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November 16, 2016

Signal-to-noise ratio - Brexit edition

We get a lot of over-excited stories about Brexit - another Boris Johnson interview, estimates of the "costs of Brexit" - but the reality is that there is no plan. The EU, by the way, does not have a plan either. And what's so great about a detailed plan in any case, when you can expect to be told 'No' in 27 languages?

The FT has a story about the negotiating position to be taken by the EU. What struck us is not the estimate costs of the exit, but the date. The EU wants to wrap this up by the autumn of 2018, which would suggest only 18 months of negotiations, to include six months for ratification by the British parliament. The article is useful in that it gives us a feel for the disagreements among the EU-27. It looks like the Commission wants to take a uncompromising line, while a diplomat - presumably non-British - is quoted as saying that this is a dangerous position because it might push the UK into Brexit without agreement. One other diplomat put it this way:

"There is a serious risk the Brits say, ‘To hell with it, you can sue us."

We would agree with that line. Donald Tusk's position of "no Brexit or hard Brexit" would make a hard Brexit more likely, and that would seriously damage Europe. The article says the Commission wants the Brexit talks to focus on the following issues only: the costs of departure; the status of EU agencies in London; Northern Ireland and Gibraltar; and the residency rights of EU citizens in the UK, and UK citizens in the EU. But the EU does not want to negotiate a trade deal.

Most likely, events will intrude. One such event is a change in Germany's position, which we have been predicting all along. There is no way the Germans will support Tusk's line on the UK beyond the start of the negotiations. Frankfurter Allgemeine has a story this morning that Angela Merkel now proposes a clamp-down on welfare payments to EU citizens. Does this ring familiar? She says if a foreign worker has only been resident in Germany for a short period, there is a question of whether such a worker should be entitled to social payouts. She wants to talk about this at EU level. Protection of social welfare systems is needed politically after the Brexit vote. While this position does not equate with immigration control - the right to refuse entry - it would reduce the number of immigrants who exploit welfare systems.

And finally, on the question of the upcoming Supreme Court ruling, here is an argument that the irrevocability of the Article 50 procedure constitutes a legal irrelevance. Piet Eekhout argues that, if Article 50 were revocable, it would make no difference whether a bill is brought by parliament or Royal prerogative is used. Parliament could force the government to stop Brexit either way. Nor does it matter that the withdrawal agreement goes before parliament. If parliament rejects the deal, this does not stop Brexit from happening. The UK would then simply leave without an agreement. Nor can the withdrawal agreement itself be written in such a way that it is conditional on the UK parliament's approval. This would have to be negotiated by the EU and the UK parliament, a process over which the parliament has no control. 

And finally we noted an extraordinary speech by one of the 11 Supreme Court justices, Lady Hale, the deputy president of the court, giving her opinion before the hearing which in this case is that the government would need to clear even more hurdles than previously assumed before it can trigger Article 50. Her intervention has a certain banana-republic quality to it because supreme court justices do not normally discuss cases in public before a hearing. This is an occasion where we agree with Dominic Raab, a Tory MP, who said that justices should not be surprised at media attacks if they give political speeches outside the courtroom. The former Tory leader Iain Duncan Smith raised the possibility of a constitutional crisis if the court manages to stall the Brexit process. We would agree with that assessment as well. 

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November 16, 2016

Rodrick on the duplicity of his profession

Dani Rodrick is one of the very few prominent economists who is openly critical with his own profession, while most of the discourse we have witnessed is characterised by a bunker mentality. Rodrick's focus is on the dichotomy between economic research on trade, which recognises complexities as well as the possibility of winners and losers, and the one-sided pro-free trade public position taken by the profession. He said Adam Smith would turn in his grave if he read the Trans-Pacific Partnership treaty. This reflects our own shock when we read parts of the TTIP and Ceta agreements, which included the suspension of the legal system for foreign investors, and the introduction of private-sector tribunals. The profession is now paying a high price for its undifferentiated public support for trade agreements under the banner of free trade. 

"This reluctance to be honest about trade has cost economists their credibility with the public. Worse still, it has fed their opponents’ narrative. Economists’ failure to provide the full picture on trade, with all of the necessary distinctions and caveats, has made it easier to tar trade, often wrongly, with all sorts of ill effects."

As an example, he quotes the debate about the impact of trade on inequality. It is a contributing factor, but only a minor one. The bigger impact comes from technology. Had economists been more honest about the downsides of free trade, they would now be in a position as honest brokers, while now they are view by the public as partisan.

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