the union. Economists say a disruptive breakup would be bad for everybody, leading to job losses and a spike in the prices in Britain of basic necessities like food that it imports from Europe. The pound has already fallen about 11 percent against the dollar and 9 percent against the euro since the referendum, raising prices in Britain for imports of goods and services.

It is clear that British politicians, especially those who campaigned the loudest for Brexit, did not prepare for this eventuality. Now, it is up to Prime Minister Theresa May, who took office just last week, and her new team to come up with a strategy to minimize the economic damage. Perhaps the best outcome Britain could hope for is an arrangement similar to the one Norway has with the E.U. It is not a member of the union but has access to the European common market and agrees to abide by its regulations and to allow free movement of Europeans across its borders.

So far, Ms. May appears to be wisely ignoring calls by some anti-E.U. politicians to quickly start the formal process of leaving the union by invoking Article 50 of the Lisbon Treaty. British officials recently said they would not invoke the article this year.

But a long delay would carry risks, too, by increasing uncertainty, which would depress business investment and consumer spending. What is clear is that Britain now finds itself in a no-win position.

 

Our Thinking on Markets


Washington DC

July 3, 2016

Markets–Demystification and Democratization of Economics

Review by Steven Pearlstein

https://www.washingtonpost.com

Steven Pearlstein is a Washington Post business and economics writer. He is also the Robinson Professor of Public Affairs at George Mason University.

Ever since the breakthrough success of Tim Harford’s “The Undercover Economist” more than a decade ago, there’s been a growing cottage industry of economists writing books that use stories and events from everyday life to illustrate economic principles and theories many people thought they couldn’t understand.

This demystification and democratization of economics has been a good thing (I use Harford’s book in my own class at George Mason). But at this point, the genre has become annoyingly formulaic and simplistic, stripped of sophistication, intellectual richness and even economic relevance. Moreover, in the search for a fresh and compelling theme, there is the unfortunate tendency for authors to overreach, to try to explain too much on the basis of too little. That, alas, is the problem with the latest entry in this category, Ray Fisman and Tim Sullivan’s “The Inner Lives of Markets.”

Fisman is an economist at Boston University and a contributor at Slate. Sullivan is an well-traveled book editor now at the Harvard Business Review Press. Together, they set out to identify the most important economic journal articles of the past 60 years and explain to the layman not only how they changed the profession’s thinking about how markets work, but how these insights have allowed us to perfect markets and expand their role, thereby transforming our lives in ways both good and bad.

The economists and the insights are well known, if for no other reason than almost all have been cited by the Nobel jury. There is John von Neumann and Oskar Morgenstern’s work laying the foundation for game theory, which played a central role in nuclear arms control and has allowed economists ever since to understand and model the dynamic nature of markets. There are Paul Samuelson, Robert Solow, Kenneth Arrow and Gerard Debreu, who brought mathematical precision to the task of constructing elegant models of the whole economy.

There is George Akerlof’s seemingly innocuous insight about the asymmetry of information between buyers and sellers in the market for used cars, one that opened up whole new avenues of research into the ways individual markets are imperfectly competitive and lead to less-than-optimal results.

We learn about Michael Spence’s observation that the value of a Harvard degree lay not in what students learned in class but in what it signaled about the intelligence and diligence of students who were admitted — and how that got economists thinking about the importance of trust and reliability in markets, and how those are created. There is the story of William Vickrey’s clever modification to the sealed-bid auction — the high bidder wins but pays the price offered by the second-highest — and Jean Tirole’s insight about “two sided markets” that helps explain why banks offer free credit cards and Google provides free searches.

And we learn how Lloyd Shapley, David Gale and Al Roth’s curiosity about the way people chose mates or colleges led to dramatic improvement in the way students are assigned to public schools, doctors are assigned to residencies and healthy kidneys allocated to people who desperately need them.

