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Democracy and Brexit

from the editors at National Review, Reflections on the Shock of Brexit

If most of the expected shocks haven’t materialized, what about the shock that has? As several commentators, from Megan McArdle in The Atlantic to Rupert Darwall in National Review, have noticed, many liberal journalists, representing elites throughout the advanced world, have reacted with indignation to the fact that 52 percent of U.K. voters (many without degrees) have rejected the EU system of supranational government of which the elites approve. Naturally, these journalistic spokesmen argue, the common people could not possibly have good reasons for such an act of multinational vandalism. So they must be inspired by, er, racism, xenophobia, fear of globalization, and related other thought-crimes.

One aspect of it, however, is ideologically fascinating. Among the central arguments of those favoring Brexit was that the Brussels system was dangerously undemocratic and that British voters and MPs had lost the power to propose, amend, or repeal failed or oppressive laws. This was a passionate concern among English people who had grown up in a self-governing democracy, who may have fought for it in wars, and who simply couldn’t understand why the loss of their democratic rights didn’t worry their opponents. Yet again and again liberal journalists treated this passionate belief as either abstract or a cover for more primitive emotions and bigotries. Democracy as such was rarely given weight in Remain or liberal debates on the cost/benefit analysis of Brexit. They treat multinational political institutions as such unalloyed goods that it would be impolite to raise questions about such defects as a democratic deficit. Has the knowledge class/meritocracy/cognitive elite/nowhere people/etc., etc. developed not only an intellectual snobbery towards the rest of society, but even an impatient, dismissive contempt for democracy that cannot be openly avowed but that does influence its other political attitudes?

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Thoughts on Brexit

hko in Israel

by Henry Oliner

Many Americans have become familiar with basic economic concepts because it affects them so regularly, but our understanding usually stops at our shore. The Brexit vote has us scratching our head to comprehend something we hardly knew was an issue a few days ago. Before 9/11 we knew who Muslims were but a few weeks later were reading and trying to comprehend the difference between Sunnis and Shiites. Taliban and Al Qaeda were soon correctable on our spell checks.

The economists and the financial community will absorb, comment and predict for the coming months but here are a few observations and thoughts.

The polling was very wrong.  This appears to becoming common. This is because the media that governs so much of the polling is far too monolithic and dismissive.  This is the price they pay for their lack of intellectual diversity. This may explain why even the betting services were so wrong.  When so much of the coverage is one sided it affects even the odds makers.

The British national mood appears to be very similar to the mood in America that begat the Trump and Bernie Sanders campaign.  They are increasingly at odds with the leaders.  The critical issue may be the dual related fears of immigration and national security, but this is also representative of a lack of respect between the governing elite and the great unwashed and will influence other issues.

We have always had elites and commoners, but there was a sense that in spite of their credentials and power that they shared common goals and values.  The attraction to Trump in spite of his elitist wealth is that he at least espouses concerns that the middle class also share.

The elites serve an important purpose; not just to exercise the technical skills to execute policy for the administrative state, but to adhere to principles that protect the long term interests of the people and their culture. The danger of the populist trend is the severing of commitments to principles to serve pragmatic ends. Problems created by the intelligent cannot by default  be solved by the ignorant. A Populist movement that can restore or progress  important values and principles can accomplish great ends, but  such movements are hard to control.  Witness the difference between the American and the French Revolution.

For the libertarian intellectuals Brexit was a rejection of centralization and bureaucratization from Brussels, but we like to see a cause that reflects our preferred view and narrative. I see another sign of the exhaustion of Progressivism.

Our own United States is an American form of the European Union with distinctive and important differences. It is governed by a clear constitution which every state adopts and respects, and it covers a common culture and language even if you often have to press ‘1’ for English.

Critics of the vote may express alarm at the seeming increase in nationalistic fervor, but Charles Cooke at National Review expressed an important distinction between patriotism and nationalism (The Brexit Vote Was Just the Beginning):

George Orwell contended that the difference between patriotism and nationalism was that patriotism involved “devotion to a particular place and a particular way of life, which one believes to be the best in the world but has no wish to force on other people,” while nationalism “is inseparable from the desire for power.” By this definition at least, Britain’s decision to extricate itself from the EU was patriotic, not nationalistic. Indeed, if there is any group within the debate that seeks to impose “a particular way of life . . . on other people,” it is the one that wants ever-closer integration into Europe, and, eventually, a federal super-state.

While we debate where this will ultimately lead this vote signals an important shift.  The Brexit vote has released a possibility that was inconceivable until last week.  Now we consider who will be next and whether the European Union can survive.

