Let’s Get Rid of “Developed Countries”

The World Bank is removing the term “developing countries” from its terminology—and about time too. The term obscures more than it reveals, encompassing a wide swath of countries from Argentina and Chile to Russia, most of sub-Saharan Africa, and (until recently) India. These countries may not be “rich”, but that doesn’t mean they have much in common. Therefore removing the term, and hopefully replacing it with better-tailored specific categories based on the Human Development Index and the structure of the economy, is a positive step.

However, there is another side to this coin: the so-called “developed countries”. This is a term that has come into common use over the last 30–40 years to describe rich, industrial or now post-industrial countries, and it’s even worse than “developing countries”. While it may describe a group of countries that are somewhat more similar than the “developing countries”, as a term it is far worse. It supposes that there is some definite endpoint to economic development—an industrial or post-industrial economic structure.

We have no evidence to support this supposition; further, it is arrogant to assume that some countries have ascended to the highest plane of economic development. To be sure, life in the “developed” countries is far better than it was 200 years ago (if you don’t believe me, go and read up on pre-industrial living standards—I hope you like oats), but we have no reason to assume that development will stop now. Let’s have some humility and intellectual honesty. Instead of “developed countries”, we should use terms that more accurately describe the economies that we are grouping together: “small, open economies”, “finance-led economies”, “export-led economies”, “domestic retail and service-led economies”, for example. Smarter people than me can come up with neater terminology and better categories, but that’s the direction we should be heading.


Notes on Brexit

Far too much has happened in the United Kingdom in the last two weeks for any kind of comprehensive analysis in just one post. Britain may have voted for a recession (it’s much to early to say one way or another); the majority party has suspended its governing for the summer; the main opposition has torn itself apart; there has been an astonishing increase in the number of hate crimes—and those are just the top highlights. Below are some reflections on three aspects of this political earthquake and its aftershocks.

Most Ignored Important Story: Northern Ireland
Perhaps the best immediate argument for Irish unification is the almost complete lack of discussion about the implications of Brexit for Northern Ireland, both during and after the referendum campaign. The peace agreement that ended a three-decade-long low-level civil war that killed more than 3500 and injured over 40,000 is in jeopardy as a result of the referendum result, and no one in Westminster seems to care. This is extraordinary. At least Dublin pays attention to what happens in the north—London couldn’t be less interested, based on the discussions (or lack thereof) in the last two weeks.

There are two primary problem areas: the Common Travel Area (CTA) and the European Convention on Human Rights (ECHR). The CTA and the lack of a border between Northern Ireland and the Republic are crucial for the economy and political stability of the island of Ireland. There is no way to square this with ending free movement of labor between the UK and the EU27. If the UK keeps the current arrangement, in which case limitations on the movement of people in the EU exist only in law but not in fact, this would eventually be shown to be a massive betrayal of the anti-immigration Leave vote. If it strikes an EEA-type deal that retains free movement, the Leavers will feel similarly betrayed (albeit perhaps more obviously and immediately). Ending free movement and erecting a physical border between Northern Ireland and the Republic will be both a significant practical challenge—it will require many checkpoints, hundreds of kilometers of fence, and possibly thousands of agents from the already overstretched UK Border Agency (UKBA)—as well as a blow to the peace process. Few plausible actions of the British government would be likely to produce as much nationalist anger as the restoration of a firm, physical barrier and the presence of UKBA agents or British troops in Northern Ireland.

The ECHR underpins the Good Friday Agreement, which is the basis for the constitutional settlement of Northern Ireland and was overwhelmingly approved in referenda in Northern Ireland and the Republic. The Conservatives have complained about the allegedly onerous restrictions of the ECHR for years, and leaving the European Union allows them an opportunity to depart from it. EU members have to be signatories to the ECHR even though they are, despite what the British tabloids say, separate organizations. Leaving the ECHR, as Theresa May has said she would like to, would effectively abrogate the Good Friday Agreement, the basis of peace since 1998. Michael Gove has gone a step further and attacked the Agreement in its entirety. Put briefly, these cavalier and chauvinist stances put the peace at risk. Yet only Gove’s arrogant stupidity has been raised at all, and that only briefly.

