The Case for Compensated Free Trade–The CFT Plan


November 17, 2018

The Case for Compensated Free Trade–The CFT Plan

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According to Harvard’s Dani Rodrik, the nation-state, democracy, and globalization are mutually irreconcilable: we can have any two, but not all three simultaneously. In fact, there may be a solution to Rodrik’s “trilemma.”

LONDON– Almost all liberals support globalization and oppose economic nationalism. They ignore the mounting evidence that, in its current form, globalization is dangerously incompatible with democracy.

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In his 2011 book The Globalization Paradox, Harvard’s Dani Rodrik says that the nation-state, democracy, and globalization are mutually irreconcilable: we can have any two, but not all three simultaneously (he calls this a “trilemma”). All over the world, the “nation” has been revolting against globalization in the name of democracy.

That became clear this year when US President Donald Trump imposed the first of a widening set of tariffs against Chinese goods, with China retaliating in kind. Trump has also torn up two major international trade treaties and threatened to withdraw from the World Trade Organization.

The trigger for America’s turn to economic nationalism is its widening trade deficit – $566 billion in 2017, and growing – as the US economy recovers. But the deeper reason is the correct perception that the resulting current-account deficits are not “benign” when they are being financed by inflows of short-term capital, or “hot” money.

A current-account deficit means that a country is importing more than it is exporting. And those excess imports can lead to a net loss of “good” jobs. Six million manufacturing jobs disappeared in the first decades of the 2000s. The Rust Belt made Trump president. “It’s time to rebuild Michigan, and we are not letting them take your jobs out of Michigan any more,” he told cheering crowds in Detroit in 2016.

Trump’s protectionism also has a geopolitical root. Metal imports have led to the closing of many enterprises that might be needed for defense. China’s strategic “Made in China 2025” plan is a high-tech industrial policy aimed at transforming China into a dominant global leader in the industries of the future. It significantly relies on stealing advanced technologies from the United States. If MIC25 is successful, the US will have a depleted economic and political future.

In strictly economic terms, the political character of one’s trading partners should not matter. However, in a world of strategic competition, international commerce can be, and usually is, an instrument of policy, and its use in that context should not be denied simply because it breaches the sacred principle of free trade. As Friedrich List, the nineteenth-century pioneer of economic nationalism, pointed out, free trade assumes a peaceful world.

Selective tariffs can be useful for protecting defense-related industries or to prevent other countries from stealing cutting-edge technologies. But as an overall trade policy, tariffs are crude and inexact. The US will incur high costs and might end up without a substantially lower trade deficit or other meaningful benefits.

Is there a way to limit free trade that does not lead to trade wars? The economist Vladimir Masch has advocated an ingenious “compensated free trade” (CFT) plan as a way to achieve legitimate protectionist aims without disrupting the world economic system.

Under this plan, policymakers would establish a ceiling for the trade deficit each year and impose limits on trading partners’ surpluses. (Any products needed from a surplus partner would be exempted from the partner’s export limit.) In the US case, this ceiling would largely affect China, Mexico, Japan, and Germany, which contributed $375 billion, $71 billion, $69 billion, and $64 billion, respectively, to the overall trade deficit in 2017.

Under CFT, a trade surplus country can reduce its exports to the set limit. But it could also exceed its export quota if its government paid the partner government a fine equal to the value of the excess exports, either collecting the necessary sum from its export producers or using its currency reserves. (The receiving government could use the fines to enlarge its own investment programs.) But if the surplus country tried to exceed its export limit without paying the fine, its surplus exports would be blocked.

This “smart” protectionism has several advantages over crude tariffs. First and foremost, it would automatically prevent trade wars. Because CFT imposes limits just on the trader’s surplus, any attempt by the surplus country to decrease the value of its imports from the US would automatically decrease the value of its allowed exports.

Second, CFT would confront, in one stroke for each partner, government subsidies, price and currency manipulations, and the other dirty tricks of international trade. In contrast to prolonged and often fruitless haggling over trade treaties, results would be obtained immediately.

