The economic policies of Theresa May

Also in The Sun on Sunday, May argued that outside of the EU, “we’ll be able to do lots of common-sense things, like cut back on red tape and let local councils buy British.” She went further in her speech launching her leadership campaign saying, “A proper industrial strategy wouldn’t automatically stop the sale of British firms to foreign ones, but it should be capable of stepping in to defend a sector that is as important as pharmaceuticals is to Britain.”

Here is more.  I would say that puts her one for three.  I’ve also heard talk of May embracing a “worker codetermination” model for the UK, similar to that used in Germany.  It works less well for services, and besides Gorton and Schmid estimated it cost German firms about 26% of shareholder value (pdf)).

So that puts her at one for four, and it seems she was the best of the plausible candidates.  The perceptive Janan Ganesh put it this way:

But if Tory history pits the spirit of freedom against the claims of social order, the one periodically dominating the other before giving way, she might herald the latter’s resurgence.

As he clutched his second Wimbledon trophy on Sunday, Andy Murray saluted David Cameron, the outgoing prime minister, as the doer of an “impossible job”. Ms May has only won the right to choose whose hearts to break. Free-marketeers, gird yourselves.

I am not surprised that Brexit is working out badly, but I am surprised how quickly it is becoming obvious that Brexit will not mean more individual liberty for the Brits.  Here is Richard Tuck making the left-wing case for Brexit.

Comments

May is the person chosen by the Conservative Establishment to try and block Brexit, she is the UK equivalent of Jeb Bush. Tyler is one of the Cloud People so naturally he is pro EU:

http://thezman.com/wordpress/?p=8017

'Gorton and Schmid estimated it cost German firms about 26% of shareholder value'

Which is fine by both German company owners (much of the Mittelstand is not precisely composed of publicly traded companies, not to mention the fact that many major German companies are not public at all - Aldi, DM, and Lidl coming instantly to mind) and German workers, who feel that Finanzkapitalism is a disaster.

Germans tend not to care very much for the interests of shareholders - as can be noted by this response to one of the more major events of the international Finanzkrise - 'With the German state (via SoFFin) already owning 90% of HRE, an extraordinary general meeting on 5 October 2009 approved a €1.30 per share squeeze out of the remaining private shareholders, including J.C. Flowers (which a year earlier had taken a 25% stake at €22.50 per share). The decision resulted in the complete nationalisation of the firm within a year of it having been a DAX constituent.' https://en.wikipedia.org/wiki/Hypo_Real_Estate#Nationalisation

The City lost, though undoubtedly it will desperately attempt to keep itself in a position to influence both British and EU politics. As I'm sure you know, of course.

Ha ha, surely you must be joking!

Joking about Germans not being all that interested in Finanzkapitalism? Not at all - and since it is reasonable to consider DB one of the more likely major banks to fail at some point, watch how Germany will handle it. My prediction includes not only nationalization with major losses for shareholders, but jail time for at least several top executives. Keeping the Mittelstand healthy is a German political priority (this most definitely includes ensuring that the Mittelstand can rely on well trained workers), whereas making sure that some American or British investment fund can makes its executive bonus target this quarter is utterly unimportant. This is roughly the same difference between U.S. and Germany when it comes to data privacy - it is a real one, but from the American perspective, it is seemingly very hard to comprehend. Of course, it is also pretty hard to translate the term 'Mittelstand.'

Joking about the City having lost? Well, hoping that the City has lost its voice in the EU, at least - clearly, like Wall Street, the City will never lose its ability to influence British politics. For example, I see a real benefit in Brexit for Germany - the merger between the LSE and Deutsche Börse has become less likely, even though all possible stops are being pulled out to make it happen. The German text is underneath, but a summary is that the voting rules have been changed, from requiring 75% of the shareholders voting yes to 60%, and they extended an exchange deadline by 2 weeks - as the original deadline was July 12, and only 25% of the shareholders voted, without those rule changes, the deal would be off.

The second quote from the article simply notes that the Deutsche Börse is publicly considering paying a special dividend (see above about rule changes), and that the shareholders of the LSE voted 99.9% for the merger. In other words, one side of this deal is really, really, really in favor of it, while the other isn't. It shouldn't be hard to guess who is who is this extremely current example of some of the fall out from Brexit (other problems in the article include the reduced value of the LSE due to drop in the pound, and the huge problem of how various regulatory agencies will get involved due to the UK's decision to enjoy all the benefits and privileges of being a non-member of the EU).

'Zur Rettung ihres Fusionsplans mit der Londoner Börse LSE zieht die Deutsche Börse alle Register. Um die Zustimmung der eigenen Eigentümer zu sichern, senkte der Dax-Konzern kurzfristig die Mindestannahmequote.

