The Birmingham bugle

My piece in MINT on October 11, 2016 focused on the speech delivered by the British Prime Minister to the Conservative party in Birmingham last week.

She announced a date for a hard Brexit. She invoked ‘fairness’ or its opposite some fifteen times. She pledged worker protection and representation in company boards. She promised to go after tax evaders and those who assist such evasion. She vowed not to tolerate left-wing lawyers going after British armed forces.

She took the fight to the commentators and politicians who questioned the wisdom of Brexit:

“Just listen to the way a lot of politicians and commentators talk about the public. They find your patriotism distasteful, your concerns about immigration parochial, your views about crime illiberal, and your attachment to your job security inconvenient. They find the fact that more than seventeen million voters decided to leave the European Union simply bewildering.”

She reminded that citizens of the world that they were really citizens of nowhere for they had not understood what citizenship meant.

It was a feisty speech and one that has turned Thatcherism on its head. What ramifications it would have, I have no idea. But, it was inevitable. It was coming.

Predictably, Bagehot in ‘The Economist’ did not approve of the speech:

“The prime minister’s speech does not fill Bagehot with confidence about her ability, or even willingness, to find the right balance as she sets the country’s post-Brexit course.”

He was aghast that she dared question the monetary policy of the Bank of England. What is wrong with that? Mervyn King did that in his book. He was the Governor of the Bank of England.

But, Bagehot was too stunned by the ‘intellectual swagger of the authoritarianism’ of the speech to offer any alternatives.

He had to concede that touring pro-Leave events during the referendum campaign, Bagehot heard, again and again, that the cards were stacked in favour of fat cats and foreigners and that it was not illiberal to recognise that London and the rest of the country could feel like different countries. He ended the piece mumbling that her opponents must rise to the same standard — and offer an alternative.

They won’t. Well-known liberals like Paul Krugman and Alan Blinder had already attached too many qualifications to their support of free trade. I had blogged on it in detail in March this year. See the piece here: ‘Gloves off on globalisation’.

The only solutions they can offer is to continue with quantitative easing and that central banks push interest rates into negative territory, buy bonds, stocks, toilet paper and the kitchen sink and that governments engage in fiscal stimulus.

That won’t cut it. With economic growth in advanced countries in the last three decades spurred by debt accumulation (see chart below), the only alternative is to accept and experience a period of low growth with elites sacrificing something in favour of the most disadvantaged. Countries have to adjust, cope and restructure. Elites are not ready. They are resisting and resisting fiercely.

Source: IMF World Economy Outlook Database

Solutions offered by people like Hans Werner-Sinn are sensible but they won’t be accepted. He wrote recently:

The only way out of the trap is a hefty dose of creative destruction, which in Europe would have to be accompanied by debt relief and exits from the Eurozone, with subsequent currency devaluations. The shock would be painful for the incumbent wealth owners, but, after a rapid decline in the dollar values of asset prices, including land and real estate, new businesses and investment projects would soon have room to grow, and new jobs would be created. The natural return on investment would again be high, meaning that the economy could expand once again at normal interest rates. The sooner this purge is allowed to take place, the milder it will be, and the sooner Europeans and others will be able to breathe easy again.” See here for his full article.

He understood Brexit far better than most journalists and commentators in newspapers like ‘Economist’ and ‘Financial Times’ did. This is what he wrote after the Brexit vote happened:

According to a YouGov opinion poll conducted on the day of the referendum on the United Kingdom’s membership in the European Union, migration was the single most important issue for “Leave” supporters, second only to a general preference for independence itself. But those who consider Brexit voters xenophobic misunderstand the nature of the problem. Thanks to the Commonwealth, the UK is one of the most open-minded countries in the world. Accusing the British, of all people, of being xenophobic is absurd.

In reality, the referendum’s outcome reflects legitimate criticism of the EU’s design, which is largely based on open borders toward the outside world and a combination of freedom of movement and the so-called inclusion principle for EU citizens. The EU should use this British no-confidence vote as an opportunity to change its migration rules fundamentally….. Those who focus only on the angry nationalist rhetoric heard in some corners of the UK’s Leave campaign miss the larger truth. Unless the EU abandons the inclusion principle, that rhetoric will grow louder — and more exits will become inevitable.” The full article can be found here.

Why would elites not accept his solution? Peggy Noonan had the answer in a brilliant column she wrote in August 2016:

Ms. Merkel had put the entire burden of a huge cultural change not on herself and those like her but on regular people who live closer to the edge, who do not have the resources to meet the burden, who have no particular protection or money or connections. Ms. Merkel, her cabinet and government, the media and cultural apparatus that lauded her decision were not in the least affected by it and likely never would be.

At its heart it is not only a detachment from, but a lack of interest in, the lives of your countrymen, of those who are not at the table, and who understand that they’ve been abandoned by their leaders’ selfishness and mad virtue-signalling. …From what I’ve seen of those in power throughout business and politics now, the people of your country are not your countrymen, they’re aliens whose bizarre emotions you must attempt occasionally to anticipate and manage.” [Link]

But, elites are nothing if not stubborn, ambitious and ruthless. They are in no mood to reflect, let alone repent. The cratering of the pound sterling this week is their warning to the British Prime Minister. Next, they are pinning their hopes on a UK court to stop the process of Brexit. The more obtuse ways in which they seek to obstruct popular will, the more violent, persistent and intense the eventual revolution will be. They are playing with fire.

The warnings of Wolfgang Streeck will prove to be prescient:

While we cannot know when and how exactly capitalism will disappear and what will succeed it, what matters is that no force is on hand that could be expected to reverse the three downward trends in economic growth, social equality and financial stability and end their mutual reinforcement. In contrast to the 1930s, there is today no political-economic formula on the horizon, left or right, that might provide capitalist societies with a coherent new regime of regulation, or régulation. Social integration as well as system integration seem irreversibly damaged and set to deteriorate further. What is most likely to happen as time passes is a continuous accumulation of small and not-so-small dysfunctions; none necessarily deadly as such, but most beyond repair, all the more so as they become too many for individual address. In the process, the parts of the whole will fit together less and less; frictions of all kinds will multiply; unanticipated consequences will spread, along ever more obscure lines of causation. Uncertainty will proliferate; crises of every sort — of legitimacy, productivity or both — will follow each other in quick succession while predictability and governability will decline further (as they have for decades now). Eventually, the myriad provisional fixes devised for short-term crisis management will collapse under the weight of the daily disasters produced by a social order in profound, anomic disarray. ….

… The capitalist system is at present stricken with at least five worsening disorders for which no cure is at hand: declining growth, oligarchy, starvation of the public sphere, corruption and international anarchy. What is to be expected, on the basis of capitalism’s recent historical record, is a long and painful period of cumulative decay: of intensifying frictions, of fragility and uncertainty, and of a steady succession of ‘normal accidents’ — not necessarily but quite possibly on the scale of the global breakdown of the 1930s. [‘How will capitalism end?’ New Left Review 87, May-June 2014 — Link].