Last week, The Treasury hosted a guest lecture featuring two visiting academics under the heading Brexit, Trump & Economics: Where did we go wrong. One of the visitors – Samuel Bowles, now a professor at the Santa Fe Insitute -had been around long enough that in his youth he had served as an economic adviser in Robert Kennedy’s presidential campaign, and at other times as an economic adviser to the Castro government in Cuba. The other – Wendy Carlin – is a professor of economics at University College, London.
When the invitation went out, I was rather puzzled by the title? Who was this “we” that apparently “got things wrong”? After all, I was – and remain – keen on Brexit, and will recall for a long time the thrill of that June Friday afternoon as the results rolled in. And if I wasn’t a Trump supporter, I wasn’t a Clinton one either. There is a fascinating question as to how Trump became the Republican nominee, but once that had happened one of two unattractive candidates was going to become president.
“We” turned out to be economists. And by getting things wrong, Bowles and Carlin didn’t mean simply getting eve-of-polling-day forecasts wrong (after all, that late in the day even some pretty prominent Leave figures didn’t expect to win). Instead, economists were held to blame for these otherwise unthinkable, apparently lamentable, events occurring in the first place. If only economists had done a better job, the deplorable events would never have happened. Or so the story went. The tone was one that surely no right-thinking person could have wanted such outcomes (Brexit was even described as a “gloomy event”). As this was the second Treasury guest lecture in recent months deploring Brexit, I start to wonder if the organisation now has a quasi-official view (or perhaps it is just the British CEO)?
I’m still not entirely persuaded that either event – Brexit or Trump – is quite as earthshattering as the liberal elite seem to make out, or even that they are very closely connected. UK voters chose to leave the EU by a margin of 52:48. That is a large enough margin not to require recounts, but hardly an overwhelming margin. And the same voters only a year early had re-elected (this time with an absolute majority) David Cameron and Conservative Party, on a not-remotely-radical platform. And today, Cameron and Osborne are gone, and Britain still has a not-remotely-radical (perhaps only slightly more reforming than John Key) Conservative government, with a massive lead in the polls – albeit, the latter is as much about the problems with the Labour Party as anything else. The government is charged with implementing Brexit, and there seems to be not the slightest sign of some turn inwards, or reversion to protectionism, on goods and capital flows.
Of course, if your vision was one of ever-closer-union, and a mental model in which there was only a one-way door to the EU, perhaps it is a great shock. After all, if Brexit works more less okay, it might suggest to other countries’ citizens that there are reasonable alternatives to being part of the EU. And that simply isn’t so radical – after all, most of the world’s people show no interest in becoming citizens of multi-national superstates. And the tendency of the last 100 years has been towards more sovereign states not fewer. Lower barriers to international trade help make that possibility more economically viable.
And it is not as if the public in the United Kingdom has ever been very enthusiastic about subsuming sovereignty into some quasi-democratic entity based in Brussels. The technocratic elites may have been enthusiastic, but the public seem never to seen anything very wrong about being British. When your country has been free, and on the right side of the major conflicts of the last 100 years, it is hardly a surprising stance. Citizens of Spain or Austria might see things differently.
I wrote a post earlier in the year about the fascinating polling data from the early 1970s I stumbled across in a book reviewing UK entry to the EU in 1973. For all the talk that it was poorer, unskilled, older people who voted to Leave – as if somehow that changes the character of the decisions – in the early 1970s, when overall opinion was pretty closely divided on entering the EU, it was those same groups who opposed joining. And of course the same people who were young in 1972, are old in 2016. As I noted in that earlier post, what was striking from the polling data (comparing the early 1970s and the 2016 exit polls), is the change in attitudes among the more highly educated groups. Among the AB group (professional and managerial occupations), in the early 1970s there was a huge margin (50 percentage points) in favour of joining the EU. In the 2016 exit polls, there was a margin of only 14 percentage points (57:43) in favour of remaining in the EU. Poor and unskilled changed their minds (as a cohort) less than did the more highly educated groups – and those more highly educated groups became much more opposed to staying in the EU.
But for Bowles and Carlin, economists had failed the world. They presented familiar data showing that most economists thought that Brexit would come at some economic cost (and of course, the great and the good – the OECD, the IMF, the Bank of England, and the UK Treasury shared that view). And yet the voters had the temerity to ignore these experts. When I pushed them on the point, they did – somewhat reluctantly – accept that it wasn’t necessarily unreasonable for voters to make decisions on grounds other than economic ones (as I noted, most colonial independence movements – even the Irish one – probably came at an economic cost). But it was a reluctant concession – these were people who could really only see one end in view, less national sovereignty, more global rulemaking, and they could only lament the choices of British voters – blaming economists for championing policies which had “made the backlash inevitable”.