Third, by re-balancing the financial and trading arrangements of the global economy’s participants, CFT would represent a step toward addressing its current dysfunction. CFT is not a complete solution, because it leaves open the question of who should adjust to whom. A reformed global payments system, which mandates symmetrical adjustment of global imbalances, would need to tackle this issue.

Fourth, because of America’s leverage, its adoption of CFT would “nudge” reluctant trade surplus countries to accept such a payments system. Global finance would have to operate within the limits that a balanced payments system establishes.

Fifth, in terms of economic benefits to the US, implementing CFT would stimulate the return of off-shored enterprises and jobs, thus restoring the country’s industrial potential and social balance.

From a historical perspective, CFT essentially amounts to a unilateral activation of the scarce-currency clause (Article 7) of the Bretton Woods Agreement, which allowed the International Monetary Fund to declare “scarce” the currency of a country running a persistent trade surplus, permitting other members to discriminate against its goods. It is consistent with Article XII of the General Agreement on Tariffs and Trade (the WTO’s predecessor), which states that any country “in order to safeguard its external financial position and its balance of payments, may restrict the quantity or value of merchandise permitted to be imported.”

Inshort, CFT addresses trade deficits, overcomes the limitations of tariffs, fights trade manipulation, corrects current mainstream economic theory, and is a necessary step toward re-establishing a feasible global payments system. In a nutshell, it overcomes the Rodrik trilemma: one can have the nation-state, democracy, and globalization at the same time.

But only one nation-state, the US, has the clout to deliver this. By doing so, it would stop the global stampede to a virulent form of economic nationalism. For that reason alone, the Masch plan deserves serious consideration.

Lord Skidelsky, Professor Emeritus of Political Economy at Warwick University and a fellow of the British Academy in history and economics, is a member of the British House of Lords. The author of a three-volume biography of John Maynard Keynes, he began his political career in the Labour party, became the Conservative Party’s spokesman for Treasury affairs in the House of Lords, and was eventually forced out of the Conservative Party for his opposition to NATO’s intervention in Kosovo in 1999.

 

 

Reclaiming Community


November 15, 2018

Reclaiming Community

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Stable families, good jobs, strong schools, abundant and safe public spaces, and pride in local cultures and history – these are the essential elements of prosperous societies. Neither global markets nor the nation-state can adequately supply them, and sometimes markets and states undermine them.

CAMBRIDGE – Economics teaches that the measure of an individual’s wellbeing is the quantity and variety of goods he or she can consume. Consumption possibilities are in turn maximized by providing firms with the freedom they need to take advantage of new technologies, the division of labor, economies of scale, and mobility. Consumption is the goal; production is the means to it. Markets, rather than communities, are the unit and object of analysis.

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Harvard’s Dr. Dani Rodrik

No one can deny that this consumer- and market-centric vision of the economy has produced plenty of fruit. The dazzling array of consumer goods available in the megastores or Apple outlets of any major city in the world would have been unimaginable as recently as a generation ago.

But clearly something has gone wrong in the meantime. The economic and social divisions within our societies have provoked a broad backlash in a wide range of settings – from the United States, Italy, and Germany in the developed world to developing countries such as the Philippines and Brazil. This political turmoil suggests that economists’ priorities may not have been entirely appropriate.

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The “third pillar” of the title is the community we live in. Economists all too often understand their field as the relationship between markets and the state, and they leave squishy social issues for other people. That’s not just myopic, Rajan argues; it’s dangerous. All economics is actually socioeconomics – all markets are embedded in a web of human relations, values and norms. As he shows, throughout history, technological phase shifts have ripped the market out of those old webs and led to violent backlashes, and to what we now call populism. Eventually, a new equilibrium is reached, but it can be ugly and messy, especially if done wrong.–The Third Pillar– R. Rajan

Two books, one forthcoming from Raghuram Rajan and another published this month by Oren Cass, revisit our economistic worldview and argue that we should instead put the health of our local communities front and center. Stable families, good jobs, strong schools, abundant and safe public spaces, and pride in local cultures and history – these are the essential elements of prosperous societies. Neither global markets nor the nation-state can adequately supply them, and sometimes markets and states undermine them.