“The Inner Lives of Markets: How People Shape Them—And They Shape Us” by Ray Fisman and Tim Sullivan (PublicAffairs)

Fisman and Sullivan are at their best as intellectual historians, chronicling the evolution in economics from neoclassical models based on perfect competition and rational behavior to one that accommodates market failures resulting from imperfect competition, strategic behavior and irrationality. But even in that, they wind up giving a superficial account while belaboring the real-world anecdotes and examples that ostensibly were meant to inform the economic insight, not supplant it.

More significantly, they fall into the now-common trap of letting their fascination with companies that are revolutionizing certain sectors of the economy — companies such as Amazon (whose founder Jeff Bezos owns The Washington Post), eBay, Google, Uber and Airbnb — blind them to the reality that the bulk of the economy still revolves around more humdrum enterprises and markets. While the insights of economists certainly help to explain the success of those firms, it is more than a stretch to argue that those economists are responsible for the creation of those companies and their game-changing business models.

Fisman and Sullivan strain their credibility even more when they try to connect the new economic thinking to what they see as an epic battle now playing out between market fundamentalists, who see increasingly open and competitive markets as the solution to everything, and anti-market moralists, who see markets as instruments of selfishness, greed and exploitation that have been allowed to invade too many aspects of our lives.

“Every time we participate in a market innovation — each time we hail a ride via a smart phone or download a song from iTunes — we’re part of a massive social experiment whose ultimate consequences are unknown,” they write in their introduction. By the book’s end, their outlook darkens even more: “The evidence about how markets can affect our behavior combined with the new ways that markets are impinging on our lives should make the rest of us at least a bit uneasy about our future.”

It would all be quite ominous if it weren’t so sophomoric.

Boris Johnson–The BREXIT Buffoon


Washington DC

July 1. 2016

Boris Johnson–The BREXIT Buffoon

by D. D. Guttenplan*

THE problem with spending your whole life pretending to be a buffoon is that eventually people start to believe you.

The British are spared of this Brexit Buffoon

Back in April, when the possibility of Britain actually voting to leave the European Union seemed remote, two newspapers commissioned a poll asking which political figure readers would most like to dine with. Boris Johnson, who had recently announced his support for Brexit, was the winner by a wide margin: 38 percent of respondents said they’d prefer his company, compared with 18 percent for the Labour Party leader, Jeremy Corbyn, and just 12 percent for the Conservative Prime Minister, David Cameron.

This morning, I found myself wondering how many had changed their minds, for Mr. Johnson — or Boris, as he’s universally known here — now seems more like the sort of date who’d order a lavish meal and the best wine on the menu and then walk out, leaving his companions with the check.

A week ago Britain had the fifth largest economy in the world. By the weekend, after Britons had voted by a margin of 52 percent to 48 percent to leave the European Union, it had slipped to sixth place, behind France. Mr. Cameron, who had staked his political future on the vote, resigned.His successor, it was widely assumed, would be Boris Johnson.

The tousled blond figurehead of the Leave campaign had been seen as prime minister in waiting since his return to Parliament last year. He and Michael Gove — like Mr. Johnson, a journalist turned Tory politician — were the intellectual heavyweights of the campaign, widely expected to become next-door neighbors in government, with Mr. Johnson as Prime Minister at No. 10 Downing Street and the Goves in No. 11, the residence of the Chancellor of the Exchequer.

Michael and Sarah G0ve

The Goves had other ideas. On Wednesday, Mr. Gove’s wife, Sarah Vine, a columnist for The Daily Mail, inadvertently leaked an email indicating her distrust of Mr. Johnson. “You MUST have SPECIFIC assurances from Boris OTHERWISE you cannot guarantee your support,” she admonished her husband. She also reminded him that both Paul Dacre, The Mail’s powerful editor, and Rupert Murdoch “instinctively dislike Boris but trust your ability enough to support a Boris Gove ticket.” (Before he became a member of Parliament, Mr. Gove was an editorial writer for Mr. Murdoch’s Times).

Yet in her own column that day, Ms. Vine gave no hint that Mr. Gove had any plan to supplant Mr. Johnson as favorite to be the next Conservative leader and Prime Minister. The same could hardly be said of Boris, whose ambition was as broad as his indiscretions.