Nun soll das Fusionsvorhaben weiter betrieben werden, wenn mindestens 60 Prozent der Aktionäre ihre Anteilsscheine zum Umtausch in Papiere des fusionierten Unternehmens anbieten. Bislang lag die geforderte Quote bei 75 Prozent.

Zudem verlängerte das Unternehmen die Umtauschfrist um zwei Wochen bis einschließlich 26. Juli (24.00 Uhr). Bislang haben nur knapp ein Viertel der Aktionäre zugestimmt, die Frist wäre eigentlich an diesem Dienstag (12. Juli) abgelaufen. Sollte die Annahmeschwelle nicht erreicht werden, wäre der Deal geplatzt.

--------------------------------------------------

Um den Deal zu retten, könnte die Deutsche Börse das Angebot auch noch nachbessern, in dem sie etwa ihren Aktionären eine Sonderdividende zahlt. In der vergangenen Woche hatten die Aktionäre der LSE bei einer außerordentlichen Hauptversammlung mit 99,9 Prozent für die Fusion gestimmt.' http://www.fnp.de/nachrichten/wirtschaft/Deutsche-Boerse-kaempft-um-LSE-Fusion;art139,2107243

jail time? you MUST be joking. Remember Nonnenmacher?

Some people care more about who's stealing from them than about how much is stolen

Well, it is true that DB has been on something of a roll for a while when it comes to their tope executives avoiding being 'vorbestraft,' but if DB needs any help from the German government to survive, that help will come with the sorts of provisions made with Commerzbank and HypoReal. At which point, DB will lose its ability to decide its own fate. For example, this sort of defense in terms of executives surviving a major court case will not work - 'Fitschen told reporters after the verdict that the court backed what he had said from the very start. When asked why the bank had settled with Kirch [ca 1 billion euros] given that Noll said there wasn’t a claim, Fitschen answered: “this isn’t the issue at stake today.”' http://www.bloomberg.com/news/articles/2016-04-25/deutsche-bank-executives-acquitted-at-munich-fraud-trial-infrk5zr

The only issue at stake was DB executives not being found guilty, obviously - whether their business practices were illegal was not on the table. It will be if DB needs German government help, though.

" but jail time for at least several top executives" - Hehe, Good one!

Remember Greece?

I meant you must be joking that German companies don't care about their market valuation.

They're probably not public companies because public shareholders would rightfully despise the arrangement.

Borrowing ideas from Germany, Europe's most successful economy, is on the parade of horribles? The anti-Brexit side is getting really desperate.

This isn't much of an argument. Not everything that Germany does is good. Not everything that works in Germany will work elsewhere.

You could create a really terrible system just by copying the wrong ideas from all of the world's most successful economies.

If someone could credibly argue that “worker codetermination” had reduced German productivity by 26% (or any significant number), then they might have an argument. Reducing share prices isn't exactly the same thing.

There is a suggestion (in the U.S.) that the German “worker codetermination” system has served as an effective bar to outsourcing by German corporations. If this is true, then Theresa May is probably headed in the right (as in correct) direction. Free market, libertarian capitalism produces a failed society. Paradise for the Gated Community set, trash heap shantytowns for everyone else. The Brexit vote was (to some degree) a vote against "market fundamentalism"... And that's a good thing.

Here is more. I would say that puts her one for three. I’ve also heard talk of May embracing a “worker codetermination” model for the UK

The last sentence is a typo (copy from the original post)

Unlike Tyler, I think there is a good case for Brexit. And I disagree with many of the arguments he has made recently.

But this post represents the best argument against, in my mind: Britain's own government is not strong on free market principles, so they can't be trusted to put better policies in place of EU policies. While Britain certainly can have a freer economy outside the EU, it is not clear that they will.

May may be widely considered the "best" candidate in that she is moderate and considered safe by the establishment. But does that mean she was the best candidate in terms of economic policy? Not clear.

I agree with all of this.

I agree that her rhetoric, on economics, isn't very inspiring. But on the other hand the good thing about a moderate is that they tend to be open to sensible views within their party, and May will I think be persuaded to minimise the economic meddling in practice. eg I would be v surprised (and disappointed) if the tories reversed Osborne's trend towards very low corporation tax Michael Gove, Boris Johnson are economic liberals. Sajid Javid is boring but sensible economically. Perhaps I'm just an optimist.

Yes, but in a British context what is popularly seen as "sensible views" might not be so free market. A moderate who goes with the flow is quite likely to implement protectionist policies. Of what is mentioned by May in the excerpts above, only worker codetermination would be radical.