The authors come from different vantage points. Rajan is an economist at the University of Chicago and a former governor of the Reserve Bank of India. Cass is at the right-of-center Manhattan Institute for Policy Research and was domestic policy director for Republican Mitt Romney’s presidential campaign. You would not necessarily expect either a Chicago economist or a moderate Republican to treat markets and hyper-globalization with skepticism. But both are disturbed by what they see as the effects on communities.

Rajan calls community the “third pillar” of prosperity, as important as the other two pillars – the state and market. No less than excessive centralized state power, he writes, unmanaged globalization can tear apart the fabric of local communities.

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Cass is explicit that US trade and immigration policy should focus on American workers first and foremost. This means ensuring that local labor markets are healthy and that there are plenty of goods jobs at decent wages. Both authors emphasize the gains from trade and reject US President Donald Trump’s protectionism. But they agree we may have gone too far into hyper-globalization and paid insufficient attention to the costs for communities.

When a local factory closes because a firm has decided to outsource to a supplier across the border, more is lost than the hundreds (or thousands) of jobs that move abroad. The impact is multiplied through reduced spending on local goods and services, which means workers and employers across the entire local economy feel the hit. The local government’s tax revenues fall as well, so there is less money to spend on education and other public amenities. Anomie, family breakdown, opioid addiction, and other social ills often follow.

Economists’ usual answer is to call for “greater labor market flexibiliy”: workers should simply leave depressed areas and seek jobs elsewhere. But as Cass reminds us, geographical mobility has to be coupled with “the opportunity to stay.” Even during times of significant migration, the bulk of local populations stayed put and needed good jobs and solid communities

Alternatively, economists might recommend compensating the losers from economic change, through social transfers and other benefits. Leaving aside the feasibility of such transfers, it is doubtful that they are the solution. Joblessness will undermine individual and community wellbeing even if consumption levels are propped up through cash grants.

Ultimately, it is only through the creation and expansion of well-paying jobs that local communities can be made vital. Cass’s proposal is to encourage employment through wage subsidies. Rajan emphasizes the role of local leaders who can mobilize community assets, generate social engagement on the part of local residents, and create a new image – all in the context of more supportive state policies and managed globalization.

Other economists have advocated regionally targeted manufacturing extension programs, fostering partnerships between local employers and universities. Yet others recommend local public spending, such as on job training programs for small and medium-sized enterprises.

We do not have a good fix on what works best, and a fair amount of policy experimentation will be needed to make progress. But the urgency of action is heightened by the fact that ongoing technological trends threaten to exacerbate communities’ existing problems. New digital technologies tend to exhibit scale economies and network effects, which produce concentration rather than localization of production. Instead of diffusing gains, they create winner-take-all markets. The globalization of production networks magnifies such effects further.How we balance these forces with the needs of communities will shape not only our economic fortunes, but also our social and political environment. As Cass and Rajan show, it is a problem that economists should no longer ignore.

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*Dani Rodrik is Professor of International Political Economy at Harvard University’s John F. Kennedy School of Government. He is the author of The Globalization Paradox: Democracy and the Future of the World Economy, Economics Rules: The Rights and Wrongs of the Dismal Science, and, most recently, Straight Talk on Trade: Ideas for a Sane World Economy.

A Radically Realistic Climate Vision


A Radically Realistic Climate Vision

 

Limiting global temperatures to 1.5°C above pre-industrial levels is the only way to achieve social justice while protecting our environment from devastating climate change. And, contrary to prevailing wisdom, it’s not an impossible goal.

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BERLIN – According to the latest report by the Intergovernmental Panel on Climate Change, the world’s main scientific authority on global warming, keeping global temperatures from rising more than 1.5°C above pre-industrial levels is a feasible goal. The IPCC’s stance represents a move in the direction of the kind of “radical realism” that many civil-society actors have long advocated.

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The IPCC does not bet on geo-engineering proposals – for example, deep-ocean sequestration of massive amounts of atmospheric carbon dioxide, or “dimming the sun” by spraying the atmosphere with aerosols – to combat global warming. These largely theoretical solutions could have untold consequences for people and ecosystems, worsening not only the climate crisis, but also the other social and ecological crises we face.

