A blog about business and economics.

June 28 2016 11:19 AM

The Weird Idea That Brexit Would Be Good for London

Thursday’s vote in England suggested Brexit was a referendum on the global elite; a rebuke of cosmopolitanism, globalization, and the postwar order. London, an island of strong Remain support, was marooned in a sea of Leave. Dispatches from the British hinterland confirmed the impression of Capital against Country. “In shorthand,” Peter Mandler wrote in Dissent, “Britain’s EU problem is a London problem."

In the immediate aftermath of the vote, it certainly seemed that wealthy London—a city of students, immigrants and tourists, corporate headquarters and creative industries doing business abroad, all thriving under the status quo—had been castigated by Britain. There was talk of banks relocating from the city to Dublin, Frankfurt, and Paris; anti-immigrant graffiti and attacks; and Londoners renouncing their country. As the U.K. voted to exit the established international system, London’s position as the world’s preeminent global city was diminished. The question was not whether London would suffer the consequences of Brexit, but how much it would suffer.

Easy to forget, amidst all this: Brexit’s most famous advocate, Boris Johnson, is the bicycle-commuting, subway-riding former mayor of London, who claimed that a well-managed Brexit was the best possible solution for the city itself. “If you want our great capital to be genuinely open to the world—rather than locked in and diminished by a failing EU system,” he wrote in The Evening Standard before the vote, “then go global, vote Leave, and take back control next week.” Brexit as vote may have been an expression of anti-London sentiment, but Brexit as policy hasn’t always been conceived that way.

Johnson and co. have long argued that London, the global metropolis, had more to lose from the bureaucratic tyranny of the European Union than from a well-managed departure.

June 27 2016 6:35 PM

The U.K.’s Credit Rating Was Just Downgraded. How Come Nobody Cares?

It's been a less-than-stellar day for the United Kingdom. Thanks to the Brexit vote, markets seem to be pummeling any company that so much as employs someone with a British accent. The pound kept falling. There was that football match. Meanwhile, both Standard & Poor's and Fitch downgraded the country's credit rating.

Much like England's defeat on the pitch Monday, the downgrades are mostly a blow to national pride, since actual investors don't really care much about what the agencies have to say when it comes to sovereign debt. Remember when S&P stripped the United States of its AAA credit rating? We probably deserved it after that whole debt-ceiling standoff, which temporarily called into question the full faith and credit of the U.S. Treasury. But Washington hasn't exactly had trouble borrowing money since. Likewise, in spite of warnings that downgrades were imminent, yields on 10-year British government bonds hit historic lows Monday. Britain may be about to blow a hole in its economy with this whole secession thing, but the markets still think lending to Her Majesty's Treasury is a safe bet in a scary world. Which makes sense. Britain controls its own currency, so even in the event of a severe, Brexit-fueled recession it shouldn't have any problem paying its debts. And though the pound sterling has lost a good bit of value since the referendum, it hasn't fallen enough to spark uncontrolled inflation, which could theoretically hurt bond investors.


The reason nobody feels especially concerned about whether large countries have a AA or AAA credit rating is that the agencies don't really have any special information or insight when it comes to sovereign credit. They're working with the same public data and news reports as the rest of us. Fitch can theoretically assign an analyst to look at the nitty-gritty details of a mortgage-backed security and come up with a valuable judgment on its likelihood of paying off. (In theory. In practice, as the financial crisis proved, their judgment isn't always that valuable.) With a whole country, though, they're pretty much licking their finger, putting it to the wind, and concluding, "Yeah, British politics look a little crazed right now." Just like everyone else who's been paying attention.

June 27 2016 5:57 PM

British Airways to Americans: Time to Put Those Strong Greenbacks to Use in London

In the long run, Brexit might not be great news for tourism in the United Kingdom.

More than 60 percent of inbound visitors to the U.K come from the European Union, and various E.U. initiatives—such as caps on cell phone roaming charges, or the European Health Insurance Card—have made it easy for the French, Germany and Italians to visit the E.U. (And for the Brits to flock to the Costa del Sol, of course.)

What's more, the hospitality industry in the U.K. is dependent on foreign labor. In London, nearly half of employees in the hospitality and food services sector are foreign-born. If the U.K. moves to roll back the E.U. agreement on the movement of foreign workers, Deloitte reports, U.K. hotels and restaurants could face higher employment costs—and might lose their investment they've made in training skilled foreign workers. That's to say nothing of the expected decline of general E.U. investment in the U.K., which accounts for 48 percent of the country's foreign direct investment.

In the shortterm however, the pound is low and it's time to go!