There are no good solutions to this problem (this will be a recurring theme), but it is shameful that the British government and media have not seriously engaged with it since the referendum. After almost 20 years of peace, the memories of street battles, assassinations, and bombings in London and Manchester seem to have faded sufficiently for Westminster to ignore Northern Ireland. Forgetting, in this case, is a serious mistake.

Harmonizing Porcine Aviation Rules
As if the Leave campaign hadn’t already spread enough bullshit around the British countryside to raise all the hops and barley needed for the nation’s real ale consumption, Leavers and Remainers have continued to add to the heaping pile of mendacity since the result has been announced. The most brazen example of this behavior has been the Leavers immediately denying that they had made a series if impossible, implausible, false, and contradictory promises. But almost as damaging as this for public confidence has been the attempt by politicians from the Tory and Labour parties to pretend that some deal can be struck that limits the free movement of labor while remaining in the EU or EEA.

If Britain wants to stay in the single market, this is not a negotiable point. How could it be possible to have a single market without free movement of one of the mobile factors of production? Such an agreement would violate of much that the European Union has stood for in terms of economic integration, and it would encourage other nations to try a referendum as well in hope of getting a similarly sweet deal. At that point, the EU could break down very quickly and become little more than a customs union with a only a common external tariff and shared industry standards. The prospect of reaching an agreement on those terms is as likely as the next Prime Minister agreeing to harmonize Britain’s porcine aviation rules.

Stick or Twist, Labour is in an Awful Mess
Jeremy Corbyn may or may not be a good leader of the Labour Party or a plausible Prime Minister. I had thought for a while that he was tolerable on the first count and somewhat inadequate on the second. This was despite my sympathy with many of his views and generally positive image of him—he seems to not have to pretend to be a regular guy and he’s an Arsenal supporter, both of which are very admirable traits. Labour has now torn itself apart along a fairly new axis in political life: a vast divide between its elected leadership and its members. This may be entirely new in British political history. Normally parties are torn asunder by ideology or personality, and while those elements are at play here, I cannot recall an instance in which the MPs and the members have been engaged in this scale of a struggle.

Given the degree of vitriol on the part of some members, just a couple of weeks after an MP was murdered, I would not blame centrist and soft left MPs for seriously considering their future in the party. How can a split of this kind be resolved? More than two-thirds of the MPs have stated that they have no confidence in Corbyn as leader, but he could well win a members’ vote. Curiously, Labour is still in the low 30s in most opinion polls; maybe most people don’t pay as much attention to the day-to-day chaos of Westminster as they should/weirdos like I do (delete as appropriate). But this is a brilliant moment—or should have been—for the Labour party. The Tories are in chaos, the Leavers are starting to be exposed as frauds, and there is quite obviously a significant strain of resentment for centrist politics that could be exploited by a radical alternative. Unfortunately, that resentment could also be exploited by the far right, which is generally the direction in which it has tended recently (and, as historical data show, it has done in the past). Labour’s current mess is letting the government, such as it is, off the hook and preventing a cohesive alternative Brexit or re-entry campaign from coming together. It is also relieving any pressure for a snap general election and making Labour’s prospects in such a contest distinctly poorer.

There are no good routes out of this situation. Someone has to back down, and neither side looks like doing it at this point. Politically, it would probably be easiest if Corbyn were removed and a miraculous landslide produced a consensus candidate, but that does not look likely. No such candidate has yet emerged, and the membership don’t seem likely to turn on Corbyn at this point. The alternatives are limping on with a divided party and a straight break between a large majority of the MPs and the membership, in which the former go off to start their own party. The rebels have miscalculated badly in their timing, and now that the struggle for control of the party has broken back out into the open it is unlikely to end in a state that resembles harmony.

A Brief Note on American Parochialism

The United Kingdom has voted to leave the European Union—more on that soon. American news outlets have noticed the existence of British politics for the first time that I can remember, and European politics for the first time since the peak of last summer’s refugee crisis.

The coverage, sadly but predictably, has been embarrassing in its narcissism. Rather than “How could this affect the post-war organization of the West?” or “Will the world’s largest and most successful integration project unravel?”, many American writers and journalists want to know how this impacts or reflects our own politics.

