Brexit the next step

So with this latest act of procrastination by the British government, it becomes clear that we are drawing ever closer to the inevitable departure of the UK from the EU.  For a long time, it was not clear why both of the main parties seem to be so committed to this departure.  The stark political reality is that the age old tactic of all political parties (not just in the UK but also across Europe) of using the EU as a whipping boy for all major social issues continues to be a guaranteed vote winner.  At the end of the day, political organisations, like most organisations, work on the basis of incentives.  The incentive in politics is votes.  The votes guarantee we are on the way out because people in the UK continue to believe that they are going to be better off outside of the EU and the politicians that count are elected domestically.  Whether this is true or not will be seen but the real argument that mattered on this went on for the 10 years prior to 2016 and now, it does not matter anymore.

Now that we are set to depart, the temptation to blame the EU for our current ills will continue until we are out for a sufficient decade or so amount of time. Then, when things are not going well we will no longer be able to blame it for what we all, deep down, know are our own failings as a country.  No one wants to believe that their issues are their own fault because our immediate reaction is to believe that those failings are the fault of someone else.  Were it not for those others, we would be happy and better off.  The truth is more complex and more difficult to work through but this is act of complex collective psychiatry will unfortunately have to be experienced, it cannot be taught.

Following this inevitable (for it is, indeed, inevitable) course of affairs there will be a negative reckoning.  An apparently healthy country starts to suffer due to the slow degradation of its status versus it´s largest trading partner and its similar diminution in status versus countries which it historically bullied.  There are other countries which sit on the edge of major trading blocks and these have historically struggled to establish an identity (Hong Kong and Singapore are incomparable).  As a consequence of economic reality and the loss of a perceived safe haven status, the UK will likely eventually be forced back into the EU via one of the supra-national authorities we helped to establish such as the IMF.  This will then leave the same group of angry people who have been maltreated by a political class they helped to vote in as frustrated as ever.

Even then, the chances of this being avoided will only be arrested, relatively, by another EU member, such as Italy, exiting and causing such damage to the EU such that we would be able to say that in comparison to them we are better off.  But even then, both parties end up damaged.  Similar to a divorce or, heaven forbid, a war, neither party ends up benefiting from a dispute that ends up destroying more than it could ever have hoped to create.

Welcome to Brexit.  We hope 2019 will be better than 2018.  Somehow I doubt, politically,  that things are getting much better from here for at least the next three years.

The inevitable fate of Google...

This is a fantastic podcast from Russ Roberts:

http://www.econtalk.org/michael-munger-on-sharing-transaction-costs-and-tomorrow-3-0/

What he's basically discussing with Mike Munger in this weeks episode are a number of phenomena arising from their considerations of the technology giants in the US.

These companies are clearly of the utmost interest and relevance to our colleagues in the economics sphere as they are to some extent redefining economic models.  As old school economists try and grapple with the meaning of companies that literally manufacture nothing but at the same time are worth trillions of dollars or remnimbi, they find more and more of the gospel truths which they have held to for their careers as economists (and which previous generations of economists also espoused) being challenged by this looming spectre.

It seems strange that technology should be causing such soul searching and such existential angst among the economics fraternity, but the way in which these companies work, the fact half of them are based in a nominally communist country, and the fact that much of the internet, while subject to more and more rigourous control and "privatisation", is still a substantive force for anarchistic and demonstrably different views in the world, confounds the classic economics fraternity.

What was particularly fascinating in this episode was their consideration of the economic form of technology companies that are effectively built on input from the users (as opposed to paid employees).  The value of these companies, in fact much of their activities, are not actually provided by the companies themselves.  The companies are "platforms" which act as a form of nexus between the real participants in the economic model.  If you think about these kinds of companies, providing a bridge between participants in markets by clarifying the terms on which these businesses or individuals can interact are not entirely dissimilar from a much older and more entrenched type of intermediary which all of us are far more familiar with.  I speak of course of banks.