(The second half the guest lecture was a presentation about a new approach to teaching introductory economics. It looked quite promising, but the connection between a possible better approach to teaching basic economics and voters in future “being more willing to take advice from economists” seemed tenuous at best.)
As for the Trump phenomenon, I’m also not sure quite how big an event that should be seen as. The last count I saw gave Hillary Clinton 48.2 per cent of the popular vote, and Trump 46.3 per cent. Four years ago, the Democratic candidate scored 51.1 per cent of the popular vote, and the Republican candidate 47.2 per cent. Presidential elections aren’t decided by national popular vote totals (any more than, say, UK parliamentary elections are) but these aren’t big shifts in the overall vote share. Yes, the presidency changes hands – as it was going to do anyway – but a few hundred thousand votes in a few key states and things could easily have been different. Are economists really to blame for the fact that the Democratic Party chose such a weak candidate – who largely ignored many of those tight rust-belt states, despite the advice of her own husband? And whoever is to blame for Wikileaks I doubt it is the economics profession?
In 1984 Ronald Reagan took 58.8 per cent of the popular vote, in 1972, Richard Nixon took 60.7 per cent, in 1964 Lyndon Johnson took 61.0 per cent and in 1956 Dwight Eisenhower took 57.4 per cent. Those were landslides (in a New Zealand context, electoral landslides – 1972, 1975, and 1990 involved perhaps seven percentage point gaps in overall vote shares). This was a very tight election, fought between two deeply flawed candidates. And if Trump’s success may have helped some Republicans in the House and Senate, very few were campaigning on some Trumpesque policy ticket – whatever the specifics of such a ticket might actually have looked like. Like them or not, the appointees to the Trump cabinet announced so far, don’t seem a million miles from many of the sort of people who might well have been appointed to serve in any Republican president’s cabinet. And being a democracy, parties tend to alternate in office.
What was pretty clear as the Treasury guest lecture went on was that the speakers were mostly just pushing a social liberal ideological agenda (as they characterised their concern it was about a “a revolt against liberal tolerance”. Things were wrong when their side didn’t win and somehow – weirdly – economists were to blame. That isn’t just my interpretation of the event – it was a proposition put to them at the lecture by Professor Jonathan Boston, himself proudly socially liberal. What wasn’t clear was why our Treasury was aiding and abetting their cause. (Or for that matter, how the ascendancy – voted in by US voters, well aware of most of his flaws – of such a symbol of the decadence of modern culture as Trump even represents a defeat for the social liberal project.)
In passing, there was one truly fascinating snippet in the lecture. Bowles is adamant that a much higher level of economic equality is “not hard to create” – and he treats such outcomes as highly desirable. According to his research, the level of economic inequality in modern Denmark and Sweden is about the same as that found in ancient hunter-gatherer societies. It was almost worth venturing into town for the afternoon just for that.
In the same vein, I came across an interesting report from a conference held in the UK last month under the title “Brexit and the economics of populism”. The conference was attended by a cast of 50 or so academics, journalists, and some leading market economists from across Europe. There were some very able participants and it looks to have been a fascinating day’s discussion. The 12 page conference report is well worth reading for anyone with an interest in Brexit, Trump, modern macro and micro policymaking – and in the attitudes of the (non-political in this case) elites.
What was perhaps striking – and this is the real link to the Bowles/Carlin lecture here last week – is that there is no sign in the entire report that anyone who spoke had themselves been a Brexit supporter (even though 43 per cent of the ABs had favoured Brexit). The report captures one questioner noting that it is not unreasonable for people to vote on non-economic grounds, and that is about it. And the report is full of references to those ill-defined and pejorative phrases “populism”, “xenophobia”, “nativism” and – heaven forbid – “nationalism”. I had to look up “nativism” – it isn’t a term that pops up much in New Zealand debates. According to Wikipedia
Nativism is the political position of supporting a favored status for certain established inhabitants of a nation (i.e. self-identified citizens) as compared to claims of newcomers or immigrants
One might play around at the margins with the precise wording, but it looks like a definition that probably describes the overwhelming bulk of voters. And there will be few elected politicians (ie people who have actually persuaded people to vote for them) who seriously think that the interests of foreigners rank equally with the interests of citizens.