There are, indeed, plenty of parallels—reactions to immigration, deindustrialization/urban decay, and the growth of xenophobia, racism, and white nationalism—between the campaign to sever Britain’s ties with by far its largest trading partner, on the eastern side of the Atlantic, and the campaign run by the head of the Miss Universe pageant for control of the world’s second-largest nuclear arsenal, on the western side. However, these parallels are not, and should not be, the primary prism through which this news is covered. Brexit will have second-order effects on the United States and American politics (some lower growth, for a start), but why should this European question be turned into one that is about us?

It isn’t about us. It’s about Britain, and about Europe, and the media coverage needs to reflect that truth. Americans are woefully ill-informed about the world, and turning questions of international affairs into matters of our own domestic politics only reinforces our parochialism at the expense of broader knowledge.

Considering “Lexit”

Is there a left-wing case for the UK to exit the European Union? This has been a recent topic of conversation among socialists and social democrats, and on its face there are some good arguments in favor.

For a start, the European Union is a capitalistic project to expand and harmonize markets. This is its second-most important goal after preventing European wars (although these two goals and the agreements to pursue them are mutually reinforcing). Harmonization has not uniformly advanced left-wing causes or policies, and the architecture of the EU is reflective of the German ordoliberal tradition (Mark Blyth, among others, has emphasized this point). That structure places constraints on the authority of democratic politics and removes certain capacities (e.g. drawing up primary legislation, monetary policy) from the direct control of elected officials. Add to this the extraordinary conditions of austerity that the European institutions of the troika have dictated to the periphery since the beginning of the eurocrisis—conditions which have created a Great Depression in Greece by political choice, not necessity—and one may begin to feel a serious antipathy towards this international capitalistic project.

I have a lot of sympathy for parts of this view, particularly on the flawed institutional designs and the emphasis on sticking to rules instead of pragmatism. More than 25% of Greek children are in poverty today because of political choices. That fact on its own may motivate some leftists to vote “leave” tomorrow.

The trouble with this argument is that the referendum requires, simultaneously, a vote against a proposition, and a vote for an alternative. And that alternative is—or, more accurately, the various potential alternatives are—much worse. I’ll explain by gaming out the potential results of Leave and Remain. This is, of course, all speculative and based on my judgment of probabilities. But, alas, without a time machine, I cannot offer any superior foresight, so let’s head into possible lands of The Future.

Referendum Result: Leave Victory

It’s Friday morning, and Leave has won—what happens next? First, David Cameron is likely to resign. He may or may not trigger Article 50, which begins the withdrawal negotiation process, before doing so. There will be a Conservative leadership election which will almost certainly be won by an “Out” campaigner, probably Boris Johnson. At this point we hit our first fork in the road:

Permutation 1: A Conservative government is formed under a new, “Leave” Prime Minister

This seems plausible. In the chaos surrounding an “out” vote, the Tories may well come together (perhaps with help from the DUP to shore up their majority) for partisan stability in a challenging period. Would this government be in any way amenable to the concerns of the left? No. They would be far more likely to roll back than to maintain aspects of European regulation that protect workers’ rights and the environment, for example. Their domestic agenda would be at least as right-wing, if not further to the right, than the present government, and the likely hit to the public finances produced by Brexit would provide cover for additional austerity. No sensible leftist should hope for this option.

At this point, there may be an objection—but if the Tories will do all of these awful things, won’t that provide an opening for Labour or a left coalition to win in 2020 and develop a sort of “socialism in one country”? We can’t rule out this possibility, but it isn’t likely. Remember, first, that there was a right & center-right majority of the popular vote share at the last election (UKIP + Conservatives). Add to that the continuing strength of the SNP in Scotland, and the result is that Labour will need to win back a lot of middle England seats to elect a center-left government in 2020. Such a possibility seems distinctly implausible, absent some catastrophic mismanagement or an exogenous shock like a global recession (which we can neither expect nor assume).