Playing the clown served Mr. Johnson well, though. It created a cushion of public indulgence around his persona, even as the Old Etonian plotted his next career move. The young reporter who was fired by The Times in 1988 for fabricating a quotation became the editor of The Spectator in 1999. The newspaper columnist who in 2002 wrote scornfully of “flag-waving piccaninnies” with “watermelon smiles” was elected mayor of one of the most diverse and cosmopolitan cities in the world in 2008.

Along the way, he fathered two children out of wedlock. In 2013, an Appeal Court castigated him for the “reckless” conduct of his “philandering.”

We can’t say we weren’t warned. When Mr. Johnson took over at The Spectator, his friend and biographer, the political journalist Andrew Gimson, remarked that it was like “entrusting a Ming vase to an ape.” Somehow, though, none of the buffoonery or scandal slowed him down. It was just Boris being Boris.

He even got away with an extraordinary degree of flip-flopping on Brexit: from “finely balanced” in February to all-out in April to his latest, post-referendum column for The Daily Telegraph, in which he assured readers that “Britain is part of Europe, and always will be.”

Recklessness doesn’t get near it. On Thursday morning, after destroying the political career of his old school chum Mr. Cameron, wrecking the British economy and possibly breaking up Britain, Mr. Johnson announced that he wouldn’t be sticking around to clean up the mess he’d made. His erstwhile ally, Mr. Gove, delivered the coup de grâce as he announced his own candidacy for the Conservative leadership: “Boris cannot provide the leadership or build the team for the task ahead.”

Until yesterday, Mr. Johnson seemed to have an ability to outrun boring facts and bad publicity only surpassed, perhaps, by one Donald J. Trump. Boris will not be Britain’s prime minister any time soon, and probably never, so what next?

A break from British politics seems like a good idea. Although he gave up his American passport to avoid paying taxes, Mr. Johnson was actually born in New York City. Perhaps Mr. Trump would take him on as a warm-up act — or even a running mate.

*D. D. Guttenplan is The Nation’s editor at large.

A version of this op-ed appears in print on July 1, 2016, on page A23 of the New York edition with the headline: Boris the Clown Bows Out. Today’s Paper|Subscribe

Brexit Outcome: Schumacher’s Lessons for Nations


New York

June 28, 2016

Brexit Outcome: Schumacher’s Lessons for Nations

by Dr. Lim Teck Ghee

Over 40 years ago, a British economist, E.F. Schumacher, published a collection of essays on the theme of “small is beautiful” which argued that the modern growth-obsessed economy is unsustainable.

Anticipating the present global warming and environmental crisis in our land and oceans, he noted that natural resources should be treated as capital, since they are not renewable and subject to depletion. He further argued that nature’s ability to fight and resist pollution is limited as well – a warning which has still not sunk deeply enough into the corridors of power all over the world.

Besides his somber – and now proven to be correct – message on environmentalism, he made the case for sustainable development and against inappropriate technology transfer to developing countries which, in his view, would not resolve the underlying problems of unsustainable economies.

Schumacher was also amongst the earliest economists to question the appropriateness of using gross national product and other pure economic indicators to measure human well-being.

What has been referred to as “his dense mixture of philosophy, economics and politics” struck an immediate chord with Western readers, especially during the era of the 70s and the advent of the first global energy crisis. In 1995, the Times Literary Supplement ranked the slim volume of his work as among the 100 most influential books published since World War II.

Since then his influence appears to have waned. New critiques of conventional economic thinking have emerged; and Schumacher’s concern for the “philosophy of materialism” to be replaced or subsumed to ideals such as justice and harmony, and his counter-cultural ideas on the organic, the gentle, the non-violent, the elegant and beautiful as laid out in his Buddhist economics, have been taken up by less credible “gurus” with new vocabulary omitting his ideas and name.