Whey do you think it is radical, instead of merely a return to past policies when the UK economy was better for all the people?

As the paper concludes, "1RQH RI WKLV LV WR VD\ ZKHWKHU FRGHWHUPLQDWLRQ LV VRFLDOO\ RSWLPDO RU QRW1" - I guess they don't want to be quoted, they can't conclude whether the policy is socially optimal.

The biggest difference in economic policy in the US I see at age near 69 is on "shareholder value". The past 3-4 decades of fading American Dreams coincides with the growing dominance of Friedman's "the top responsibility of corporate management is to shareholder profit". I have the luxury of knowing the contrasting position he was opposing because I read their debate for years.

Galbraith laid out the policy of the 50s and 60s which I saw in IBM, and its imitator DEC as an employee, which resisted the change until the late 80s to 90s:

"You will say the state after all is in pursuit of broad national goals, whatever these may be. And the private firm is there to make money— in the more solemn language of economics it is there to maximise profits. This difference in goals, you will say, will always sufficiently differentiate the state from private enterprise.

"But here again we find that the reality supplies that indispensable thread of
consistency. For power, as we have seen, has passed from the owners of the
corporation to the managers, and to the scientists and technicians. They now exercise full and autonomous power and, not surprisingly, they exercise it in their own interest. And this interest differs from that of the owners. For the managers and technicians security of return is more important than the level of total earnings. It is only when earnings fail that the power of the managers is threatened. And growth is more important to the managers than maximum earnings. That is because those in charge do not get the profits, or anyhow not much of them. But they—the scientists and technicians, do get the promotions, enlarged opportunities, higher salaries and prestige which go with growth of the firm. I might say here that for clarifying these matters I have been greatly indebted to the brilliant Cambridge economist Robin Marris, who has written very lucidly and very wisely on this question."

That's from Galbraith's "The Role of the State" lecture in his 1966 Reith lecture series.

I remember Friedman complaining about corporations spending too much on R&D, too much on investment, creating too much demand for labor driving up labor prices, too much competition leading to too many features and too much service and quality, while sacrificing returns to shareholders.

He complained about the high subsidies to oil that led to too much supply by too many workers drilling too many wells requiring in turn government limits on production to keep prices up at $3 a barrel. He complained about too much electric power service and too much telephone service. Shareholders and customers had to pay for too many workers paid too much.

I remember his argument that electric utilities should not be so reliable. That it would be OK if the power went out in storms or power was shut off on hot days from too much demand, because those rare events would save customers a lot of money in not paying for unneeded capital assets and excess workers just in case a storm hits. If someone needs reliable power, they would pay extra for the reliability they alone need.

Since the late 90s with electric provider profits being the priority along with low rates by less investment in capital and fewer workers, I see Friedman's policy in action as every year the power outages are marked by the sound of ever more generators kicking in around me. Yet, for the significant increase in power outages, rates are higher in New England than when the evil state planned utility service made rates too high.

Let me say that labor unions have failed to adapt when confronted with managers who are failing to adapt to changing markets, and see the solution being slashing labor costs. Listening to a story on textiles and it basically makes the case that not even eliminating almost all labor costs allows US corporation to survive making cotton denim cloth. Survival is in specialization in high value lower volume fabrics custom to local industry.

"Britain’s own government is not strong on free market principles, so they can’t be trusted to put better policies in place of EU policies"

Of course, "better" or "worse" are THE relative terms. If you are a free market ultras I guess you are right, but of course you'd be in the minority in the UK these days.

Free market arguably annihilated the British low and middle class and opened the gates for the mass immigration flood, which are exactly the two items which had Brexit win at the ballot box.

It's only reasonable that whoever steps in moves towards some form of protectionism for the british citizens and it would not be a bad thing either.

Only, I doubt May will actually dleiver either those or the Brexit as a whole.

This sentiment is exactly why I think Britain post-Brexit may not move in a free market direction. I agree that this is how much of the British public feels, I just don't agree with you that protectionism will be an improvement.

Yeah, I know it's not such a widely held opinion these days. I'm actually for some kind of midway between full free market advocated by the Eu and full protectionism/mercatilism. We'll see I guess.

May is the type of statist politician that the UK just voted to avoid. She's a dispiriting choice, particularly with reports that Amber Rudd is tapped for a senior position after pushing the UK closer to brownout with muddle headed energy policies.

The people voted against statism, and statism won.

Nope. The people voted Brexit to allow statist meddling, like nationalising the steel industry in Wales, banning foreign fishermen from their waters, limiting competition by foreigners in the labour market, etc etc etc. The very slogan of the Vote Leave campaign was "take control": give your government more control over you.