Next thing people will be having a go at “familism” – the belief that the interests of one’s own family might rank more highly in one’s own concerns than those of other people’s families, domestic or foreign.
The conference report suggests participants thought governments needed to do better. And, of course, there are areas in which that is no doubt true. Often enough, that might involve avoiding hubristic schemes – like the euro, or the EU on current scale – in the first place. Or respecting the principle of subsidiarity – pushing decisions back to national governments (and perhaps even lower levels of government) whenever possible. And respecting public preferences and choices. And acknowledging the sheer limitations of the knowledge of experts in so many areas – including economics.
But that wasn’t the focus of the attendees at this conference. Instead, it was a recipe that seemed to have three broad dimensions:
- a more active role for government, in particular in discretionary fiscal policy (as if debt levels in many of these countries were not already uncomfortably high),
- putting more decisions at an arms-length from elected politicians (whether delegating more fiscal policy to independent agencies, or promoting international regulatory alignment), and
- convincing the public that there really were significant benefits from large scale immigration.
In fairness, there was some recognition that dysfunctional housing markets are a major problem, but no speaker or questioner is reported as having favoured extensive land use liberalisation. Instead, more roles for active government were in view.
The immigration stance, of course, caught my eye. As the report writer noted there is an “academic consensus that wealthy countries benefit from migration from developing to developed countries”, but most of the comment was devoted to trying to play down the potential costs to relatively unskilled native workers. I’m sure these people are quite sincere in their beliefs that there are benefits to advanced countries (and their existing citizens?) but I can’t help thinking that if the gains were that real, and it were that important an issue, the advocates would find it much easier to demonstrate the benefits (to the rest of us) than they do. Perhaps quite often large scale immigration doesn’t do much harm to natives, but there isn’t much sign that does much good either. In fact, support for large scale immigration – whether in Europe or Australasia – is often more of an ideological proposition than one grounded in robust evidence. It seems as much about a desire to change a society – in ways which natives often don’t want – than to lift overall economic prosperity for citizens. (But in defence of the Europeans, at least no one in this conference is reported as advocating for immigration on the specious grounds – invoked often by our business leaders and the incoming Minister of Finance – that immigration is needed to fill “skill shortages”.)
If you got this far, you might be wondering what the point of this post was. I feel somewhat that way myself. But it was partly about getting a few things off my chest, partly about passing along the link to the interesting conference report, and partly about thinking through my reaction to those who ominously go “could it – Trump, Brexit – happen here?” Could what? A couple of close votes – one of which leaves in place a very moderate centre-right government, and the other of which installs a President who seems to have very few fixed views. In the specific sense, clearly not. We aren’t part of some multi-national entity like the EU, and our electoral system is very different from that of the US. Then again, perhaps there could be a revolt against decades of economic underperformance, decades of elite indifference to that underperformance, and an extraordinarily high target rate of immigration which changes the character of the country without doing anything apparent to improve its economic performance. It could happen, but frankly it doesn’t seem very likely right now. Easier just to keep on pretending everything is fine.
17 thoughts on “Brexit, Trump and all that”
In general terms, economists trumpet the free movement of goods/services, capital and people for aggregate gains ‘in the long run’ so perhaps some finger pointing is warranted. If I was a betting man, I’d have a quid on immigration being ‘the’ policy topic during the next election. Winston Peters, the stage is yours…..
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Yes, I know what you mean, but then look at other countries – eg NZ, Australia, Canada, Ireland – that have had lot of technological change (prob as disruptive as international trade) and nothing one could describe as Brexit/Trump like. Would the UK if they weren’t in this monolith called the EU – after all, as i noted electoral politics there doesn’t suggest some massive backlash.
It will be interesting to watch Winston, but at this stage in the lead up to the 1996 election he was polling in the high teens, and even higher at times. Sure his current polling is respectable, but there is no sign of any dramatic takeoff. Of course, in part Winston suffers from having been around for so long – makes Bill English look like a newcomer in politics – and never having done anything serious when he did hold office.
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Its interesting how the Democrat/Labour parties have got it so wrong recently. US, UK and NZ the support has dwindled and all for the same reason. Trying to bring back the failed socialist policies of the past which they find very comforting for themselves but are lost on most people. Laila Harre finding the Labour Party is a good fit for her is a certain sign.