Today, however, some of the concerns which “small is beautiful” raised in 1973 just before the push for European Union began to take place, are echoing in the popular sentiments and issues raised by the “Leave” voters in the Brexit referendum.

Why Britain is Leaving EU

The historic upset defeat of the “Remain” camp and successful revolt against the EU has been explained and interpreted in many ways.

In a lead article, the day after the referendum result, the BBC listed 8 reasons why Leave won the UK referendum on the EU. These reasons included the backfiring of Brexit economic warnings; bungled leadership of the Prime Minster, David Cameron; Labour’s disconnect with voters; the inter-generational divide with older voters preferring to leave; the ascendency of immigration and national and cultural identity issues in the minds of lower income voters; perceived economic benefits; and finally, the influence of Euroskeptic leaders and critics such as Nigel Farage and Boris Johnson during the referendum campaign.

While all the reasons advanced played a role in the final voting count to tilt the balance towards those opting for an uncharted and potentially precarious future, in one sense it represented a rejection of what local Britishers see as a much too big, too powerful and out-of-touch technocratic Frankenstein’s monster – as described in a United Kingdom Independence Party’s internet newsletter on the eve of the referendum – which has made life not only difficult but has also profoundly alienated the common citizen (http://www.ukipdaily.com/eu-is-a-frankenstein/)

In the immigration issue especially which assumed center stage in the Brexit debate, many Britons resent the EU migrants who legally move to jobs in Britain, are seen as taking jobs away from locals and are alleged to abuse the country’s benefits and welfare system.

And this is by no means just a view found in Britain. Other nations in the EU face similarly disenchanted citizens fed up with the “big is good; bigger is better” philosophy in economic and political systems that Schumacher warned against, and which the enlarged grouping of European nations seemed to signify.

Ordinary people and communities seem to be looking for solutions which call for more local autonomy and for moves away from centralized control towards greater decentralization and a return to local and national economies in which they have greater influence, however naive or impractical it may appear to the political and business elites that run our world today.

The same soul searching in the rest of Europe has already produced populist politicians and a growing number of Euroskeptics. They will seek their own referendums on EU membership and if successful will produce a breakup of the present union; and the need as French Prime Minister  Manuel Valls puts it “to invent another Europe.”

Can Malaysia Learn

In Malaysia the Brexit referendum result has produced the predictable dollars and cents focused analysis of what it means to the nation’s trade and investment flows as well as to the property, education and other sectors whose links with the UK are based on its inclusion in the EU. This is a limiting and inadequate focus which misses the larger lessons to be learned.

In our part of the world, especially in Sabah and Sarawak which opted to join Malaya and Singapore in the formation of Malaysia in 1963, a sense of alienation towards the federalized centralized political entity, run from Kuala Lumpur and beholden to UMNO’s agenda, has been brewing for some time.

In August 2014, a coalition of NGOs, politicians and activists from Sarawak and Sabah drew up a petition addressed to the United Nations (UN) secretary-general to re-open the issue of self-determination for the two East Malaysian states. The petition believed to be signed by some 100 representatives was also copied to the UN Special Committee of 24 (C-24) and the UN Human Rights Committee (http://www.theborneopost.com/2014/08/13/group-draws-up-self-determination-petition-for-sarawak-and-sabah/#ixzz4Ccnmmakv).

These local autonomy and even separatist tendencies and forces are not going to go away. At some point – unless real reforms are put in place to provide for greater autonomy and to protect the freedoms and sense of local identity that the local communities from the two states feel they have lost – we will have our own version of Brexit demanded more forcefully.

 

RIP, Jo Cox. May Britain remember your wisdom


New York

June 23, 2016

RIP, Jo Cox. May Britain remember your wisdom

by Nicholas Kristof

As I listen to the stormy debates here in the run-up to today’s vote on whether Britain should exit the European Union, my thoughts keep drifting to my friend Jo Cox, a member of Parliament assassinated last week.

