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Evans-Pritchard, McWilliams, and Luntz on the Implications of Brexit

June 15, 2016

In the wake of Orlando, I feel somewhat ambivalent about dragging us back to the world of economics. As I write this note, it is still unclear what the reaction of the country will be to the largest shooting massacre ever on US soil. Everywhere I turn, it seems that people are trying to spin this in one direction or another, always filtered through their own worldviews.

My friend David Kotok of Cumberland Advisors frequently offers common-sense commentary on a wide variety of topics, and he sent out his observations on the recent tragedy with a good summary of the rather stark and unpleasant choices in front of the American people. We are using drones to kill American citizens in Yemen. The surveillance of Americans is already intense. The terrorist in Florida was a homegrown American citizen and had already been investigated twice by the FBI. You can read David’s commentary here. This event has major implications for surveillance and what will pass for privacy in the future. Guaranteed to make Baby Boomers uncomfortable.

But moving on, for your Outside the Box reading today I bring you something I never expected to see: Ambrose Evans-Pritchard, writing in his regular Telegraph column that he is going to vote for leaving the EU, that is, for Brexit. Ambrose is unabashedly pro-European, while being very critical of the European Commission and the way Brussels runs things; but he is also a patriotic British citizen (who mostly lives in France, I think). His access to the inner circles of Europe is amazing and leaves me a tad jealous. His explanation as to why he will vote to leave the EU doesn’t focus on the usual rhetoric (which I think he probably disdains). Rather it is a thoughtful analysis of the role of nation states and the significance of national sovereignty.

He leads off like this:

With sadness and tortured by doubts, I will cast my vote as an ordinary citizen for withdrawal from the European Union.

Let there be no illusion about the trauma of Brexit. Anybody who claims that Britain can lightly disengage after 43 years enmeshed in EU affairs is a charlatan or a dreamer, or has little contact with the realities of global finance and geopolitics.

I will let the rest of his column stand on its own. I think you will find it thought-provoking, with implications for all of Europe and the US.

It is really hard to overstate the importance of the upcoming Brexit vote next week. Right now “Leave” seems to have a substantial lead in the polls; but as Brent Donnelly pointed out this morning, the leave vote when Québec was deciding whether to abandon Canada and the leave vote when Scotland was deciding whether to part company from the United Kingdom were both ahead in the polls right till the very end. It seems that on big, close decisions we end up opting (if barely) for the known rather than leaping into the unknown.

I don’t think the real economic impacts of Brexit would come immediately, but there could be seismic shifts before the year is out. However, the most important consequence could be “contagion” spreading to the rest of Europe. France has already made it clear that it would seek to make the new economic reality for the UK as difficult as possible in order to discourage any more countries from leaving. But given that 90% of the respondents in a recent Dutch poll stated that they wanted to have their own referendum; that Austria came within 1% of electing a far-right candidate in its recent presidential election; that right-wing National Front leader Marine Le Pen is an increasingly strong candidate for president of France next year; that Rome is on the verge of electing a mayor aligned with Beppe Grillo’s Five-Star Movement; that Germany, too, is having second thoughts about the EU – and on and on – I think there is plenty of impetus to the idea that there is a rebellion of the “unprotected” class against the establishment in country after European country.

In fact, that may be the new political divide: establishment versus anti-establishment. We’ve seen this phenomenon before in history, and it is generally not accompanied by order and tranquility. Neil Howe demonstrated at my conference that we are in the last half of what he calls “the Fourth Turning,” and he stated that the coming strife and chaos will be more than we have seen in the last eight years; so this divide is not just a passing phenomenon. It resonates with events that have happened roughly every 80 years in the Anglo-Saxon and European world for the last 400 years. (You would have to read Neil’s books and/or listen to his speeches to get the full import of what he’s saying. I personally think the lessons he imparts are profound.)

I want to offer you two links that I think you should follow up with after you read Ambrose’s piece. The first takes you to my Irish friend David McWilliams, who writes the most-read economics column in Ireland. We don’t see eye to eye on economics, but I value his insights into what’s happening in Ireland and Europe. He has a different perspective because he works hard at maintaining his connections to the “street,” more than to the elite. He wrote a recent column on the implications of Brexit for Northern Ireland. He also agrees with me that, post-Brexit, it is very possible that Scotland would demand another independence referendum and vote to stay in the EU. (The Scots are heavily pro-European in the polls.)

