Our Contribution to the Brexit Debate
Where words are scarce, they are seldom spent in vain, For they breathe truth that breathe their words in pain. He that no more must say is listen’d more Than they whom youth and ease have taught to glose; More are men’s ends mark’d than their lives before:
This royal throne of kings, this scepter’d isle, This earth of majesty, this seat of Mars, This other Eden, demi-paradise, This fortress built by Nature for herself Against infection and the hand of war, This happy breed of men, this little world, This precious stone set in the silver sea,
Both of the quotes above come from Shakespeare’s Richard II and sort of sum up the situation post Brexit. Millions of words have been spilled on this subject: most of it useless drivel, the long and short of it is that no one knows what or when things will happen. There is however something profound happening.
There are at least two great changes underway, a generational transfer and a change in the constitution of nations. Our lives have centered on industrial nation states who derive economic power from producing things and whose political power derives from providing benefits to the governed. In the United States at least in theory individuals are sovereign and devolve their power to government to preform those things they can’t do as individuals. The industrial nation state at least from the end of WWI has move toward the welfare state (that term is used in its broadest and least accusatory definition).
However, the world is changing and increasingly becoming driven by information. Information and communication are not constrained by national borders, cultures or traditions. As such information an economy to grow not by manipulating greed and fear via payments and punishments but by the collection of surprising knowledge. Money is being converted from a store of value to a source of information. Freely derived prices provide new high value information and the economics driven by such. Brexit was demonstration of how this was misunderstood. Those who profit from information tend to be younger and concentrate where information is developed (in this case London) but they were just as affected by behavioral bias and class arrogance as non information types. What the information users missed was the uneven economic effect of the transition from industrial nation state to information state.
All great changes have uneven effects and take generations for the inequality to be addressed. The decline of the industrial nation state started in the 20th century as government power became less effective in making life better. In response nations increased regulation and concentrated power in government creating three classes, government elites, information elites and the rest. The first two could not conceive that there were enough people in the UK who would knowingly vote against their own apparent benefit and leave the EU.
Why was the information not available or detected by all the polls? Because the polls themselves contained no new information as they were biased by the behavioral flaws of the elites. The governing elites were mesmerized by their own cleverness and invested in their own behaviors (the halo effect) and the information elites (largely young people) with the easy arrogance of youth dismissed any opposition as unworthy of notice (anchoring). The result was wrong information which created a surprise, the surprise is the learning aspect here. The points to be learned is that information flow needs to be unencumbered and comprehensive and that surprise indicates change.
In any case Brexit may indeed be a watershed moment when the noise of the British polls overwhelmed the signal of a changed environment. After all this is the third time polls in Britain have missed the mood of the electorate (Scotland Independence, Conservative victory in the elections and Brexit). The noise of those scrambling to tell us all what Brexit “really” means increases the noise and suppresses the signal, which is a nice way of saying pundit pronouncements are worthless. Less polls and less words would have saved a lot of money and turmoil.
So there are several questions we have to wait to see resolved, the most poignant is will England continue to be a precious stone set in the silver sea with a breed of happy men or will it become an outpost of failed expectations and policies? Second will the EU and other nations begin to realize the changed nature of their economies as a result of the power of information or will they continue to attack new problems with old solutions? Third, will we see more information failures leading to incorrect conclusions and bad policy, or will information provide the learning necessary to move into a new era?
Dennis Gibb