Permutation 2: A Snap General Election

Perhaps the new Conservative leader won’t be able to command a Commons majority—maybe Europhilic Tories will split off, and Boris Johnson will have to call an early election. In this permutation, any opportunity from Brexit for a leftist will rely on the chance of a left-wing government being formed after that election. Is that likely? Current polls indicate that it isn’t. While the Conservative-Labour margin has narrowed since last summer, the Tories are consistently ahead, and even a euroskeptic Conservative plurality could be supplemented by UKIP, who are polling around 15% fairly consistently. Further, as noted above, Labour would have to achieve a massive swing in England to even end up as a plurality party.

Following either of the above we may have another joyous festival of internet abuse and spectacular mendacity—I mean democracy. A festival of democracy.

Permutation 3: Scottish Independence Referendum #2

Scotland is likely to vote roughly 60/40 for Remain, so there could be a case for a second referendum. This, of course, would (probably) have to be approved by Westminster, unless Nicola Sturgeon wants to try what the Catalans did with an “advisory” referendum. The “Yes” side needs about a 6% swing, which is not negligible but also not out of the realm of possibility. A “No” vote would probably strengthen the Westminster parties at the expense of the SNP (two referendum losses would essentially destroy the party’s raison d’être), although not necessarily to Labour’s overall advantage; a “Yes” would make a left/Labour government from only England and Wales prohibitively unlikely. In short, a second referendum is unlikely to put a left wing government back in power in Westminster. Holyrood might get a center/center-left post-independence government, but the likely economic and political turmoil that would follow Brexit and Scottish independence would dampen the popularity of the SNP and reduce their redistributive fiscal policy options.

Leave Summary

If you accept the qualitative probabilities I have assigned above, then I’d suggest it’s pretty clear that none of them provide an obvious route to a social democratic government following a UK exit from the EU. Leave is not a good option for the left.

Referendum Result: Remain Victory

The most unpleasant part of this outcome will be over quickly—a triumphant David Cameron walks out of 10 Downing Street on Friday morning to announce that his renegotiation has been endorsed by the British public, who have chosen to stay in the EU. He will say that this has been the choice of a generation, and that the issue is settled (it won’t be).

Things will probably get better after that. The Leavers will undoubtedly demand a second referendum, claiming all sorts of spurious and imagined grievances about the conduct of this one. On one hand, the current referendum will almost certainly embolden and increase support for UKIP and the far-right. On the other hand, I think (from a distance) that most British people are pretty sick of the issue and don’t want to hear it debated again for some time. The key players in this scenario will be the Tory leadership contenders. Will Johnson and (maybe) Theresa May (as well as any others on the right of the party) promise another referendum after the 2020 election? There would be plenty of support within the party for a second vote; according to the FT, Conservatives are likely to break +15% for Leave tomorrow. Given what Johnson has said about the EU, accepting continuing membership as Prime Minister would seem to be difficult—but he has gotten away with far more audacious political acrobatics.

All of this is likely to leave left-Labourites no worse off than they are now. In fact, another three years of barely-disguised Tory civil war over Europe and the leadership will probably do the Conservative party no good at all in 2020. If we end up with this outcome, it will be up to Labour itself to make a strong case for returning to power.

Another Factor

That’s enough wild and hopefully somewhat informed speculation. There is another, more important point to be made on the “Lexit” question. If socialism and social democracy can be summarized in a simple belief, it is that the solidarity of workers can produce positive social outcomes. This solidarity does not need to be—and should not be—constrained by national borders. The British left may exist on islands, but it ought not behave as if it is wholly separate from the rest of the European left. Leaving the EU will not put food in the mouths of Greek children or pensioners. It will not protect labor rights in France. It will not produce employment opportunities for young people in Spain. It will not provide long-overdue wage increases in Germany. It will not bolster the cause of Polish and Hungarian leftists against their center-right or right-wing governments. Leaving destroys solidarity. It prevents meaningful cooperation. It is an abandonment of any serious attempt to spread left-wing principles across Europe.

Remaining requires a re-commitment to the European struggle for social democracy. It requires an acceptance that Britain’s left and Labourites will have to work to fix the European Union in adverse circumstances and against much opposition. But the scale of the task is no excuse to renounce it. The outcome is too important for that.