It is clear that the most successful forms of this we consider today (the FAANG and their Chinese equivalents) are typically for profit companies, with publicly issued shares listed on various stock exchanges held by a broad sweep of underlying owners.  However what Munger and Roberts effectively touch on, and this is very unusual for them as they are quite hardline free marketers, is that the best economic form for these kinds of company might be as not for profit entities.  They don't really explore this point further but the point is made that these entities are effectively intermediaries, and historically in order to preserve their "independence" these kinds of intermediaries have been mutually owned, municipally or government owned or owned by not for profit companies. in various forms of trust.  By removing the for profit motive, you more effectively limit the risk of misbehaviour by a marketplace.  Notice I say "more effectively limit" as opposed to "eliminate".

So what is becoming more clear as time passes is that the technology companies in their present form are coming to represent more the role of intermediaries and marketplaces and of themselves may be better transferred into a form of ownership (akin to exchanges or marketplaces in the pre-modern era) which are more disposed to not abusing their dominant position.  One of the most successful internet based companies, though one which does not garner the same attention as there is no gravity defying stock price to point at, is Wikipedia.  Who owns that...?

Brexit

OK its now time to listen up and do something differently. The approach we are taking is not going to work and whichever way the negotiations and politics and business decisions being made at the current time go, we all can see is that this is going to be very damaging for the people living in this country.

Whether one person or party “leads” in the rhetorical competition that has been raging for the last 10 years in the UK is of virtually no consequence for the overall good of the country as a whole. We are in metaphorical competition to prove who has the biggest hat while the Titanic sinks beneath our feet. The currently proposed solutions to this sinking are similarly built around demonstrating how the size of our respective hats will somehow address the fact that the ship is sinking. Seemingly ignoring the disconnection between hat size and bouyancy.

The current generation of politicians are blessed and cursed by Brexit. They are blessed because they will always be remembered historically as the group that managed the country through a self imposed disaster similar to a war. Cursed because they wont be able to do anything beyond managing this particular issue. It is all that is relevant for them. May knows this and has, partly at least, accepted it. Corbyn knows it but doesn’t want to accept it.

Similar in the way in which Churchill is remembered for his wartime role, both for what he did but also what he stood for, the current group of politicians will also be remembered for their roles during this crisis.

History has been kind to Churchill, who stood on the right side of one particularly significant issue but on the wrong side of many other issues. Brexit is similar insofar as it is not something that will be negotiated over two and a half years. It wont be negotiated over ten years. The impact of effectively changing our form of government will play out over the next two decades. The negotiations taking place now will shape the course of these two decades of change but the unpleasant reality is that we dont know where it will go or whether it will be good or bad. We know that now it is messing up a lot of things that were designed when we were part of the EU, but that is understood; when you change a system itself rather than a component of a system, the impact of that change will filter through the components of the system in ways which it is very, if not entirely, impossible to predict. At the moment we dont even know what the changes will be, so the impact is totally uncertain but at least not pressing. As soon as we start changing things, then we will really see what is going to happen.

So if we are going to do it, and it looks as though the only two people in the country that could actually stop it are convinced it is in their best interest to let it happen, then we had better be pretty damn sure that the way in which we do it is the most optimal way of doing it. But what is that method?

We have got to stop the haemoraging of negotiating credibility which we are currently stuck in. In order to do that, we have to have another public vote on the options open to the country. In order to grant whoever is negotiating with the EU the credibility to undertake those negotiations, the options we can present are:

1. Exit without negotiated period or settlement (Hard Brexit), or; 
2. Exit on the basis of whatever the government is able to negotiate by a pre-determined timeframe of March 31st 2019 (Negotiated Brexit), or; 
3. Remaining in on the basis of our existing status (No Brexit). 

At least this will draw a line under it. The principles of the referendum will be met as we will have a clear choice as to what we can get and whatever the result, we will live what we decide. In addition, by taking it out of the hands of our utterly inept current government, it will remove the political aspect from our current negotiating team (basically a "national government" will undertake the next three months of negotiation) and following the referendum, we can have another general election.

So whats to lose? It cannot get worse than our current siituation.