June 27 2016 2:19 PM

The Campaign Lie That’s Coming Back to Haunt Brexit Supporters

During the lead-up to last week's Brexit vote, one of the Leave campaign's favorite talking points was that the United Kingdom could save £350 million that it currently pays each week in membership dues to the European Union, and instead spend that money on things like funding the National Health Service. It splashed the message across its website and advertisements, including the very first billboard it unveiled.


Vote Leave

The campaign even emblazoned the argument on the side of a bus, which it used as a backdrop for  appearances by pro-Brexit politicians like Boris Johnson. By June, 78 percent of the British said they were familiar with the £350 million per week stat.


Christopher Furlong/Getty Images


There was a problem with that factoid, however: It was transparently untrue. Technically, the U.K. made a £19.1 billion gross payment to the EU budget in 2014, which works out to a bit more than £350 million weekly. But, thanks to Margaret Thatcher's hard-nosed negotiating in the 1980s, the country also gets a large rebate, worth about £4.9 billion, which never leaves Her Majesty's Treasury. The Brits also benefit from billions in assorted EU public sector subsidies. Count it all up, and the U.K.'s net contribution comes out to about £9.9 billion, just over half the total trumpeted by the Brexiteers. (The sum falls even further if you start factoring in things like the research dollars the EU provides to British universities.)

This has all left the “Leave” campaign in an awkward position since winning last Thursday's referendum, as supporters have found themselves trying to explain away the obvious fact that the British public, almost half of which believed the fake stat, was mislead. The trouble started with an appearance by U.K. Independence Party leader Nigel Farage on ITV, during which host Susanna Reid interrogated him over the issue:

Reid: The £350 million a week that we send to the EU, which we will no longer send to the EU, can you guarantee that’s going to go to the NHS?
Farage: No I can’t. And I would never have made that claim. And that was one of the mistakes I think the Leave campaign made.
Reid: Wait a moment. That was one of your adverts.
Farage: Well it wasn’t one of my adverts.

Farage went on to remind audiences that he had been more or less “ostracized” from the official “Leave” campaign—thus, he wasn't responsible for the ads—and that the U.K. would still have a nice, £10 billion “featherbed” to spend on things like the NHS and schools. This failed to appease Reid, whose righteous indignation helped the moment go viral. Since then, pro-Brexit politicians like Ian Duncan Smith and Chris Grayling have tried to point out that, if you read the fine print, the Leave campaign only promised to spend part of the money saved on EU membership dues on the NHS. “The specific proposal put forward by the Leave campaign was in fact to spend £100 million a week of that on the NHS,” Grayling told ITV. “I hope that aspiration will be met when we leave.”*

He isn't lying. The Leave campaign released just such a plan. And some politicians were in fact quite careful about their language regarding the £350 million before the referendum. While the U.K. gets back much of its membership dues, they argued, leaving would allow the country to “take back control” of the money. Rather than promise new cash, they promised new power over where that cash would be spent.

Unfortunately, none of that really explains away all those ads leaving the distinct and obviously untrue impression that Brexit would mean almost £20 billion a year for the NHS. The British press has started calling the effort to undo that implication—which may have included scrubbing the stat from the Leave campaign website—“operation backtrack.”

What's interesting about £350 million fabrication is just how inept it was. The Brexit campaign rested on a lot of half-truths and magical thinking, with its major supporters essentially arguing that, somehow or another, the U.K. would be able to withdraw from the European Union, then negotiate new trade deal giving it all the benefits of membership without any of the required sacrifices. But while that larger narrative might not have stood up to even the most casual interrogation, it's not immediately falsifiable, and doesn't necessarily make for easy gotcha moments on morning television the same way a faked stat does. Pointing to a pot of money that simply doesn't exist and claiming—or at least forcefully implying—that it will all go toward a beloved health system is the sort of easy-to-process lie that seems destined to blow up, eventually.

It's too bad the explosion didn't come before last week's vote.

*Correction, June 27, 2016: This post originally misquoted Grayling as saying the Leave campaign promised to spend only £100 a week.  

June 24 2016 6:06 PM

Young People Just Got Brexited by Their Parents

Unless the whole United Kingdom lines up for Brexit confessionalsThe Only Way Is Brexit, anyone?—we don’t have much, beyond geographical voting data, to help us understand the souls who just delivered this momentous political upheaval.

But one demographic trend seems clear: The decision to leave the European Union was taken by the U.K.’s older citizens, against the protests of its younger ones. The old left Europe; the young will live without it.

As journalist Nicholas Barrett put it in a Financial Times comment that made the rounds on Twitter this morning, “We will never know the full extent of the lost opportunities, friendships, marriages and experiences we will be denied. Freedom of movement was taken away by our parents, uncles, and grandparents in a parting blow to a generation that was already drowning in the debts of our predecessors.”