 

What Now for America?


November 9, 2018

What Now for America?

Now that the Democratic Party has won control of the US House of Representatives, it must resist pressure to launch impeachment proceedings against President Donald Trump. If the party is to win back the White House in 2020, it should adopt a simple core message for the next two years.

 

NEW YORK – At least it wasn’t a disaster. If the Democrats had failed to secure a majority in the US House of Representatives, President Donald Trump would have felt almighty, with all the dire consequences that would entail. But the Republicans still control the Senate, and that means that the judiciary, including the Supreme Court, will be pushed further to the right. And the election of Republican governors in major states like Ohio and Florida means that electoral districts can be finessed to boost Trump’s reelection chances in 2020.

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One of the most common political clichés ahead of these midterm elections was that they were a “battle for America’s soul.” It is easy to imagine Republicans and Democrats standing for two different versions of the country: one is overwhelmingly white, modestly educated, not very young, strong in rural areas, often male, and proud to own guns; the other is better educated, younger, urban, racially diverse, more female, and keen to control guns. These are caricatures, but they express a very recognizable reality.

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Though both sides believe they are patriotic Americans, their idea of patriotism could not be more different. The writer James Baldwin put the case for “progressive” patriotism well: he loved America more than any country in the world, and for that reason insisted on the right to criticize her perpetually. Trumpian patriots would have denounced Baldwin as a traitor.

The big temptation for the Democrats, now that they have won control of the House, is to make the most of what they see as their greatest strengths: racial and gender diversity, and a shared loathing of Trump. This would be a logical position. Trump is indeed dreadful, and the Democrats could legitimately claim that older, rural white men are less representative of America today than the young, the urban, the nonwhite, and newly empowered women.

And yet, to focus the Democratic agenda on Trump and diversity would be a mistake. There will be pressure, especially from younger Democrats, fired up by their success, to impeach the president. But as long as the Senate, which would have to convict him, is in Republican hands, an indictment by the House would be practically meaningless. Even if impeached, he would still be president, and Republicans would be inclined to defend him even more fiercely.

It is certainly a good thing to have more women and nonwhite, non-Christian representatives in the legislature. This provides a refreshing and necessary contrast to the Republican Party, which has remade itself in the image of its leader: angry, white, and often openly racist. But to fight Trump’s identity politics with an equally aggressive form of identity politics would make political tribalism worse, and could make it harder for the Democrats to win national elections.

There is always a danger that the Democrats will be divided, with younger radicals pitting themselves against the mostly white establishment. But the Republicans, who seem utterly united behind their leader, have a problem, too. The socially liberal, highly educated Republicans who used to be the backbone of the party have been pushed so far to the margins that they are almost invisible. John McCain was perhaps the last of those Mohicans.

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The Democrats should capitalize on that. And the way to do it would be to put less stress on sexual, racial, or gender identity, and more on the economy. This might seem a naive strategy during an economic boom, when Republicans can boast of record-low unemployment. But even many traditional laissez-faire conservatives should recognize that a yawning divide between rich and poor is not good for business. Henry Ford, who was not a fount of wisdom on many matters, recognized that if you want to sell cars, you have to put enough money into people’s pockets so that they can buy them.

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This, too, is an issue close to America’s conflicted soul. For some, American identity is based on red-blooded capitalist enterprise and rugged individualism, unhindered by excessive government regulation in the pursuit of material happiness. But for others, America stands on an ideal of greater social justice and economic equality – which nowadays should include a commitment to address climate change (a barely-discussed issue in the midterms), given that global warming will harm the poor more than the rich.

There have been boom times for the very wealthy, such as the Gilded Age in the late nineteenth century, when 2% of American households owned more than a third of the country’s wealth, or indeed our own time, when the top 1% owns almost half the wealth. And there have been periods of reform, when governments tried to redress the balance. The most famous example is Franklin D. Roosevelt’s New Deal in the 1930s.

