For those of you not aware, I did a podcast series with the Development Research Institute at NYU earlier this year. It was nine episodes focusing on development that happens on a level other than the nation-state. Each episode featured me discussing a paper with its author and is worth checking out. My favorite one is probably the fourth episode, focusing on the centuries-long history of one New York City block. Here’s the summary:

Between Houston and Prince Streets on Greene Street in lower Manhattan, one city block has undergone dramatic changes over the course of four centuries. Today this Greene Street block is home to luxury retail and expensive residences, but not too long ago it was filled with art galleries, brothels, and garment manufacturing. The shifts in the block’s physical character and value were often sudden and totally unanticipated. Looking only at the nation-state level can obscure meaningful growth that occurs on much smaller levels, but how much can we learn from looking at just a city block? William Easterly of New York University tells us about this exciting and surprising history of one New York City block and what it can teach us about development.

Here’s a link to the iTunes page.

I’ve got a new post over at Novel Stance about putting the “economic anxiety” of the Western working class in the greater context of global income trends. A couple excerpts:

Whatever legitimate economic anxiety Brexiteers and Trumpkins have from the last few decades of increasing globalization, it is dwarfed by the historic rise in living standards nearly everywhere else in the world.

In a sense, we can think of the “Western working-class” being pushed aside by an “Emerging Market working-class.” Emerging market economies like China, India, Brazil, and Indonesia are building their own middle classes, simultaneously lifting hundreds of millions out of poverty and displacing the Westerners that used to do that work.

I’ve got a post over at Novel Stance about Brazil’s economic woes and the misguided blame Dilma Rousseff gets for it. Here’s a teaser:

But look closer at the causes of Brazil’s economic performance during the two’s rule: Lula held office at a time when commodity prices were soaring. Nearly half of Brazil’s exports are commodities. The world economy was stronger in the 00s than it is now, meaning other countries had more money to buy the stuff Brazil was digging out of the ground. Rousseff survived one term with decent commodity prices but was in power when the price of iron ore and oil fell 67%, corn lost a quarter of its value and soybeans cheapened by nearly half. These underlying conditions had nothing to do with either Rousseff or Lula.

 

I get it.

You found a candidate that agrees with your views and doesn’t carry the stinky baggage that political “insiders” seem to carry. When your candidate was eliminated, you were left with a binary choice that quite frankly does not excite you. But I beg of you: please do not sit this election out and refuse to vote for Hillary.

This will be the first year I am voting for President, though I have been a registered voter for two previous elections. My hesitation towards voting is still with me. I firmly believe that most people vote uninformed and that a reckless vote is worse than a non-vote. My decision to abstain from voting for the previous two Presidential elections most likely fits into a #NeverHillary mindset: both major party candidates included at least one thing in their platform I considered to be a deal-breaker. Add on the fact that the states I was registered to vote in weren’t even close to swing states, so I was pretty sure my vote would be a waste. Voting symbolically or to give a candidate moral support wasn’t in the cards because they both supported things I considered deal-breakers.

This time around, I can understand why Bernie-or-bust people are saying they won’t vote for Hillary. Decades in Washington have left her with suspicious relationships, more than a few regrettable past positions, and likely a foreign policy that seems reprehensible to you. But this time is much different. To people who defend their non-vote with a cry of her shortcomings being some sort of moral equivalency to Trump: are you kidding?

Unlike the Obama-Romney or Obama-McCain elections, a more-of-two-evils candidate actually threatens the future of the republic this election. Trump has already done damage to our credibility abroad and brought out of the woodwork people and views in America that a lot of us hoped were a relic of the 1950s. Since I’m targeting this post to Bernie supporters, I’m going to skip over any explanation for how bad and morally repugnant Trump is. The point is that, unlike a Mitt Romney or John McCain victory, putting Trump in the White House would do irreparable damage. You thought Bush was bad? He never threatened Federal judges or to default on Treasury debt. One could make the argument that the worst parts of a Bush Presidency are things that will take decades to recover from. But I’m convinced the country, and likely the world, would never recover fully from a Trump Presidency. Bush’s faults are miniscule compared to the damage Trump would do.