Jo was a leader who fought for genocide victims in Darfur, for survivors of human trafficking, for women’s health, for Syrian refugees and, yes, for remaining in the European Union. She was also a proud mom of two small children: When she was pregnant, she used to sign her emails “Jo (and very large bump).”

Jo’s dedication to the voiceless may have cost her her life. At least one witness said that the man who stabbed and shot Jo shouted “Britain first!” and when he was asked to say his name at a court hearing he responded, “My name is death to traitors, freedom for Britain.”

Yet from awful events bittersweet progress can emerge. In five days, a fund in Jo Cox’s memory has raised more than £1.3 million (about RM7.7 million) for causes she supported. Likewise, perhaps revulsion at the murder will leave voters wary of the xenophobic tone of some of the Leave campaigners in the “Brexit” referendum.

I hope so, for helping to save a united Europe would be a fitting legacy for a woman no longer able to influence the world in other ways — and also because the world needs Britain in Europe.

The British joke about their view of Europe, with a famous (and apparently apocryphal) headline declaring, “Fog in Channel, Continent Cut Off.” But it’s also true, as John Donne wrote, “if a clod be washed away by the sea, Europe is the less.” And if Britain were washed away, Europe and Britain would both be less.

An International Monetary Fund report this month concluded that a British pullout from the European Union would “permanently lower incomes.” But more important are the political costs to an unraveling.

Among those who first called for a “United States of Europe” was Sir Winston Churchill, in a 1946 speech, and the impetus for him and for Jean Monnet, “the father of Europe,” was primarily peace and security.

In many ways, that has been disappointing. The European Union has repeatedly failed political tests: It was paralyzed as genocide began in the former Yugoslavia, it adopted a common currency too soon, it mishandled the recent economic crisis and it has bungled the current refugee crisis. And that’s on top of the quotidian expense and wastefulness of a European bureaucracy translating in 24 official languages, including Maltese, Bulgarian, Slovak and Slovenian.

Immigration has also fed an anxiety about loss of control and about erosion of national identity, prompting a backlash not entirely dissimilar from the Donald Trump phenomenon in the United States. Jo Cox herself, in an article she wrote shortly before her death, acknowledged, “It’s fine to be concerned by immigration — many people are.” But her point was that practical concerns about immigration should be addressed with practical solutions, while Brexit would simply create new crises without solving old ones.

One risk is that if Britain leaves, others will follow, leading to a dismemberment of Europe and economic crisis. Donald Tusk, the European Council president, has warned that “Brexit could be the beginning of the destruction of not only the EU but also of Western political civilisation in its entirety.”

That seems a little much. But we’ve seen the chaos in the Arab world since 2011, and the last thing the globe needs is another arc of instability.

One of the few triumphs of international cooperation in recent years was the joint effort by Britain, France and the United States to defeat Ebola in West Africa. That would have been more difficult if Britain and France were feuding and Europe were facing a deeper economic slump.

Likewise, a nightmare scenario is Russia overwhelming Estonia or its Baltic neighbours, testing NATO’s resolve (a test I’m not 100 per cent sure NATO would pass or even survive). Such Russian adventurism is probably more likely if the European Union is disintegrating.

Even the debate about Brexit has been poisonous in Britain. After Jo’s murder, a far-right group called National Action wrote of her killer: “#VoteLeave, don’t let this man’s sacrifice go in vain. Jo Cox would have filled Yorkshire with more subhumans!”

This is a scary period, compounded by the risk of the European bloc’s unraveling. It’s time for Britons to remember that immigration and integration have enriched their country as well as challenged it.

Jo Cox never had a chance to respond when her killer reportedly shouted “Britain first.” But in a sense, she already had. In her maiden speech in Parliament, she boasted of her constituency’s traditional English fish and chips — but also of its outstanding curries, made by immigrants. She declared, “We are far more united and have far more in common with each other than things that divide us.”

Rest in Peace, Jo. I hope Britain remembers your wisdom.