Without its natural ally Scotland, would Northern Ireland stay British? As McWilliams writes, Northern Ireland would have been far better off joining Ireland from an economic standpoint, as Ireland has grown from being economically dominated by Belfast to massively outperforming Northern Ireland in recent times. Stay or leave breaks down along religious lines in Northern Ireland, as almost everything else seems to. Who knew there was a Catholic or Protestant position on whether to participate in a European political union?

Then I will point you to what pollster Frank Luntz reveals about his own British polls and numerous focus groups. He wrote a column in Time magazine highlighting the implications of his research.

The Brexit question represents the political conflict rapidly spreading across the globe: Do hardworking, taxpaying citizens fundamentally trust or reject half a century of globalization, integration and innovation? Have the promises of the political and economic elite helped improve their daily lives? Or is it time for a rethinking and redrawing of our political and economic systems from the ground up?

That’s why the majority of British voters’ heads may be with Remain, but their hearts are with Leave – and those hearts are winning out in these final days before the vote.

I think Luntz is worth reading because he is tapping into a sentiment that is now global, and what he talks about in Britain is to some degree the same thing we’re seeing all across Europe and the US. Those of us who have been mired in the traditional left/right view of the world are going to have to change the lenses on our mental cameras. Maybe Donald Trump is right. In 4-8 years the Republican Party may be seen as the workers’ party and have a completely different mix than it has today.

Political alignments shift and sometimes massively. In fact, that happened during the last Fourth Turning, in the 1930s. Just saying…

I will repeat both of those links for your convenience at the conclusion of Ambrose’s column.

This all reminds me of a dinner I had about three years ago with George and Meredith Friedman at their home in the hill country south of Austin. It was cool enough to sit outside, and those dinners tended to last a few hours because of the intensity of the conversation. George and I can riff off each other for hours at a time.

George was in the middle of writing his powerhouse book on Europe, and I had just finished Code Red, in which I dwelt a great deal on the economic pressures in Europe. I argued that Europe would either have to form a fiscal union and mutualize national debts or there would be a breakup. I thought the political elite might force through a fiscal union.

George, not untypically, disagreed. “Europe will break up, but it will be over immigration and nationalism, not merely economic concerns.” Remember, this was three years ago. And so what do we see today? For many people, the main issues in Brexit are immigration and what Luntz terms “survival” issues.

Citizens are asking: “Do our current policies help, or hurt, the goal of preserving and protecting our pensions, benefits and NHS?” Translation: with the flood of immigrants, asylum-seekers and refugees into Europe, a majority of Brits are crying out, “Enough.” … With Europe in perceived decline, why hitch our future to a sinking ship? [Luntz]

More than one observer has characterized the coming election in Britain as a canary in the coal mine. The outcome is clearly too close to call with any certainty. The polls say one thing and the betting parlors say another. Whatever the result, you can bet that the sentiments being expressed by the Leave camp are not going to go away anywhere in the world anytime soon. And that you can take to the bank.

Well, it looks like I’m going to Cleveland. Golden State failed to close out the NBA Finals at home when Lebron James & Co. decided to show up and take control. Finally. So tomorrow I will be getting on a plane to fly to Cleveland to sit in box seats down at the front with my friend and doctor Mike Roizen, who is an insanely avid Cleveland Cavs fan. Having gone to NBA games for 34 years in Dallas, I know the intensity of the finals and especially games six and seven. There is really nothing else like it in the United States. It has its equal in soccer elsewhere in the world, but soccer is played in a huge stadium while basketball is played in an enclosed arena where the noise level and intensity are electrifying. I get to watch two of the greatest players of this generation, LeBron James and Stephen Curry, go at it, aided by the enormous talent that surrounds them both. Thus I find I must break my intention to stay in Dallas until I finish my book, in order to seize this once-in-a-lifetime opportunity.

We’ve had a huge pot of beans and hamhock’s cooking since early this morning, so I’m going to get a little fiber in my life. (Okay, maybe we added a little bacon, just for flavor…) It’s funny how much I like beans, because growing up I got really tired of them. We ate them because they were filling and cheap – and my family certainly did not qualify as middle-class. I rather imagine we were in the bottom quintile, at best. But growing up in the country, you didn’t notice the social and economic differences in the nation at large. When I was in junior high school and we moved to the Dallas suburbs, I began to notice the differences; but by then I was working at least two jobs a day, so I had walking-around money and could buy the clothes and other stuff I needed. But we still ate beans, and I only stopped eating them when I left home. It has only been in the last few years, as Shane has started cooking large crockpots of them, that I have come to realize that I really do like them. Once again they are a staple in my life. You have a great week.