The Theory of Brexit

Later this week, the United Kingdom will vote on what the FT’s Martin Wolf has called a “piece of grossly irresponsible nonsense”: a referendum to leave the European Union. Despite the attempted interventions of eminent economists, social scientists, and research institutes, the debate has been largely conducted on terms that rarely interact with facts (see, especially, the various pronouncements of the Rt. Hon. blond wig for Uxbridge and South Ruislip and the MEP who is keeping at least five Kent pubs open single-handedly).

To distill the arguments of Brexit about economics, foreign policy, and immigration into one never-stated, but frequently implied phrase, the theory behind Brexit is this: Britain is a very important country.

If you believe that Britain is very important, then much of the Brexit rhetoric makes sense: of course countries will be lining up to make free trade agreements with Britain (leaving aside the very significant point that an FTA is not a single market); Britain’s global role will be unshackled from EU foreign policy; Britain will be able to attract foreign direct investment through deregulation and/or the awesome respect that capital markets have for its capacity and institutions; talented foreigners will be just as attracted to working in Britain as they would have been in the EU—or even more so, because the UK will be able to deregulate its labor and product markets (even though they are some of the most liberal in the world already) and prioritize non-EU skilled migration.

This was true in 1910. It may have been true in 1948. It is not true in 2016.

Britain is not an unimportant country, but it is nowhere near as important as it used to be or the Brexiters think it is. The City of London is not the financial center of the world because it sits at the heart of the world’s greatest empire. London is no longer the center of world trade. It sits alongside New York and Shanghai, ahead of Paris, in financial services because it is a large, open city in a country that has strong legal institutions and is a member of the world’s (or second largest, depending on your source) largest market.

British foreign policy preferences are but one of many important factors in the conduct of world affairs. Britain has an disproportionately large role because of its independent deterrent and Security Council seat, but neither of these factors are affected in any meaningful way by membership or non-membership of the EU. Other than that it is a large European country (you can’t fight geography—Britain has been in Europe for tens of millions of years), how would Britain have any greater significance in international negotiations outside of the EU? It is not at all clear that this would be the case.

Once you realize that Britain is no longer Top Nation, then Brexit begins to make a lot less sense. Indeed, it looks positively bonkers. For all of the failures and problems of the European Union, how would leaving make Britain more prosperous or important? The economic evidence is very clear—it could hardly be more so. The idea that the European Union has somehow shackled an international titan is absurd.

The spectacular deals that the Brexiters imagine will be on offer are chimerical. They will not exist. Yes, Britain would eventually be able to arrange bilateral trade deals, but those are much less popular than they were in the early 2000s and they take a long time to negotiate, and they do not provide the far greater advantages of a single market. Britain doesn’t make very much stuff any more (as a percentage of GDP), and free trade in services is very difficult without—you guessed it—free movement of people and harmonizing a lot of other regulations that the Brexiters hate.

Outside the EU, Britain will find it far more difficult to influence EU foreign policy. Large international problems—war in Syria, the related refugee crisis, Putin behaving badly—require collective solutions, and collective solutions can be organized best through broader international arrangements like the EU. They entail greater solidarity across not just foreign affairs but a wide range of policy areas. This requires a lot of patience and negotiation, but results in more coherent, unified action in the long run.

Broadly, international cooperation has become much more important over the last century. This is both because of the scale of the problems at hand, and the fact that other countries are using collective action as well. Britain will see its global role reduced outside of the European Union, it may suffer a short-run downturn, and it will almost certainly see smaller increases in living standards than if it had stayed. Again, despite the failures of the EU (and they are many), it is far superior to the alternative.

Trump, Brexit, and Politics after the Age of Facts

The Anglophone world is dominated at the moment by two campaigns that pit total insanity against an uninspiring but also not-disastrous continuation of the status quo. This week, the United Kingdom will vote on whether it’s actually a good idea to be part of the world’s largest market (spoiler alert for non-economists: it is); in five months, the United States will choose between the least qualified, most publicly narcissistic, and least responsible major party nominee in American history and a career politician who lacks novel ideas or an inspiring message, but is probably a reasonably effective manager.