I think the reality is somewhere between Chip's and Millian's comments.

There was some legitimate anti-statist sentiment in the arguments for Brexit. A desire to reduce the overall regulatory and bureaucratic burden was part of the equation. The problem with the EU is not just that they are outside Britain, but also that they are perceived as excessively meddling.

However, this anti-statist feeling only runs so deep. There is little support for limited government in the sense that American conservatives frame it, and few Brexiters really want significant reductions in the scope of government.

You're probably right. The EU Commission was a bridge too far for most British but you would have to pry the NHS out of their cold dead hands.

There is no free market in steel. China is flooding the world market with below cost steel. A strategy that is quite smart; the brilliant clean energy high tech promoters see steel as an old dirty industry, and is a capital intensive industry where once you kill your competitor they are very unlikely to return.

Brexit is dumb. EU is not the monster you painted and it will have the last laugh because Britain has to choose between Norway-mode (pay and listen) or isolationism demanded by most Brexiteers and endorsed by people like Marine LePen...

"... or isolationism demanded by most Brexiteers and endorsed by people like Marine LePen…"

Wow, what a parochial point of view. You do realize that there are other non-European First world countries? And plenty of trading to be had with third world countries rapidly headed upward?

Britain, post-Brexit, will not be a destitute wasteland cut off from the rest of civilization.

You don't have to make the case that Britain will be a destitute wasteland to convincingly argue Brexit is dumb. You just have to make the case that a Britain outside the EU will be less wealthy in the long run than a Britain inside the EU.

JWatts was responding to Costa's specific argument.

You just have to make the case that a Britain outside the EU will be less wealthy in the long run than a Britain inside the EU.

That's pretty weak. It can be quite rational to spend GDP on non-economic things. Would you use the same criteria for evaluating environmental legislation?

We'll see what the WTO has to say about that...

When did isolationism get defined as refusing to subordinate your parliament to an unelected commission of 28 people?

The U.K. has been an outward looking nation of traders for centuries.

Why do so many people criticise the British for wanting what the Swiss, Americans, Canadians and Australians have? Free markets and self government - it's worked where the EU so obviously has not.

Stop fooling yourself. Brexiteers are not a bunch o Free market lovers or classic liberals. They want to close borders and are for "Britain First".

Wish Britain the best, but without strong ties with EU - which means 4 freedoms - Britain will not get richer and safer and that's the contradiction. People who voted out don't want 4 freedoms....

I think free speech is a foundation upon which all other freedoms are buttressed. The EU banned free speech a while back, which was one of my reasons of being Pro-Brexit:

http://www.reuters.com/article/us-eu-facebook-twitter-hatecrime-idUSKCN0YM0VJ?utm_source=fark&utm_medium=website&utm_content=link

This is not a joke. This is serious. I have actually been shadowbanned on Youtube for posting unflattering verses of the Koran. I know of people who have been banned on Facebook and Twitter as well for similar crimes of criticizing Islam. Not that England has free speech now, but at least it can legally have it.

4:34. Men are the protectors and maintainers of women, as Allah has given some of them an advantage over others, and because they spend out of their wealth. The good women are obedient, guarding what Allah would have them guard. AS FOR THOSE FROM WHOM YOU FEAR DISLOYALTY, admonish them, and abandon them in their beds, THEN STRIKE THEM. But if they obey you, seek no way against them. Allah is Sublime, Great.

^ This is hate speech now. That is all I did. Quoting the bad parts of the Koran when the topic is supposed to be how the Religion of Peace is so enlightened. Yes, it's a troll move on my part. No, it's not hate. Christians need to face up to their problems, and Muslims theirs. If freedom of speech goes away, what freedoms afterward will you forfeit?

The laws against Holocaust denial are particularly egregious.

But, unlike New York, they have no laws on criminal impersonation, which is helpful to some.

The astroturfer gets astroturfed.

Outside the EU, the UK can be free of EU product safety and fitness and general business practice regulation?

Like Microsoft and Google are?

Outside the EU, the UK will be free of Germany's financial regulations?

Like Iceland was? Has the UK resolved it's dispute with Iceland over the UK government bailouts of UK worker savings in Icelandic banks?

Germany forced the same banks to keep more capital inside Germany so German savers lost no money without a German government bailout.

The UK sought to have its banking regulations be the rule throughout the EU, opposed by Germany. After Brexit, Germany will move to tighter regulation, limiting London's EU access.

mulp,

You need to read the Wikipedia page on the Icesave dispute. Iceland has done rather well by staying out of the clutches of the EU and letting its people vote down repayment schemes imposed by the UK and the Netherlands. In fact, none of the repayment schemes has been successfully imposed on Iceland because the people of Iceland have consistently voted no.