You would wonder if any of them can actually add numbers together? Why would you lurch to the left when you have all the left vote anyway and need the centre vote to get elected? And its arrogant of these parties thinking people need a leftist government to look after them – when a good percentage just want a fair go to say buy a cheaper house.
I can only think the current leadership of these parties actually prefer opposition over compromising on their irreverent world view.
Boring Post, Michael, no penetrating insights or novel content here. Better available elsewhere.
You seem to have run out of steam.
Time to call a wrap on CC methinks.
Those that can do, those that can’t blog.
David, lets see your views, your insights or your novel content because I think that Michael is going a great job with this blog in putting his personal views across. This is great because it gives us the general public an insight into how the RBNZ and other economists makes decisions, whether right or wrong we need clear explanations as many of those decisions affect our average daily lives.
Keep up the great work Michael.
Very interesting. Sounds like a seminar of neo-liberal/neoclassical economics apologism, or something akin to it? Did I interpret that right? Funny thing is, as a very general statement, I’m coming to the view that it’s not economics/neo-liberalism that has ‘failed’ in respect of growing inequality (as so many trendy commentators would have it) – it’s the global tax system(s) post (neoliberal/corporatisation) reforms. Multinationals in the West got the better of their Governments. Blame accountants, eh?
Their new approach to teaching economics includes a free interactive ebook-based course which looks extremely interesting: http://www.core-econ.org/
The most interesting facet of this post, to me, are the loaded, with pejorative intent, it seems, terms used in a quite sweeping condemnation of those with opposing views to Michael.
For example, there’s this: “And it is not as if the public in the United Kingdom has ever been very enthusiastic about subsuming sovereignty into some quasi-democratic entity based in Brussels. The technocratic elites may have been enthusiastic…”
Now, what does the term “quasi-democratic” actually mean? As I understand it, EU commission members and staff are public servants of the individual member countries whose names are put forward for consideration to fill the positions needed to run the EU – which, incidentally, as a public service, runs at a cost less in absolute terms than many of its smaller member countries. And the EU is actually so democratic that Michael Farage was permitted to spread his poisonous doctrines with impunity.
Then we have the wonderfully loaded term “technocratic elites.” This is funny, not least because I’m sure most New Zealanders would put Michael, a long serving member of the RBNZ (and whom I admire for having the courage to dissent, honourably) squarely in that category.
And while we may have our “liberal elites,” Michael himself, as a self described Christian conservative, surely is a member of the “conservative elites.”
My point here being there really is no need, in this debate, to resort to what is, in effect, name-calling. To me, we have sincere, highly knowledgable people disagreeing on a matter of great importance for Britain, the EU and the ROW, in that order, in a situation where orthodox economics posits that the effects will be negative to all of these, in varying degrees. But worst for Britain.
I commend the site http://blogs.ec.europa.eu/ECintheUK/euromyths-a-z-index/ to readers interested in delving deeper into the extent the UK’s sovereignty has actually been “subsumed.” Hint: not much and to the extent that it has, generally of great benefit to the UK. And the site addresses about a million other myths promoted by the the tabloid press in Britain (OK, not really a million). And specifically, the following two links contain useful information that largely negate Michael’s sovereignty concerns:
Of course, bear in mind that all modern trade agreements subsume, to some extent, the sovereignty of the signatory countries whose parliaments, like in the UK, as the legitimate representative of their people, have voted in favour of subsuming that sovereignty. In NZ, the conservative Key government has spent the last 8 years promoting exactly that within the TPPA.
There is lots more in the above post to comment on, but I just don’t have the time – and probably at this stage only Michael will read it anyway 🙂
And although I have been critical this time, I do agree with getgreatstuff: Keep up the good work Michael.
Thanks for the comments/feedback.
I won’t respond at length, but I don’t think I had pejorative intent in the shorthand words I used. “Quasi-democratic” seems about right to describe the Commission, which has very large policymaking powers, and members were never elected either EU populations or even by/from the European Parliament. That makes them quite like, say, an independent Governor of the central bank – where the whole logic is to put some distance between the voters and the policy. The European Parliament, of which Nigel Farage is a member, is of course directly elected, but has very little power. Supporters see that distance as a feature not a flaw.
“Technocratic elites” again isn’t really pejorative, it is mostly descriptive of a cast of mind, pretty commonly described, of people who tend to identify more with others like them in other countries than with fellow citizens, and whose orientation is to expert-based problem solving rather than direct responsiveness to public concerns/preferences. Again, those people often regard that as a welcome and desirable feature of the sort of system they are trying to build.