Your wondering how the Brits will vote analyst,

John Mauldin, Editor
Outside the Box

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Brexit vote is about the supremacy of Parliament and nothing else: Why I am voting to leave the EU

By Ambrose Evans-Pritchard
Originally published in The Telegraph, June 13, 2016

With sadness and tortured by doubts, I will cast my vote as an ordinary citizen for withdrawal from the European Union.

Let there be no illusion about the trauma of Brexit. Anybody who claims that Britain can lightly disengage after 43 years enmeshed in EU affairs is a charlatan or a dreamer, or has little contact with the realities of global finance and geopolitics.

Stripped of distractions, it comes down to an elemental choice: whether to restore the full self-government of this nation, or to continue living under a higher supranational regime, ruled by a European Council that we do not elect in any meaningful sense, and that the British people can never remove, even when it persists in error.

For some of us – and we do not take our cue from the Leave campaign – it has nothing to do with payments into the EU budget. Whatever the sum, it is economically trivial, worth unfettered access to a giant market.

We are deciding whether to be guided by a Commission with quasi-executive powers that operates more like the priesthood of the 13th Century papacy than a modern civil service; and whether to submit to a European Court of Justice (ECJ) that claims sweeping supremacy, with no right of appeal.

It is whether you think the nation states of Europe are the only authentic fora of democracy, be it in this country, Sweden, the Netherlands, or France – where Nicholas Sarkozy has launched his presidential bid with an invocation of King Clovis and 1,500 years of Frankish unity.

My Europhile Greek friend Yanis Varoufakis and I both agree on one central point, that today’s EU is a deformed halfway house that nobody ever wanted. His solution is a great leap forward towards a United States of Europe with a genuine parliament holding an elected president to account. Though even he doubts his dream. “There is a virtue in heroic failure” he said.

I do not think this is remotely possible, or would be desirable if it were, but it is not on offer anyway. Six years into the eurozone crisis and there is no a flicker of fiscal union: no eurobonds, no Hamiltonian redemption fund, no pooling of debt, and no budget transfers. The banking union belies its name. Germany and the creditor states have dug in their heels.

Where we concur is that the EU as constructed is not only corrosive but ultimately dangerous, and that is the phase we have now reached as governing authority crumbles across Europe.

The Project bleeds the lifeblood of the national institutions, but fails to replace them with anything lovable or legitimate at a European level. It draws away charisma, and destroys it. This is how democracies die.

“They are slowly drained of what makes them democratic, by a gradual process of internal decay and mounting indifference, until one suddenly notices that they have become something different, like the republican constitutions of Athens or Rome, or the Italian city-states of the Renaissance,” says Lord Sumption of our Supreme Court.

It is a quarter century since I co-wrote the leader for this newspaper on the Maastricht summit. We warned that Europe’s elites were embarking on a reckless experiment, piling Mount Pelion upon Mount Ossa with a vandal’s disregard for the cohesion of their ancient polities.

We reluctantly supported John Major’s strategy of compromise, hoping that later events would “check the extremists and put the EC on a sane and realistic path.”

This did not happen, as Europe’s Donald Tusk confessed two weeks ago, rebuking the elites for seeking a “utopia without nation states” and over-reaching on every front.

“Obsessed with the idea of instant and total integration, we failed to notice that the citizens of Europe do not share our Euro-enthusiasm,” he said.

If there were more Tusks at the helm, one might still give the EU Project the benefit of the doubt. Hard experience – and five years at the coal face in Brussels – tells me others would seize triumphantly on a British decision to remain, deeming it submission from fear. They would pocket the vote. Besides, too much has happened that cannot be forgiven.

The EU crossed a fatal line when it smuggled through the Treaty of Lisbon, by executive cabal, after the text had already been rejected by French and Dutch voters in its earlier guise. It is one thing to advance the Project by stealth and the Monnet method, it is another to call a plebiscite and then to override the outcome.

Need I remind readers that our own government gave a “cast iron guarantee” to hold a referendum, but retreated claiming that Lisbon was tidying up exercise?  It was no such thing. As we warned then, it created a European supreme court with jurisdiction over all areas of EU policy, with a legally-binding Charter of Fundamental Rights that opens the door to anything.