It is clearly time for New Deal II. Instead of promising more tax breaks for the richest citizens, a more equitable fiscal policy could pay for necessary bridges and other public goods and services that would improve everyone’s life. Affordable health care for all citizens is a mark of a civilized society. The US is still a long way from that goal. The same is true of high-quality public education. It is grotesque that so many people who stand to benefit from such “socialist” policies are still persuaded to vote against them because they are supposedly “un-American.”

Concentrating on egalitarianism would appeal to liberals, of course, but it should not alienate moderate voters either, because more equality would be good for the economy. And it might even persuade some angry, poor Trump supporters to recognize that his pseudo-populism is not about helping the left-behind folks in Rust Belt cities and rural hinterlands. It is about giving even more money to the very few. The Democrats’ core message for the next two years should be that in a plutocracy, everyone else loses.

 

Blame the Economists?


November 7, 2018

Blame the Economists?

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economists

Ever since the 2008 financial crash and subsequent recession, economists have been pilloried for failing to foresee the crisis, and for not convincing policymakers of what needed to be done to address it. But the upheavals of the past decade were more a product of historical contingency than technocratic failure.

 

BERKELEY – Now that we are witnessing what looks like the historic decline of the West, it is worth asking what role economists might have played in the disasters of the past decade.

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From the end of World War II until 2007, Western political leaders at least acted as if they were interested in achieving full employment, price stability, an acceptably fair distribution of income and wealth, and an open international order in which all countries would benefit from trade and finance. True, these goals were always in tension, such that we sometimes put growth incentives before income equality, and openness before the interests of specific workers or industries. Nevertheless, the general thrust of policymaking was toward all four objectives.

Then came 2008, when everything changed. The goal of full employment dropped off Western leaders’ radar, even though there was neither a threat of inflation nor additional benefits to be gained from increased openness. Likewise, the goal of creating an international order that serves everyone was summarily abandoned. Both objectives were sacrificed in the interest of restoring the fortunes of the super-rich, perhaps with a distant hope that the wealth would “trickle down” someday.

At the macro level, the story of the post-2008 decade is almost always understood as a failure of economic analysis and communication. We economists supposedly failed to convey to politicians and bureaucrats what needed to be done, because we hadn’t analyzed the situation fully and properly in real time.

Some economists, like Carmen M. Reinhart and Kenneth Rogoff of Harvard University, saw the dangers of the financial crisis, but greatly exaggerated the risks of public spending to boost employment in its aftermath. Others, like me, understood that expansionary monetary policies would not be enough; but, because we had looked at global imbalances the wrong way, we missed the principal source of risk – US financial mis-regulation.

Still others, like then-US Federal Reserve Chairman Ben Bernanke, understood the importance of keeping interest rates low, but overestimated the effectiveness of additional monetary-policy tools such as quantitative easing. The moral of the story is that if only we economists had spoken up sooner, been more convincing on the issues where we were right, and recognized where we were wrong, the situation today would be considerably better.

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The fact that Obama failed to take aggressive action, despite having recognized the need for it beforehand, is a testament to Tooze’s central argument. Professional economists could not convince those in power of what needed to be done, because those in power were operating in a context of political breakdown and lost American credibility. With policy making having been subjected to the malign influence of a rising plutocracy, economists calling for “bold persistent experimentation” were swimming against the tide – even though well-founded economic theories justified precisely that course of action.—

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The Columbia University historian Adam Tooze has little use for this narrative. In his new history of the post-2007 era, Crashed: How a Decade of Financial Crises Changed the World, he shows that the economic history of the past ten years has been driven more by deep historical currents than by technocrats’ errors of analysis and communication.

Specifically, in the years before the crisis, financial deregulation and tax cuts for the rich had been driving government deficits and debt ever higher, while further increasing inequality. Making matters worse, George W. Bush’s administration decided to wage an ill-advised war against Iraq, effectively squandering America’s credibility to lead the North Atlantic through the crisis years.

It was also during this time that the Republican Party began to suffer a nervous breakdown. As if Bush’s lack of qualifications and former Vice President Dick Cheney’s war-mongering weren’t bad enough, the party doubled down on its cynicism. In 2008, Republicans rallied behind the late Senator John McCain’s running mate, Sarah Palin, a folksy demagogue who was even less suited for office than Bush or Cheney; and in 2010, the party was essentially hijacked by the populist Tea Party.