I’m pretty sure there are no “conservative elites” in NZ, so I’d be most surprised if I could reasonably be described as part of one.
Re (modern) trade agreements, yes they do subsume sovereignty, in a quite unnecessary and (in my view) inappropriate way. That is why on this blog I’ve been pretty consistently sceptical of TPP.
We will have to agree to disagree on your propensity to ascribe labels, labels that seem to appeal to your particular world view, to people who are just doing their jobs at the behest of their elected governments, jobs for which they are undoubtedly highly qualified.
But I do think that an ‘expert based problem solving’ model is far superior to the ‘wisdom of crowds’ ie mob rule approach, a la Trump, that you seem to favour.
And perhaps your view that there is not a class of conservative elites in New Zealand is evidence of blind spot bias. The Business Round Table, amongst others, was Exhibit No 1 of the existence of a conservative elite, in my opinion. That’s not a criticism of the existence of the BRT (and its successors), per se, although I remain highly critical of that organisation, but just the clearest evidence of the divide between K and L. Oh, and then we have the NBR…
Lastly, surely all trade agreements subsume sovereignty, by definition, let alone necessity. Even with truly free trade. The UK will run into this unpalatable fact when (if) they leave the comfortable embrace of the EU and negotiate from a position of relative weakness with countries who do not possess the EU’s sensibilities as regards the rule of law and a conscious bias towards avoiding conflict.
Re the Roundtable, I don’t count them as conservative – free market, small govt, and often libertarian in inclination for suire, but that is very different from what most would think of as conservative. They were as radical in their own way as many on the left. The same is even more true of the successor organisation, the NZ Initiative.
Conservatives value tradition and the established institutions of the culture and society.
There is certainly a role for experts – i wrote at lenght about it a couple of months ago – but, at least in my view, as advisers not deciders.
I just saw this. It quite nicely captures my sort of conservatism – little found in NZ, certainly among anyone anywhere near positions of power.
Thanks for sharing this excellent column Michael which I was heartened to read. In this country anyone who questions the prevailing left wing illiberal orthodoxy is quickly labelled “far right”.
One link deserves another…:)
Some holiday reading for you.
Just a comment on the BRT: scratch a libertarian and you will find deeply conservative economic thought – conservative exactly in the sense of valuing (privileging) tradition and established institutions, and, whether intended or not, leading to economic outcomes that historically spawn violent revolutions.
On that happy note, Merry Xmas and enjoy your break.
Thanks Luc, and merry Christmas to you too.
***the level of economic inequality in modern Denmark and Sweden is about the same as that found in ancient hunter-gatherer societies.***
As Kurdish/Swedish economist Tino Sanandaji has pointed out, Sweden’s outcomes are due to the people & culture as much as any govt policy. As it’s demographics change it’s likely that inequality will also increase.
“Another thing is, how do we know the extent that Scandinavian social outcomes are due to unique social capital norms, work ethic, high trust rate, homogenous population, etc., versus to welfare state policies? Of course some of it is due to welfare state policies.
Well Milton Friedman used the argument, and someone told them in Scandinavia they have no poverty, and he said, “Well that’s interesting, because among Scandinavian Americans, we have no poverty either.” There is US data where people self-identify based on their ancestry. About 2/3 of Americans self-report one or two ancestry groups. Sweden has the highest concentration in Minnesota and North Dakota, Fargo area, and you have Norwegians in Wisconsin, and so on. Finland is in Michigan. And these people will mix mostly with each other, though there is less mixture than you might think. So then you can look at the poverty rate, not among Swedes in Sweden but among Swedes and their successors in the US; you will find they have far lower rates of poverty. Last time I looked, it was exactly the same, 6% or so. They have far higher rates of trust (a measure of social capital) and women are more likely to work, so similar cultural traits between them. A high average income, and so the roots of Scandinavian egalitarianism and favorable social outcomes are very deep; you’re not going to magically transform a country, and we know that from experience.
The US has been trying to do this since the 1960s; they say, “Raise our taxes, try out social policies” and we will become Sweden. We tried that in the US, and it did not deliver the same favorable outcomes. Economists have a very strong bias in emphasizing policy and deemphasizing culture, historical institutions, social capital, etc., and you have this idea, “We have these models, everyone is identical, we have the state and the market, and if we observe Japan, Sweden, and Albania have different outcomes, that must be due to their tax rate, or details in unemployment insurance.” Whereas I would argue that no, look at culture, work ethic.”