The New York Times/www.themalaymailonline.com

Senator Elizabeth Warren: Republicans, do not be obstructionists


June 7, 2016

Senator Elizabeth Warren: Republicans, do not be obstructionists

By Elizabeth Warren

http://edition.cnn.com/2016/06/06/opinions/republican-party-obstructionism-warren/index.html

Just hours after news broke of Supreme Court Justice Antonin Scalia’s passing, Donald Trump gave Senate Republicans three words of advice on filling the vacancy: “delay, delay, delay.”

Senate Republicans didn’t need his advice: that has been their strategy for years. Before Barack Obama set foot in the Oval Office, Sen. Mitch McConnell and his Republican colleagues decided to block him at every turn — no matter what. They publicly promised to make government work, but away from the cameras they deployed stall-and-delay tactics to stop the government in its tracks.

Nowhere has that strategy been more insidious or persistent than in Republicans’ efforts to block Obama’s nominations to head agencies, fill judicial vacancies and staff other key government posts.

The latest example involves the nomination of Judge Merrick Garland to the Supreme Court. It’s been over 80 days since President Obama nominated Judge Garland to fill the vacant seat on the Supreme Court. That’s more than enough time for the Senate to have held a hearing and a floor vote on his nomination — a process that has been routine for modern-day Supreme Court nominees. Until now.

Republicans have said they won’t consider anyone that Obama nominates to serve on the court. They claim they want the “people” to have a voice, but they refuse to accept that the people have already made their voices heard when they elected Barack Obama, twice.

But that’s not the outcome the Republicans wanted, so they want to just hold all those spots open for the next president — someone they hope will be more like them.

The idea that Senate Republicans are perfectly willing to leave our highest court short-handed for nearly a year is pretty shocking, but it shouldn’t be. For more than seven years, they have waged an unrelenting campaign to keep key positions throughout government empty. Republican leader McConnell recently wrote in the Wall Street Journal that “[o]n issues of great national significance, one party should never simply force its will on everybody else.”

That’s pretty rich coming from a guy who’s spent years trying to do exactly that. Consider this: Fewer district and circuit court judgeswere confirmed in President Obama’s first term than in the first terms of the previous three presidents, thanks to Senate Republicans’ stall-and-delay strategy. Amajority of Obama’s uncontroversial first-term judicial nominees — those who were both reported by the Senate Judiciary Committee and confirmed by the full Senate overwhelmingly — took over 200 days to be confirmed.

And since Republicans took charge of the Senate in 2015, judicial confirmations have virtually ground to a halt.

According to the Alliance for Justice, Senate Republicans are “on pace for the lowest number of judicial confirmations in more than 60 years.”Republicans have also actively blocked nominations for important jobs in government, including the Pentagon, the Justice Department and environmental, worker and consumer watchdogs, often leaving parts of government without leaders for months and months.

In 2015, there were fewer civilian confirmations than in any first session of Congress in nearly 30 years. Republican senators say their Supreme Court blockade is about “the people.” But it’s really about catering to their party’s extremists.

Extremism in the Senate has fueled extremism in the Republican presidential race. There is little separation between the extremism driving Republican obstruction of confirmations in Congress and Donald Trump reveling in trying to avoid taxes because he doesn’t want to throw his money “down the drain.”

There is little separation between Senate Republicans who hamstring agency after agency and court after court by refusing to confirm nominees because they don’t like the guy doing the nominating, and a narrow-minded bully who’s happy for millions to lose their homes so long as he can make an extra buck. The extremism of Senate Republicans nourished the growth of extremist candidates — and now one sits atop their presidential ticket.

The Obama administration is in its last year. Thus far, the legacy of congressional Republicans during that administration adds up to one single, unifying principle: if government isn’t working for Republicans and their right-wing allies, they won’t let it work for anyone.

But it’s not too late. In the last months of the administration, Senate Republicans could ditch the extremism and start governing. They could start by holding a hearing on Judge Garland’s nomination. Then, they could hold a vote.

Republicans should do their jobs. If they don’t, the nomination of Donald Trump won’t be the last time their extremism undermines the well-being of both the Republican Party and this great nation.