Neither of these choices should be hard. The outcomes should not be close. The polls, however, indicate that they are. The explanation is pretty simple—rule #1 of politics is never underestimate the stupidity of the average voter (if you think I’m being rude or elitist, ask the average voter a few substantive questions about politics and policy and see how few they answer correctly). Remember, Americans and Britons have cast ballots for a long string of incompetent, self-serving fools to inhabit their high public offices. But there’s something more interesting going on here.

Both of these campaigns have seen a greater separation from observed reality than many observers would have thought possible. Put another way, they have been full of not just the standard grandstanding political garbage and weasel words, but straight up lies. Many pairs of pants (or trousers) should currently be in flames. The Leave campaign in the UK has based its main pitch on a figure for Britain’s contribution to the EU which is a total lie. The number they have spouted endlessly (and virtually spent in advance) and painted on the side of their campaign bus has no reasonably articulable relationship with the truth. There’s also a long litany of additional mendacity about the EU, most amusingly about controls on the shape of bananas, but more seriously about Turkish accession. Donald Trump, meanwhile—well, he speaks for himself. And, in doing so, he manages to take all sides on an issue within the space of thirty seconds, while denying that he has ever changed his view. His campaign is not just fact-free, but fact-averse.

Leave may well win. Trump, while his chances are considerably worse, cannot be ruled out. Even defeats for both will come with at least 40% vote shares. Or, put another way, at least 40% of American and British voters will cast ballots for a candidate or a campaign which has made lying the centerpiece of their campaign. Whether out of ignorance or denial of the facts, a very significant share of each country has now decided that reality ought not to be the basis for national decision-making.

When the electorate has moved from arguing about the facts to arguing (with at least one side) entirely separate from or directly against facts, we have gotten to a pretty bad place (we have). Having read about 450 words of this piece so far, you are probably expecting that I have a genius solution to this problem. Unfortunately, I must disappoint you. As far as I can tell, only adverse results (such as war or a recession) are likely to shake people from a disdain for the truth. If you think your doctor is lying when she tells you that punching yourself in the face is a bad idea, you may only be swayed by your sensory impulses in the moment after knuckle smashes cheek.

Vox’s Newest Bad Calculator

Let me preface this post by saying that I am a fan of Vox.com. Why wouldn’t I be? I’m a middle-class urban left-winger who studied political science in college and reads central bank research papers for fun. Also, Vox has some clever writers and a lot of good content, and their work to make academic research more comprehensible to non-academics is admirable.

However, that does not let them off the hook for another very bad piece of gimmickry. In fact, it makes the said gimmickry much worse, because they clearly have writers and editors who understand economics who should have stopped these silly projects.

I talked about their tax calculator a couple of weeks ago and explained that only showing the taxation side of the ledger is a highly misleading view of fiscal policy implications.

Well, they’ve done it again, and it’s just as bad. This calculator allows you to decide which government programs to cut in order to hit Ted Cruz and Donald Trump’s comically large austerity targets.

They’ve made a similar mistake with this calculator as they did with the last one. The tax calculator treated only one side of the impacts of fiscal policy; this cuts calculator gives a static view of a dynamic and interconnected set of choices.

What does this mean? Government spending goes somewhere—even if you think cash transfers, for example, are bad and create disincentives to work (which is a dubious viewpoint in light of some recent evidence), people do actually spend that money. Or, to take Ronald Reagan’s classic dog-whistling example, the “Welfare Queens” driving Cadillacs would have stimulated the domestic auto industry, if they had existed.

The result of this is that cutting government spending is not a free lunch. Taking this money out of the economy reduces GDP (for the five people who still believe in expansionary fiscal contraction, I refer you to this chart). For the terrible, awful, no-good, very-bad calculator, that means every time you cut, you reduce tax revenue, and this forces you to cut further.

If we lived in a world of static and independent policy choices, Trump or Cruz could cut roughly 5% out of GDP each year from the government budget and get it into balance. In reality, cutting 5% of GDP from government spending would send the US into an austerity-induced recession, with obvious knock-on effects for tax revenues. Any attempt to dig out of the fiscal hole solely through cutting will make the hole deeper.