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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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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.

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The Great Unrest


by Henry Oliner

Obama lovers and Republican haters highlight the booming stock market, record low interest rates, the drop in unemployment, the drop in oil prices, the drop in the uninsured, declining  deficits,  the growth in jobs created, and  the duration of the current trend of economic growth to state how great their president is doing and how wrong the opposition is.  Therefore the only explanation for the obstruction and criticism of Obama is racism toward the first black president. Their simplistic bragging memes adorn Facebook and the social media.

The Conservative opposition points out the anemic growth rate, low business startup rate and high rate of business closures, stagnation of middle class incomes, high rate of people leaving the workforce (and thus improving the unemployment rate), low rate of workforce participation,  increasing debt, and costly regulations.

This only addresses economic issues. Liberals brag on the ending of the Iraq engagement; conservatives see only the growth of ISIS and terrorist attacks as a result. Liberals brag on the growth of alternative fuels; conservatives see crony capitalism as Solyndra and other efforts fail and the coal workers lose their jobs.

No one should be surprised that each side selects its points of confirmation. They do not even share interpretations of old history.  For the liberals FDR saved the country from collapse after the Great Depression; for the conservatives his bureaucracy and micromanagement caused the Depression to last much longer than it would have otherwise.

History makes the president more often than the president makes history.  Every president inherits problems and opportunities. Sometime you can easily correlate successes or failure with specific presidential actions and policy, and sometimes good or bad things happen in spite of the actions of leadership.  Meaningful perspective is not only missing from the short spaces of social media where shallowness is amplified by millions with a big microphone; it is also missing from much of the mainstream media.

The economy does not turn on a dime every four or eight years when a new name is anointed by an increasingly bizarre electoral process.  In a healthy economy we should be concerned with our own lives and the presidential race should matter a lot less.  The hyper elevation of the importance of this election while so many voters are repelled by the leading candidates indicates an unrest that may be pivotal.


The stock market boomed under Obama because he took office in the early years of the worse financial crisis since the Greatest Depression.  Timing was far more critical than policy for his success.  Coming off such a low point hid much of the costs of his policies, leaving some to conclude that greater regulation and higher taxes is the key to economic growth. Nonsense.

After WWII our economy was protected by the devastation of our global competition. We could pay high wages and high taxes and expand government programs.  We would be foolish to attribute our booming economy at the time to the effects we could enjoy and ignore the truer causes.

Lower oil prices came from a weak economy and commercial technology that was neither supported nor wanted by this administration. It happened in spite of the government, not because of it.  The stock market was propelled by lower interest rates and regulatory hurdles that advantaged insulated public companies over smaller private competitors.

Yuval Levin in The Fractured Republic: Renewing America’s Social Contract in the Age of Individualism observed both parties obsess over their nostalgia for a better time, but the conditions that supported their mythical utopias no longer apply.

Conservatives need to come to grips with the imperfections of capitalism and recognize that a century of Progressivism is not simply going to go away.  Tax cuts can theoretically pay for themselves at certain points on Laffer’s curve but this is not always the case, and may not be the case today.  It depends on many other factors besides the statutory rate.

Liberals need to come to grips with the limits of the state. A state that is involved in every aspect of our life becomes oppressive and corrupt. Political self-interest is not inherently more effective than economic self-interest.   The economy is not some social justice machine that can be fine-tuned with credentialed hands at the levers.

Besides the enormous burdens placed on this economy by an accumulation of friction costs predating this president, we remain stifled by the uncertainty of economic and tax policy that changes every time some politician is near a TV camera. Hillary laments the short termism of public corporations, but ignores the far more damaging short termism of government tax policy.

We are a restless people, but there is a great unrest that has propelled the worst elements of both parties to the forefront. We should look a little deeper at our problems and be a lot more skeptical of the simplistic analysis and solutions offered by these candidates.  Our problem is not just anti-intellectuals and populists who think that problems created by the intelligent can be solved by the ignorant; we suffer more from the pseudointellectuals who think credentialism reinforced with moral supremacy can overcome the limitations of sound principles and objective reality.

How a country that has such stellar leaders in the private commercial sector can project such lackluster leaders in the public sector is a statement of how irrelevant or toxic the political parties have become.  A government that tries to do too much is likely to increase the number of citizens it alienates. Tough choices do not disappear just because we abdicate them to bureaucrats.

Periods of great unrest precede periods of great change. Historically, it is punctuated with disasters but the long term trend remains one of dramatic improvement.