I recently spoke with a #NeverHillary Bernie supporter who welcomed the idea of a Trump Presidency because he thought it would speed up the process of getting to a Bernie utopia. Things would get so bad under Trump, the reasoning goes, that the country would have no choice but to turn to a politician like Bernie. This scorched-earth philosophy is misguided in mainly two ways. First, thinking economic/social/political catastrophe will end in your favored result is an insanely big risk to take. A quick gander at history shows that economic depressions and episodes of massive political carnage are just as likely to end up going to the extreme on the other side as the extreme to the side you favor. When the dust settles after the disaster of a Trump Presidency, who’s to say people won’t be even angrier and more drawn to identity politics and xenophobia than they are now?

The second way is that the country as we know it may not survive a Trump Presidency. The American experiment in the last few centuries is a pretty delicate thing. The Civil War showed, among other things, how a single-issue can divide the country apart and test the balances between states rights and the Federal government. A century and a half later, this divide is still around. The Cold War pitted centralized planning versus economic liberalism and the outcome was never a sure thing (my 8 months of living during a world with the Soviet Union were very formative on me). Every step forward in civil rights has been met with backlash and a question of how much freedom the public as a whole wants to grant people. a Trump Presidency could actually be the ultimate test.

The delicacy of liberalism is the rule, rather than the exception, throughout history. For all that Trump campaigns on, he never uses rhetoric based on the words “liberty” or “freedom.” We all have different definitions of what these words mean or to what extent we value liberty over other political goals. But Trump doesn’t value them at all. Censorship of the press, removal of judicial independence, religious litmus testing for not only migrants but also citizens…these are things that would threaten the underlying ethos of America and what I consider to be the political intellectual descendants of the Enlightenment. Trump would send us back to the Dark Ages.

When I think of the last eight or so years when I started to become focused on policy and developed a generally libertarian viewpoint, the political issues I vehemently disagreed with people on seem laughably minor compared to the issues this election. Fighting over the employment effects of a $9 versus $7.25 Federal minimum wage was an adorable quibble during a time when we could wake up knowing politicians weren’t going to say women who had abortions should be punished under the law. Arguing over how to price parking in cities or the efficacy of a 3-cent tax on carbonated beverages is embarrassingly trivial compared to the issues that Trump brings to the global political landscape.

I will say that, within a window of what we might call the status quo political landscape, Hillary will actually be a pretty damn good President. After decades of being in “the game,” she knows how to play it and get stuff done. I think Obama’s first term was filled with surprises of how realistic a President needs to be when working with an opposition Congress. Hillary is a seasoned vet in the landscape and will know how to work the system. My libertarian dreams of nearly-open borders and total drug legalization probably won’t happen under her. But under reasonable expectations, I think she has the ability to be a better two-term President than Obama.

Hillary has her faults, do not get me wrong. I still think a lot of her economic plans are foolish and misguided/ineffective efforts to help the poor. Her hawkishness on foreign policy makes me very uncomfortable. The e-mail stuff does not sit well. I still think there are a lot of squeamish parallels between the Underwoods and the Clintons. In most other elections, I could understand not wanting to endorse some of her baggage by refusing to vote for her. But this election is much different. A Trump victory is something we may not recover from.

So please, Berners, get out there and save the Republic.

Head over to the hot new blog Lombard Street Economics to check out another piece on Brexit from Gaurav Ganguly.

Based on a referendum from last Thursday, voters in the United Kingdom have chosen to leave the European Union. The referendum campaign got the portmanteau of “Brexit” as a combination of the words “Britain” and “Exit.” Now that we have got those basic facts out of the way, let’s move on to the sexier details like what is going to happen and why I think it’s a bad idea.