Sort of Icexit before Brexit.

TC: Gorton and Schmid estimated it cost German firms about 26% of shareholder value (pdf)).

Tell me more, is this potentially 26% less shareholder value than a) currently non-existing UK manufacturing companies, b) a traditional unionised setup, c) a magical dream world in which UK manufacturing companies exist, and do not have poor labour relations despite a lack of representation, and everyone is happy working whatever the terms their employer dictates because they are Just So Down With Liberty Right Now?

If you actually wanted to know what they are claiming, you would have clicked on the link and read it.

Maybe, I'm too dumb for that. Since you clearly have read the thing (you know what information is and isn't in it), would you mind giving me the pith?

Do you even read your own links? "The American board dismissed Parker’s offer. But Parker won the support of American’s unions, creating strong momentum for a merger. "

"I am not surprised that Brexit is working out badly"

Since nothing whatsoever has occurred, I am surprised you are surprised.

Premature ejaculation, TC?

LOL spin amigo--TC is a chess master. A chess master can see when a game is going badly well before checkmate, often, as early as the opening (the first few moves). TC sees BrExit's opening strategy is bad: a pawn down and no compensation, no counterplay. It will be an uphill battle for BrExit just to get a draw.

No, life is not like chess. Chess, you can actually evaluate all options, up to an ever increasing number of moves, and calculate the best move. Life isn't like that at all, and so we're still debating why exactly World War One kicked off. Carlolspin is right, we have no idea where this is going, and the initial signs tell us little. But glad to have a new PM!

@tjamesjones - "No, life is not like chess. Chess, you can actually evaluate all options, up to an ever increasing number of moves, and calculate the best move" - well, I see your point and it's a good one, however, at the top level, you really cannot calculate the best move based on ruthless logic (too many variations when 10 moves deep; not enough time): a vague positional 'feel' plays a big role, as well as luck ("stumbling into victory"). GM Larry Christiansen has written on this, and it's obvious to even amateur players like me.

> "A chess master can see when a game is going badly well before checkmate, often, as early as the opening"

Legend would have it that, during Karpov’s fourth game against Korchnoi at the 1978 World Chess Championship in Baguio City, Mikhail Tal briefly pondered Karpov’s opening variation and then mumbled, “No pie from that flour”.

+1. Baguio City has unique climate for the Philippines, as it's up in the mountains and has a "European" climate. No snow but it gets cold. They grow European non-tropical produce there like lettuce, strawberries.

"I still remember Botvinnik's reaction to each of my games, right from the opening moves. At first he would express amazement, then annoyance, and, finally irritation." - Anatoly Karpov [Botvinnik, an opinionated past World champion, and grand old man of chess, was weaker than Karpov--RL]

"Chess is my life, but my life is not chess." - Anatoly Karpov
"Chess is life." - Bobby Fischer

"TC is a chess master. A chess master can see when a game is going badly well before checkmate, often, as early as the opening (the first few moves)."

Currently the move count is zero. Predictions based on zero moves are more indicative of wishful thinking than careful thinking. I'm enjoying saving up TC Brezit Doom predictions, will be interesting to see how they stack up against reality when the consequences properly unfold in a year or three.

WillS.

This is more like 1.d4 and White resigns.

"Only 1. e4 / c5 Openings have any validity in the modern world. Game performance depends upon a big and dynamic centre, the bigger the better, so as to compete with new Chinese and east Asian openings. More and more pawns must be devoted to supporting it. Ideally at low wages. The expansion of opening regulations down to move 35 will ensure the gains from chess will be socially distributed. Indeed, the dynamic interplay between black and white creates diversity where both sides can win and we can move beyond patriarchal notions of "checkmate". People who say different or attempt to close the centre clearly don't understand productivity in the modern game and are borderline racist. And bishops should be allowed to marry other bishops of their own colour."

@carlolspln: It all depends on what you're looking for. relentless action happens in movies. What Tyler describes is a process as fast as seeing a plat whiter for lack of rain. No loud noises, no action, nothing happens and that's precisely the issue. Some business will thrive and others go broke. Which fraction thrive or go broke depends on how long uncertainty lasts. So far, the politicians have displayed an EM level of preparedness to deal with the referendum outcome. Some will say this exaggerated "catastrophe" is nothing compared to the period after WWII, that's right. But, a question arises: what will the UK lose this time?

Ps. define long run. 50, 100, 300 years?