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Every Business Is a Social Science Experiment

Kevin_Williamson (1)

from Kevin Williams at National Review,Why does this gas station pay so well?

When I mentioned my surprise at what it pays to work at a gas station in Bastrop, I got two reactions, both predictable. One was from a purported conservative who sniffed that this pay scale was absurd for such low-skilled work, and that that was why a gallon of gas at Buc-ee’s cost a dime more than it did across the street. (For the record, this was not true of the Buc-ee’s in Bastrop.) And so I found myself having to accommodate the shock of a so-called conservative who has trouble mentally processing the fact that in a free market, consumers can choose between lots of price points offering different levels of service and amenities. (Given how purchasing decisions are actually made, I think they’re on to a pretty solid strategy here: A single man traveling alone may go to the funky service station across the street to save 80 cents — Hello, Dad! — but a man traveling with a wife and children is going to stop at the place that is famous for having the cleanest bathrooms in the business, even if it costs him an extra buck-and-a-half for a tank of high-test. Or he’s never going to hear the end of it.) There’s a reason that we have first class, business class, steerage, and Spirit Airlines: Some people are willing to pay more for better, and some people hate themselves and don’t care if their flight from Vegas to Houston runs a few hours late or never actually even takes off.

The left-wing response to Buc-eenomics is just as predictable and just as dumb: If Buc-ee’s can afford to pay gas-station attendants $17 an hour, then why can’t we mandate a $15-an-hour federal minimum wage? Put another way: If it’s a good idea for one specific business in one specific market at one specific time, why not everywhere? You get the same thing with Walmart vs. Costco: They’re superficially similar businesses, so how come the mean meanies in Arkansas can’t pay like the nice, nice men from Washington State do? The answer, of course, is that every situation is different, and every business is a social-science experiment, trying out different approaches to solving social problems, which is what entrepreneurs and successful firms actually do. If it weren’t for the self-interest of big, nasty corporations, it wouldn’t be a question of clean bathrooms vs. less clean ones: You’d be out there on the side of the road watering Mrs. Johnson’s beloved bluebonnets.

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The Other Half of the Battle

David French

from David French at National Review, The Sins of the Elite Don’t Excuse the Sins of the People

Even worse, the American cultural elite served up a ruinous sexual revolution, complete with anti-religious hostility that spawned and perpetuated enormous human suffering as families fractured and the fatherless multiplied. It launched wars without fighting in them, sought to help the poor without knowing them, and prospered in part by stacking the deck through a faux “meritocracy” that put a premium on credentialing over knowledge.

In other words, if there was any version of the American establishment that richly deserved toppling, this was it.

But identifying the reason for a political revolution is only half the battle: The revolution itself has to offer something better than the status quo. Egyptian governor Hosni Mubarak was an oppressive autocrat, and his ouster during the Arab Spring fired imaginations around the globe — until it ushered the Muslim Brotherhood to power in his place. Western history is littered with examples of justified revolutions spawning even worse tyranny. Few people weep for Czarist Russia, but no moral human being believes that the genocidal Soviet Union was an improvement. France’s Ancien Régime was riddled with injustice, and the French Revolution initially inspired even some of our own Founding Fathers, yet the Reign of Terror was a nightmare. If one could sum up the distinction between the American and French revolutions in two words, it would be these: virtuous revolutionaries. Thank God we had Washington, rather than Robespierre.


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Employment and Capital

A business makes a capital investment for two reasons: one is to expand production to meet rising consumer demand, and another is to increase efficiency or reduce cost.  The first reason is common during a growing economy and such investment can lead to increased employment.

Reducing costs is often ‘code’ for reducing labor. The cost of the equipment is weighed against the cost of labor. The higher the cost of labor and the lower the cost of equipment the greater is the incentive to replace labor with capital.

The cost of labor includes not just the wages and benefits but other friction costs ranging from compliance regulations, legal liability, unions, and administrative costs.

If a $50,000 a year employee can be replaced with a $500,000 capital investment, then this investment delivers a 10% return.  In an investment climate ruled by very low interest rates a 10% return can be alluring.  At the same time that low interest rates reduce the cap rate it also reduces the cost of the capital acquisition.

Such stimulation of capital investment is the stated intention of a low interest rate policy, but the combination of the low interest rates with high labor friction costs and a slow growth economy means that it will have less of an impact on employment and wages.

Anecdotally I still hear that employers are both reluctant to expand and that they have a very difficult time finding motivated quality workers, especially in the trades. Some fear another recession around the corner and others seek to avoid the higher friction costs associated with new hires, sometime referring to the ACA penalties.

Higher employment regulatory friction costs, and slow economic growth are offsetting the potential benefit to employment and wages from lower interest rates.