After the 2008 crash and the so-called Great Recession, years of tepid growth laid the groundwork for a political upheaval in 2016. While Republicans embraced a brutish, race-baiting reality-TV star, many Democrats swooned for a self-declared socialist senator with scarcely any legislative achievements to his name. “This denouement,” Tooze writes, “might have seemed a little cartoonish,” as if life was imitating the art of the HBO series “Veep.”

Of course, we have yet to mention a key figure. Between the financial crisis of 2008 and the political crisis of 2016 came the presidency of Barack Obama. In 2004, when he was still a rising star in the Senate, Obama had warned that failing to build a “purple America” that supports the working and middle classes would lead to nativism and political breakdown.

Yet, after the crash, the Obama administration had little stomach for the medicine that former President Franklin D. Roosevelt had prescribed to address problems of such magnitude. “The country needs…bold persistent experimentation,” Roosevelt said in 1932, at the height of the Great Depression. “It is common sense to take a method and try it; if it fails, admit it frankly and try another. But above all, try something.”

The fact that Obama failed to take aggressive action, despite having recognized the need for it beforehand, is a testament to Tooze’s central argument. Professional economists could not convince those in power of what needed to be done, because those in power were operating in a context of political breakdown and lost American credibility. With policymaking having been subjected to the malign influence of a rising plutocracy, economists calling for “bold persistent experimentation” were swimming against the tide – even though well-founded economic theories justified precisely that course of action.

Still, I do not find Tooze’s arguments to be as strong as he thinks they are. We economists and our theories did make a big difference. With the exception of Greece, advanced economies experienced nothing like a rerun of the Great Depression, which was a very real possibility at the height of the crisis. Had we been smarter, more articulate, and less divided and distracted by red herrings, we might have made a bigger difference. But that doesn’t mean we made no difference at all.

J. Bradford DeLong is Professor of Economics at the University of California at Berkeley and a research associate at the National Bureau of Economic Research. He was Deputy Assistant US Treasury Secretary during the Clinton Administration, where he was heavily involved in budget and trade negotiations. His role in designing the bailout of Mexico during the 1994 peso crisis placed him at the forefront of Latin America’s transformation into a region of open economies, and cemented his stature as a leading voice in economic-policy debates.

The Brexit Endgame


October 17, 2018

The Brexit Endgame

https://www.project-syndicate.org/commentary/brexit-endgame-temporary-customs-union-by-robert-skidelsky-2018-10

Britain’s Leave campaign was a revolt against not only economic mismanagement, but also the pretension of supranational government. So Brexit’s outcome may indicate how the dialectic between supranationalism and nationalism will play out in much of the rest of the world as well, where it is the stuff of current politics.

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LONDON – The United Kingdom’s “Remainers,” who still hope to reverse Britain’s decision to leave the European Union, have placarded British cities with a simple question: “Brexit – Is It Worth It?” Well, is it?

And yet economics also clearly shaped the decision. The Brexit propagandists brilliantly channeled palpable economic resentment, especially against immigration, into hostility toward the EU. But the resentment was against the home-grown damage inflicted on the British economy by its neglectful rulers. As Will Hutton and Andrew Adonis accurately note in their recent book Saving Britain, “Our problems are made in Britain; they can only be solved in Britain. Europe does not impede this mission…”

But Hutton and Adonis miss Brexit’s crucial non-economic dimension. They rightly recall the long and intimate relationship between Britain and the European continent. But Britain has never been part of a European state. Although the European Union is very far from being the “superstate” of Margaret Thatcher’s nightmare, its governmental aspirations lack legitimacy, not just in Britain, but among many of its members. Despite talk of European citizenship, politics remain obstinately national. Britain’s Leave campaign was a revolt against not only economic mismanagement, but also the pretension of supranational government.

So Brexit’s outcome may indicate how the dialectic between supranationalism and nationalism will play out in much of the rest of the world as well, where it is the stuff of current politics.