It will be the next leg down for the UK, after Suez in 1956 vis a vis perceived authority, influence.

"Ps. define long run. 50, 100, 300 years?"

How about we just examine UK GDP per capita relative to EU per capita 5 years from now and compare that ratio with the ratio from the same ratio last year? (My guess is no significant change either way.)

I think the answer is that Brexit voters really didn't care about GDP. I might be wrong, but Prof. Cowen still refuses to even consider the possibility.

I think the relevant comparison isn't UK GDP vs. EU GDP, but the impossible hypothetical -- UK GDP with Brexit vs. UK GDP without Brexit. Because of the UK's position within the EU, I don't think EU GDP is a particularly good proxy for what UK GDP would have been inside the EU.

That said, Urso is absolutely correct that comparisons of GDP miss the point. I'm sure there were Brexit campaigners who promised better economic growth free from the shackles of the EU, but I don't think "my income will be 0.8% higher than otherwise in 5 years" was a key motivator of the vote to leave. It was about self-determination, independence, and a concern that Merkel had just opened the floodgates to a wave of extremely undesirable immigrants (so plainly undesirable that the EU may now be bribing Turkey to keep them out).

In contrast, "my income will be 0.8% higher than otherwise in 5 years" was a key motivator of the vote to remain (that and a powerful revulsion at all those horrid low-class dalits and ryots who dared to object to foreign colonists remaking their old neighbourhoods into something alien).

Both sides can be right here -- they were just pursuing different things. Not everyone is rich enough to reap only the benefits of mass immigration, with none of the downsides.

I don't disagree with what you are saying.

I will point out that income being 0.8% higher in 5 years falls in the "no significant change either way" category I was referring too. 0.8% is almost certainly within the margin of error in any such calculation.

I think if GDP per capita ratio (EU/UK) is 10% lower in 5 years than today, people will regret their decision.

I thought we were all going to die in the long run. Or has that changed?

Fauver and Fuerst find that the benefits of codetermination depend on the circumstances (pdf): http://corpgovcenter.utk.edu/Research/FauverandFuerstJFEGermanLaborPaper.pdf

Sectors which depend on information sharing (e.g. trade) benefit from codetermination.

"Here is more. I would say that puts her one for three. I’ve also heard talk of May embracing a “worker codetermination” model for the UK, similar to that used in Germany. It works less well for services, and besides Gorton and Schmid estimated it cost German firms about 26% of shareholder value (pdf))."

But that may just be a distributive item not necessarily and allocative or efficiency item. Germany doesn't seem to suffer from any lack of investment.

Perhaps we should move from "shareholder value" to "stakeholder value" ?

Obviously not even that is being maximized. There's a Pareto improvement possible by giving "stakeholders" equity and then maximizing value.

"the only way for the UK to thrive out of Europe is to become a massive western Singapore - an offshore financial centre with low costs, much-improved infrastructure and corporate taxes cut so low as to make the UK almost a tax haven."

Is this the only path to prosperity in the world today? Is so, it's a sad future ahead of us.

I think the UK has stronger free market principles than the EU. Ultimately, it will be leavers who are disappointed (except for immigration). Brexit will probably be a modest net positive for the UK, Tyler talking his book notwithstanding.

>I am not surprised that Brexit is working out badly

Yeah. The stock market performance alone has been so devastating to the world.

So would a US replacement of the Wagner act with something that created a less toxic and radicalized labor environment be a negative?

I would suggest that it has been one of the drivers of deindustrialization and off shoring of production. A more rational system that actually gives protection to workers instead of empowering criminal organizations or institutionalizing stupidity and incompetence would be a real benefit.

Labor, small l, interests in the UK are an issue and have to be addressed.

Remember, it is very possible to have no competitive advantage in an economy. Or not enough to keep the country operating, which is the same in the end.

I still don't think that economists have quite come to the realization that the competitive advantage of many western nations is simply the ability to borrow against accumulated wealth to drive consumption.

The UK has a few bright spots in the country, but none that can keep the rather expensive social system alive and employ enough people to keep social stability.

I think we are finding that the US is in the same situation. Canada as well. That is the story of the eurozone and the rather dismal economic characteristics of Europe as a whole.

Globalization and free trade has definite benefits, but for a large swathe of the world economy it is another 'lets make ourselves poorer so we can all get rich' scheme that characterizes 90% of the output of economists.

"Remember, it is very possible to have no competitive advantage in an economy. "

Sure, that happens all the time. That's where comparative advantage comes into play.

What percent of the population understands what comparative advantage is or how it is different than absolute advantage? 2% maybe?