Need I add too, that Britain’s opt-out from the Charter under Protocol 30 – described as “absolutely clear” by Tony Blair on the floor of the Commons – has since been swept aside by the ECJ.

It is heartening that our judges have begun to resist Europe’s imperial court, threatening to defy any decision that clashes with the Magna Carta, the Bill of Rights, or the core texts of our inherited constitution. But this raises as many questions as it answers.

Nobody has ever been held to account for the design faults and hubris of the euro, or for the monetary and fiscal contraction that turned recession into depression, and led to levels of youth unemployment across a large arc of Europe that nobody would have thought possible or tolerable in a modern civilized society. The only people that are ever blamed are the victims.

There has been no truth and reconciliation commission for the greatest economic crime of modern times. We do not know who exactly was responsible for anything because power was exercised through a shadowy interplay of elites in Berlin, Frankfurt, Brussels, and Paris, and still is. Everything is deniable. All slips through the crack of oversight.

Nor have those in charge learned the lessons of EMU failure. The burden of adjustment still falls on South, without offsetting expansion in the North. It is a formula for deflation and hysteresis. That way lies yet another Lost Decade.

Has there ever been a proper airing of how the elected leaders of Greece and Italy were forced out of power and replaced by EU technocrats, perhaps not by coups d’etat in a strict legal sense but certainly by skulduggery?

On what authority did the European Central Bank write secret letters to the leaders of Spain and Italy in 2011 ordering detailed changes to labour and social law, and fiscal policy, holding a gun to their head on bond purchases?

What is so striking about these episodes is not that EU officials took such drastic decisions in the white heat of crisis, but that it was allowed to pass so easily. The EU’s missionary press corps turned a blind eye. The European Parliament closed ranks, the reflex of a nomenklatura.

While you could say that the euro is nothing to do with us, it obviously goes to the character of the EU: how it exercises power, and how far it will go in extremis.

You can certainly argue from realpolitik that monetary union is so flawed it will lurch from crisis to crisis until it ruptures,  in the next global downturn or the one after that, and will therefore compel the European elites to abandon their grand plans, so why not bide our time. But this is to rely on conjecture.

You can equally argue that the high watermark of EU integration has passed: the Project is in irreversible decay.  We are a long way from the triumphalism of the millennium, when the EU was replicating the structures of the US federal government, with an EU intelligence cell and military staff in Brussels led by nine generals, and plans for a Euro-army of 100,000 troops, 400 aircraft and 100 ships to project global power.

You can argue too that the accession of thirteen new countries since 2004 – mostly from Eastern Europe – has changed the chemistry of the EU beyond recognition, making it ever less plausible to think of a centralized, close-knit, political union. Yet retreat is not the declared position of the Five Presidents’ Report, the chief blueprint for where they want the EU Project to go. Far from it.

In any case, even if we do not go forward, we may not go backwards either. By design it is almost impossible to repeal the 170,000 pages of the Acquis. Jean Monnet constructed the EU in such way that conquered ground can never be ceded back, as if were the battleground of Verdun.

We are trapped in a ‘bad equilibrium’, leaving us in permanent friction with Brussels. It is like walking forever with a stone in your shoe. 

But if we opt to leave, let us not delude ourselves. Personally, I think the economics of Brexit are neutral, and possibly a net plus over 20 years if executed with skill. But it is nothing more than an anthropological guess, just as the Treasury is guessing with its cherry-picked variables.

We are compelled to make our choice at a treacherous moment, when our current account deficit has reached 7pc of GDP, the worst in peace-time since records began in 1772 under George III. 

We require constant inflows of foreign capital to keep the game going, and are therefore vulnerable to a sterling crisis if foreigners lose confidence.

I am willing to take the calculated risk that our floating currency would act as a benign shock absorber – as devaluation did in 1931, 1992, and 2008 – but it could be a very rough ride. As Standard & Poor’s warned this week, debts of UK-based entities due over the next 12 months amount to 755pc of external receipts, the highest of 131 rated sovereign states. Does it matter? We may find out.

The Leave campaign has offered no convincing plan for our future trading ties or the viability of the City. It has ruled out a fall-back to the European Economic Area, the “Norwegian” model that would preserve – if secured – access to the EU customs union and preserve the “passporting” rights of the City.