The Brexit endgame itself is far from clear. There are four possibilities.

One possibility is that Britain doesn’t leave the EU after all. The organizers of a campaign for a “people’s vote” – a second referendum on the final exit terms – believe that when people know the true cost of leaving, they will reverse the decision taken in 2016. A second vote could be triggered by the government’s failure to win parliamentary approval of the divorce settlement it has agreed with the EU.

A second possibility is that Britain “crashes out” of the EU on March 29, 2019, with no divorce deal. In this case, forecasters paint a doomsday scenario of economic collapse, gridlock on roads and rail, shortages of food, medicine, and fuel: 1940 all over again (but not exactly Britain’s finest hour).

Image result for brexit chequers plan“Half in, Half out”. Why not Out!

“…the Chequers plan for a continuation of free trade in goods between Britain and the EU. Britain would make sure that goods entering Northern Ireland, but bound for the EU via the Republic of Ireland, paid their EU customs duties and conformed to EU health and safety standards. “–Lord 

British Prime Minister Theresa May’s government is promoting a third possibility: half in, half out. Approved by the Cabinet in July at the Prime Minister’s country house, the so-called Chequers Plan proposes that when Britain leaves the EU, the two sides enter into a free-trade agreement covering goods and agricultural produce, but not services. The plan, devised by May’s adviser Oliver Robbins, is a heroic attempt to solve the Irish border problem.

That problem arises from a commitment by both Britain and the Republic of Ireland to keep a “frictionless” border between the Republic of Ireland, which remains in the EU, and Northern Ireland, which, as part of the UK, leaves it. But to maintain an open border in Ireland would mean creating a customs border between two parts of the UK.

Hence the Chequers plan for a continuation of free trade in goods between Britain and the EU. Britain would make sure that goods entering Northern Ireland, but bound for the EU via the Republic of Ireland, paid their EU customs duties and conformed to EU health and safety standards.

The Brexiteers in May’s Conservative Party oppose the Chequers Plan, because it implies too much integration with the EU. And EU leaders don’t like it, either, because Britain cannot be allowed to be in for some purposes and out for others.

The final possibility is another “half in, half out” scenario. Britain would leave the customs union, but remain in the European Economic Area, which includes the 28 members of the EU plus Norway, Liechtenstein, and Iceland. EEA countries, though free to set their own tariffs, follow nearly all of the EU rules and pay contributions to the EU budget. So the EEA option would be even more anathema to hardline Brexiteers than the Chequers Plan.

So what will happen? Most bets are on Britain formally leaving the EU in March 2019, but “temporarily” remaining in the customs union, giving it two or three years to negotiate the final divorce settlement. The Brexiteers will be enraged by such a “soft” exit, but it will probably be enough to ensure parliamentary approval. The referendum decision to leave the EU will be honored, but its harsh economic consequences will be postponed: a triumph of pragmatism over ideology.

If the Brexit trajectory turns out this way, it will be a good illustration of the double character –and function – of politics. John Maynard Keynes put the matter well: “Words ought to be a little wild, for they are the assault of thoughts upon the unthinking,” he wrote in 1933. “But when the seats of power and authority have been attained there should be no more poetic license. On the contrary, we have to count the cost down to the penny which our rhetoric has despised.”

Politicians exist to give voice to resentments bottled up by “unthinking” conservatism. They let loose feelings which we would be better off without, but whose suppression threatens political explosions. It is also their job to ensure that such irruptions do not have extreme consequences. From time to time, the balancing act breaks down, as it did in 1914, when the momentum of events overwhelmed belated attempts at compromise. It happened again in the 1930s, because fascism and communism were irredeemably extremist. But mostly politicians do their double job, which, in the last analysis, is to preserve domestic and international peace.

Thus, the Brexit compromise, if it happens, may be a moderately optimistic foretaste of the fate of populism in our century. The resurgence of economic nationalism which unites Brexit, Trumpism, and the European far right will not lead to the breakdown of trade, hot wars, dictatorship, or rapid de-globalization. Rather, it is a loud warning to the political center – one that may cause even the current crop of extremists to shrink from the consequences of their words.