I'm sure most people don't understand the concept, but that doesn't mean they don't participate. Most of the population doesn't understand enzymatic digestion either. But they still eat.

"...but that doesn’t mean they don’t participate"

Right. But they participate in two ways -- economically and politically. Economically, it doesn't really matter if they understand how trade works -- they'll still benefit. But politically, it's a problem if they don't get it.

"Right. But they participate in two ways — economically and politically."

Yes, I agree with this.

" Economically, it doesn’t really matter if they understand how trade works — they’ll still benefit. But politically, it’s a problem if they don’t get it."

I'm not sure this is correct. If trade works and they benefit then most people don't object and thus there's not political aspect. Where it tends to break down is when the gains accrue to a minority at the expense of the majority. Then there is a political issue.

The political situation tends to mirror the economic situation.

For example, in the US, there's evidence that trade is a net positive. However, median wages are stagnating. Dock workers on the West Coast are making $180K per year in total compensation, but real wages in the mid-west are stagnant.

I'm curious as to what you think labor relations were like *before* the passage of the Wagner Act.

"but I am surprised how quickly it is becoming obvious that Brexit will not mean more individual liberty for the Brits."

Could you show your liberty calculus work here?

"I am not surprised that Brexit is working out badly"

Might you be subject to some cognitive biases on this issue?

The assumption that Brexit was intended to increase the individual liberty of British citizens? You made that up out of whole cloth. This was about National determination, not self determination.

It works less well for services, and besides Gorton and Schmid estimated it cost German firms about 26% of shareholder value

Future post: Marginal Revolution loves the young blue collar apprenticeship programs of Germany and thinks they should be more prevalent in the United States. (The US has had the programs in the past but I remember them in late 1980s High School and these programs were considered a joke.) Is one reason for the German apprenticeship success because of the worker codetermination programs? (Bonus points if Wal-Mart training programs are following the model?)

This post is a good encapsulation of the conservative/libertarian collapse. Nearly every developed country is becoming more tyrannical and statist and immigration is driving the trend. If you want to increase liberty in England, deport non-native stock. Kick Scotland out for that matter. Go find the most liberty loving people in Britain, and the U.S. for that matter, they are nearly all ecstatic about Brexit. If Tyler was writing from London in 1776 he would be complaining about the new American government being anti-trade and the major blow to free markets.

"This post is a good encapsulation of the conservative/libertarian collapse."

More like an internal schism, particularly among Libertarians. You have the pro-immigration & trade libertarians versus the pro-self determination libertarians.

I can't say I'm personally much invested. But it does seem that, with regards to Brexit, that the pro-self determination segment has a very clear and concise argument. It's pretty reasonable that the British will have greater control of their own destiny outside of the EU. Indeed, Tyler admits as much when he condemns them for potentially making bad choices in the future.

The pro-immigration and trade libertarians have a much more convoluted and subtle argument. It could IMO still be the correct argument, but it's much harder to make the case. Their argument is that:

a) Britain will have less immigration and that this will be a net negative

b) Britain will have less trade and that this will be a net negative

Those are hard claims to substantiate. Immigration is often a net positive for a country, but I'm dubious about the implicit claim that it's nearly always a net positive. A higher national GDP, but lower per capita GDP is not a net positive in my opinion. Furthermore, Britain is highly unlikely to halt immigration. Roughly 2/3rds of the foreign born British population came from outside of the EU. So, it seems likely that immigration rates will remain positive for the foreseeable future.

https://en.wikipedia.org/wiki/Modern_immigration_to_the_United_Kingdom

The trade aspect is a more substantive argument for the Remainers because it does seem that the EU appears to be somewhat spiteful and likely to attempt to hurt Britain for their perceived betrayal. Apparently they have a revealed preference for George W Bush's maxim (loosely paraphrased) that you are with us or you are against us. However, similar to the immigration aspect, Britain already does most of it's trade outside of the EU. And more importantly the trade share with the EU has been falling for quite some time.

"However, the stronger export growth to non-EU countries has resulted in the proportion of UK exports destined for the EU falling from 54.8% in 1999 to 44.6% in 2014."

http://webarchive.nationalarchives.gov.uk/20160105160709/http://www.ons.gov.uk/ons/rel/international-transactions/outward-foreign-affiliates-statistics/how-important-is-the-european-union-to-uk-trade-and-investment-/sty-eu.html

I see a cleavage between trade and immigration.

It's political season, so everybody wants to know who's stealing our jobs. In reality, the culprits (in decreasing importance) are:

1. Automation
2. Automation
3. Automation
4. Trade/offshoring
5. Immigration

The thing about immigration, it arguably upsets a kind of delicate balance, it's not just jobs disappearing or moving THERE, it's about others moving HERE.