What Brexit means

No one really knows at this point. The referendum asked “Should the United Kingdom remain a member of the European Union or leave the European Union?” and the “Leave” vote won. This does not mean Brits will not be able to travel or work in the European Union – America and Canada are not in the EU but their citizens are able to – it just means it’s much more likely they’ll face difficulty. The UK will still be more integrated into the happenings of Europe than a country like Australia or Indonesia by virtue of its history and geographical proximity. But it will now make separate laws regarding regulation, trade, immigration, and other hot-button issues. The European divorce could be gradual, and it’s not clear what politicians on both the UK side and European side will negotiate in the future. The end result could be a very isolated Britain or it could be a very still-integrated Britain. People on both sides have made promises about what each result will entail, but the fact is that there is still a lot of uncertainty. In a larger symbolic sense, this vote reverses a consistent post-WW2 momentum of more European integration. The fact that there was even a referendum goes against a main ethos of the EU: This was meant to be a permanent thing!

Why did it happen

Just like any polity that has to live with a supranational power, a chunk of British people felt membership in the European Union was not working out so well. Popular reasons ranged from its immigration policies, its arguably undemocratic nature, or expensive costs that don’t seem to produce many benefits. In the last national election, Conservative Prime Minister David Cameron feared that his party was losing too many voters to the UK Independence Party. In an effort to woo UKIP voters to vote Conservative, he promised more autonomy and an eventual referendum on EU membership. The Conservatives won their first outright parliamentary majority since 1992, but Cameron had to follow through on his promise.

Why Brexit will be bad economically

When barriers to trade and migration are removed, efficiency goes up and economies grow. Creating a common market in Europe to remove frictions and allow flexibility in the overall labor market was one of the great successes of Project Europe. The integration of these countries provided substantial economic benefits overall, though gains and losses were experienced heterogeneously across the population. More on this later. Removing itself from this common market, at least formally, will have some costs to the UK, though it remains to be seen what the magnitude will be.

There are two major costs to Brexit economically, and both could cause a deep deep recession in the near future. The first is a loss of trade of goods and people. Half of British exports are to the European Union. If barriers go up and trade is made more difficult for these exporters, they will have less of a demand to buy their goods and Brits will be poorer. Like most European countries, the UK has a social welfare system built at a time where workers vastly outnumbered retirees/dependents. As birth rates went down and people got older, these pension systems found it difficult to finance themselves. But immigrants come in with money to spend and wanting to work (despite xenophobic conventional wisdom). In many ways, low-wage immigrants from elsewhere in the EU have been a lifeline to Britain’s public fiscus that are inevitably under-appreciated. With less European integration, labor mobility in the UK will decrease and these benefits from migration will shrink. The corollaries aren’t perfect, but look at a country like Japan where a rapidly aging population combined with a hard-line stance on immigration has caused their economy to stall for nearly three decades.

The second is a massive shock of financial outflows. Britain’s current account is a huge deficit. What this means is that they are consuming a lot more than they are producing. By virtue of an accounting identity, this means money from outside the country is coming in to make up for that shortfall. London has become a major financial hub for a variety of reasons, but it has almost certainty retained this position under the assumption that investors – from inside and outside the EU – can move this money seamlessly around Europe. If Continental Europe has different rules and shifting financial assets from the UK to Europe involves burdensome regulation, London is no longer an attractive place to invest. For many years, the UK was being supported by investors in commodity-producing countries. When commodity prices crashed in the middle of 2014, a lot of this money dried up, hurting Brits. With Brexit, even more money will move out of London…and quickly. Major banks have already announced future shifts of main headquarters to Amsterdam, Frankfurt, and Paris. If London can no longer get the financial resources to make up for Britain’s current account deficit, it will come at the expense of consuming less. In everyday people’s terms, this means that Britons will have much less disposable income, also known as a recession.

current-account-1980-600x449

Why Brexit will be bad geopolitically

After thousands of years of fighting wars and hating each other, Europe in the last century has been moving generally in a more integrated and peaceful direction. Project Europe as it stood before Brexit was already in a very delicate equilibrium. Countries that weren’t really friends suddenly had to share laws and sometimes the same currency, and allow people to freely cross borders. It took the United States 240 years to get where we are in terms of integration – and we fought a Civil War, have a common language, and our cultural differences are not nearly as vast as those between European countries. Whatever progress America has made to make all areas more “American” took a long time. In many ways, Europe has tried to do this process in half a century.