The EEA would be a temporary haven while we sorted out our global trading ties, the first step of a gradual extraction. The Leavers have not embraced this safe exit – or rather, less dangerous exit – because it would mean abandoning all else that they have pledged so promiscuously, chiefly the instant control of EU migrant flows.

By this fourberie they have muddied the water, conflating constitutional issues and with the politics of immigration. We risk a Parliamentary crisis and shrieks of betrayal if the Commons – discerning the national will – imposes the EEA option on a post-Brexit government, as it may have to do.

We leave Ireland in the lurch, at risk of an economic shock that it did nothing to provoke. Those Leavers who chatter cavalierly of resiling from the (non-EU) European Convention of Human Rights should be aware that the Good Friday peace accords are anchored in that document, and if they do not understand why it matters that just 12pc of Ulster Catholics support Brexit, they are not listening to Sinn Fein.

However unfair it may seem, the whole Western world deems Brexit to be an act of strategic vandalism at a time when Pax Americana is cracking and the liberal democracies are under civilizational threat.

Without rehearsing well-known risks, we have a Jihadi cauldron across much of the Levant and North Africa; Vladimir Putin’s Russia has ripped up the post-War rule book and is testing Nato every day in the Baltics; China’s construction of airfields along international shipping routes off the Philippines is leading to a superpower showdown with the US.

The Leave campaign was caught off guard when Barack Obama swept into London to make it the US view brutally clear, followed by Japan’s Shinzo Abe, and a troop of world leaders. You do not unpick the web of interlocking global ties lightly.

One hopes that Brexiteers now understand what they face, and therefore what they must do to uphold British credibility if they win. We must be an even better ally. But by the same token, the people of this country have every right to take this one chance to issue their verdict on four decades of EU conduct.

To those American friends who ask why we cavil at compromises with Europe when we “pool sovereignty” – an inaccurate term – with scores of bodies from NATO to the United Nations, the answer is that the EU is not remotely comparable in scale, ideology, or intent to anything else on this planet.

Remainers invoke Edmund Burke and the doctrine of settled practice, but settled is the one thing the EU has not been in its irrepressible itch for treaties and its accretion of power, and Burke is a double-edged sword. 

He backed the American Revolution, not to create something dangerously daring and new, but rather to restore lost liberties and self-government, the settled practice of an earlier age. Americans of all people should understand why a nation may wish to assert its independence.

This is my decision. It may go against my own interest, since I hope to live out part of my remaining years in France – though countless Britons lived there contentedly in 19th Century before we ever had such a thing as the European Union, and no doubt will continue to do so long after it is gone.

I urge nobody to follow my example. It ill behoves anyone over 50 to exhort an outcome too vehemently. Let the youth decide. It is they who must live with  the consequences.


Again, here are the links to David McWilliams’ column on the implications of Brexit for Northern Ireland and to Frank Luntz’s column in Time magazine.

Discuss This


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Larry English

June 16, 2016, 11:55 p.m.

Provocative and enlightening.  The EU has not turned out to be anything resembling a U.S.E. nor could it ever have been in such a world of established nation-states.  Economic federalism commando-style was doomed, given history and the nature of nations and their citizens.  Lingering longer is a recipe for disaster later on - ignoring the cancer dooms the patient.  Leave will create huge problems for government and economic institutions in and around England (e.g. N. Ireland and Scotland and US) but solving problems is the job not to be shunned.  Believing that Brussels could solve those problems never made sense and now, with their unilateral paternalistic (and economically obsolete) rules and demands, such belief has become a lit fuse that needs to be extinguished.  The politicians supporting Remain are hoping for a stability that has all but disappeared - it’s time for hard choices and tough but thoughtful politicians.  God help us.


June 16, 2016, 7:38 a.m.

“I bring you something I never expected to see: Ambrose Evans-Pritchard, writing in his regular Telegraph column that he is going to vote for leaving the EU, that is, for Brexit.”

John, I would like to implore you to learn why you are so surprised by news such as this.  Why you thought, at first, that it was “brilliant” that Merkel was going to bring in millions of muslims into Germany. After all, it would help with their coming labor shortage. Then there was Cologne on New Years et al.

There is a huge blind spot in your world view that would be beneficial to you, and us, if you would eliminate it.

mike bass

June 15, 2016, 6:28 p.m.

for once I agree with John Mauldin.  It is time for california to suceed from the union in order to remove the financial drain and ignorance of science of the neo-confederacy.