Anyway, it complicates the economics and the issue ends up going way beyond economics.

Better to stick to explaining to people that 'automation is the big culprit, and it's a good thing, because it's been increasing wages for a couple centuries now' and working for the free flow of good and capital, and leave off on the immigration mania for a decade or so.

I'm in favor of immigration, but legally if possible, and...measured, you know.

"I’m in favor of immigration, but legally if possible, and…measured, you know."

So you're a Racist! /Leftie ;) (Just kidding).

Regarding Automation, I think that trade has done the US an inadvertent favor. The majority of our low value (non-food) manufacturing has moved out of the country. The trends in factory automation are steeply increasing. However, this will impact the US a lot less than the more manufacturing dependent economies. Indeed, a lot of manufacturing will tend to move back towards the US (or to the source of it's dominant raw materials) to reduce shipping costs.

Regarding International Trade, I think that it's been largely positive, but the gains tend to accumulate to a minority. This is exacerbated by exceedingly complex trade treaties. However, I expect increasing automation to make a lot of this point of decreasing. There's no point in locating a fully robotic factory in a remote location with cheap labor.

Regarding Immigration, this is a complex topic. I tend to believe the US should follow the Canadian model and tightly restrict immigration to skilled labor.

I am not surprised that Brexit is working out badly, b

I'm not surprised the Mercatus crew is pretending it's working out badly when the referendum passed 3 weeks ago.

By my reading of the U.S. markets, they must believe Brexit is great for America.

And yet, the people "in charge" haven't actually done anything to move it forward since then. Meanwhile the pound dropped to its lowest level in 30 years, the UK market dropped, and all of the pro-Brexit leaders ended up not being in charge despite their political "victory".
By what measure can you claim it's *not* going badly?

Theresa May is just grabbing a bit of centre ground while Labour destroys itself, let's see what she actually does.

The UK will always have higher spending than the US because the NHS (and old people in general) is sacrosanct. But the days are long gone when the state was the UK's biggest problem, if you want to understand the productivity gap compared to France or Germany look elsewhere.

"I am surprised how quickly it is becoming obvious that Brexit will not mean more individual liberty for the Brits."

When national liberation movements talk about "freedom" and "liberty," they almost never mean the same thing you do when you talk about "freedom" or "liberty." They're really just talking about self-determination: freedom from foreign dictates. I see no reason the British should be different from anyone else.

“I am surprised how quickly it is becoming obvious that Brexit will not mean more individual liberty for the Brits.”

I suspect Tyler was being a bit disingenuous with that comment. He understands the difference between national liberty and individual liberty. The Brexit campaign was explicitly about national self determination, it wasn't specifically about individual liberty. Brexit is largely orthogonal to individual liberty. It's probably going to have some negative and some positive individual liberty consequences. But for the most part, none of that is directly intended.

I think Tyler is making a big mistake to take what May says at face value. She's pretty obviously doing the "Only Nixon can go to Beijing" thing. The opposition Labour Party is in chaos right now and very vulnerable to having its policies stolen. When May talks about "worker codetermination" she is sending a message to the middle class that she could be interventionist if she wanted to. She is not immobilized by ideology. But the probability of her actually implementing worker codetermination is extremely low. It would completely contradict the other things she is saying about cutting regulation and red tape.

Oh, and the whole "German model" thing is just more dog whistle politics. There is a good deal of Germany worship on the left in the UK, but people are not completely daft, so they know that the UK has been growing faster than Germany for a long time, as well as faster than the euro area and the rest of the EU. So, yes, there will be a bit of lip service to German-style apprenticeship schemes, and talk of investing in more manufacturing, but if there ever was a time to follow a German style model, it is long gone. Germany is a refining economy, while the UK is an innovative economy, so their requirements are rather different.

It's pure fantasy to argue that the bulk of the Brexit vote was made up of free marketeers who want more trade.

Let's be honest with ourselves, the bulk of the Brexiters wanted a Britain that interacts LESS with the outside world.

The spectrum runs from Free Trade Globalism to EU Membership to Isolationism. Each end of the axis might have supported Brexit but that doesn't mean they agree with each other.

arresting corporate M&A doesn´t seem like such a bad idea

Co-determination: is that sort of like when professors get to vote on school matters? ;) Jokes aside, why on earth is it only the negative you can see about conceptually fair treatment of workers? Do you really think in your prestigious and stable position it is reasonable for you to simply reject such things based on cost alone? Is Germany doing so poorly because of it? Do you really only see global domination by property owners as the "better world". (more likely you must think is all fools)

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