In this delicate equilibrium, there are only two steady states. One was more Europe – countries would have to sacrifice national sovereignty to make the union stronger. The other is less Europe – more power goes to individual countries at the expense of integration.  Brexit is a step in the direction of Less Europe. Brits have effectively voted to “take care of their own” rather than try to work through difficulties of multiculturalism and foreign economic competition.

To me, this is the greatest fear. A wave of populism has swept the higher-income world and people are turning inward. The world was becoming more peaceful, more integrated, and more multicultural. This new world order had its imperfections, so understandably there was pushback and the time has come for opposing forces to become more powerful. People are blaming outsiders of all dimensions (immigrants, the Chinese, The Rich, bankers, etc) and this is a recipe for decreased prosperity, increased nationalism, and less peace.

People are speaking of Brexit as a signal of what is to come in the Western world. Other countries are calling referenda, xenophobia is running rampant, and Do I Really Need to Mention the Republican Nominee? It’s hard to tell if these warnings are overstated. But I don’t want the world to have to take the risk.

Why Brexit will be bad for Brits’ autonomy

Economics isn’t everything and the liberal global order is not everyone’s cup of tea. A lot of the slacktivism being expressed by non-Britons since the referendum never seems to consider Britons’ desire to rule themselves and determine their own future. The European Union is in many ways a clunky bureaucracy with disproportionate power given to certain countries. Its inherent undemocratic nature also bothers some people (ummm, are they also complaining about the House of Lords?). If you felt a supranational institution was unfairly dictating rules for you, wouldn’t you be pissed off? Nonetheless, the belief that Britain leaving the European Union will lead to more autonomy for Brits is incorrect.

Although it remains to be seen what direction new leadership will take Britain in the context of Europe, many Brexit politicians and activists have suggested they’ll move to be integrated into Europe’s common market without formally being in the European Union. Switzerland and Norway do it, why can’t we? This is getting the goodies with no strings attached, in theory. This is unrealistic not only because I find it overly optimistic about how Continental Europeans will treat Britain in negotiations after this messy divorce. If Britain were to commit to political and economic arrangements made by the EU, they’d be doing so without a democratic voice in the process. This reminds me of Scottish independence supporters paradoxically thinking that they could be simultaneously more independent economically and use the pound as their currency (thus be subjected to a monetary policy over which they have no control as an independent country).

Rather than being a powerful voice in the first/second/third largest economy – the EU, depending on how you measure it – Britain will on its own be barely a top 10 economy. This means that it will have even less of a voice in international negotiations and thus likely less self-rule. I admit there’s a degree of uncertainty here: Leave activists argued that Britain can now make unilateral agreements with other countries and this isn’t impossible. But my best prediction is that overall Britain will now have less of a voice in world affairs than it did before. The most powerful countries that are still in the EU are not going to treat the UK nice to try to lessen the harm to Brexit…they are more likely to punish them to give a message to other countries that they shouldn’t even consider it.

Final Thoughts

There’s a lot to say on this topic – and I know native Brits have a lot more to say from a lifetime of experience compared to my ivory tower reading into it and four short years of living in a Scottish bubble. But I truly hope this isn’t the beginning of a global populist wave. And I weep for my British friends who woke up to see their country no longer a part of Europe.

 

 

If you’re one of the few people that reads this blog, listens to our podcast, and was not aware that we released an episode on the Euro Zone as a potential optimal currency union…here it is! 

 Just a note that this is a part of a larger project from the NYU Eurocrisis Discussion that will have more material in the near future.

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