June 24 2016 4:18 PM

People Are Figuring Out Ways to Blame Obama for Brexit, Because of Course They Are

In a development that should surprise nobody, Donald Trump has found a way to blame President Obama for Thursday night's Brexit vote.

Or maybe blame is the wrong word. Trump is happy with the United Kingdom’s decision to bail on the EU, after all. Rather, the Republican candidate seems to think the referendum result proves that Obama is both incompetent and globally despised. Back in April, you see, the president visited 10 Downing St. and delivered a speech urging the British to vote “Remain.” “I was actually very surprised that President Obama were to come over here and he were to be so bold as to tell the people over here what to do," Trump said during a press conference Friday in Scotland, where he was visiting one of his golf courses. "If he had not said it, I think your result might have been different."


One could interpret this as a subtle dig at the British electorate. Given that Trump believes the U.K. made a wise choice Thursday night, he is implicitly suggesting that its people would have voted against their own best interests had Obama not clumsily intervened. Insulting as that idea may be, Trump isn't alone in believing it. Nigel Farage of the the far-right U.K. Independence Party has suggested pretty much the same thing. I'll leave it up to you whether this makes the theory that Brits cut off their noses in order to spite Obama's face more credible or less.

Interestingly, Trump isn't the only American who has tried to lay the Brexit vote at Obama's feet. Another theory comes to us from columnist and CNN talking head Josh Rogin:

Let us leave aside any arguments about Obama's handling of Syria. Like Trump's, this hot take has the advantage of being unverifiable, given that there was no official exit polling Thursday night. Moreover, it sounds at least vaguely plausible: Immigration was a driving force behind the Brexit movement, and some politicians, like Farage, did try to fan fears about refugees. But Britain's concerns about migrants predate the Syrian crisis, and much of the discussion about immigration during the campaign focused not on Middle Easterners but on the arrival of central Europeans, like the Polish. When the “Leave” campaign wanted to tap into anxieties about Muslims, meanwhile, its go-to move was to fearmonger about Turkey's possible accession into the EU. Tempting as it is to blame Obama as the root of all the world's misfortune, Rogin needs to work a little harder to prove it here.

June 24 2016 12:00 PM

David Cameron Has Secured His Place as One of the Worst Prime Ministers Ever

David Cameron may be the worst prime minister in modern British history. That dishonor is typically bestowed upon Neville Chamberlain, who ceded Czechoslovakia to the Nazis in 1938 and will forever be bound to the word appeasement. But poor Neville’s defenders can at least argue the man didn’t have many better options, since Britain wasn’t necessarily ready to take on Hitler’s forces in a war, and the time gained by sacrificing the Czechs allowed it to arm up. On the other hand, Cameron’s calamitous decision to allow a referendum on whether the U.K. should remain in the European Union—which unexpectedly ended in a vote to leave Thursday night—was a blunder entirely of his own making.

Cameron, who announced Friday that he will resign, did not want to leave the EU. For a long time, he didn’t even truly want a referendum on the issue. He felt compelled, however, to appease his party’s angry Eurosceptic faction in order to keep a firm hold on power. “At the 2015 general election Europe seldom featured in the top 10 of issues listed by voters among their principal concerns; Mr Cameron’s problem was that for some of his MPs it was the main reason they went into politics,” the Financial Times writes. And so Cameron promised to renegotiate the terms of Britain’s membership in the EU, and then put the question of whether to remain to a popular vote. Some of his fellow Tories, like Chancellor of the Exchequer George Osborne, thought it was an absurd gamble.* But the prime minister assumed that the British people would choose to stay and that he could put to rest the idea of secession once and for all.


Instead, the Brexit campaign became an outlet for the angry nativism of England’s aging working-class voters, impervious to fact or reasoned judgment. Now the world has to live with its consequences. And, as the terror in the markets and plunging value of the British pound should tell you, not many people outside England’s obscure suburbs and villages think the effects will be worth cheering. The U.K. is about to sever itself from a massive trade bloc, calling into question its own economic future, all while creating the specter that energized anti-European parties in other countries will push for their own secessionist referenda. The far right in the Netherlands and France are already celebrating. Nobody knows what the future holds, of course, but Europe’s tomorrow looks a lot bleaker than it did before this completely unnecessary vote.

Theoretically, Britain does not have to go through with this idiocy. The referendum is not legally binding. David Cameron doesn’t have to push his country off a cliff, just because voters thought it might be fun.

But he seems determined to do so anyway. “The will of the British people is an instruction that must be delivered,” he said during his resignation speech Friday. He might as well have quoted H.L. Mencken, who wrote, “Democracy is the theory that the common people know what they want, and deserve to get it good and hard.”

But then again, there’s a reason developed democracies don’t typically make world-historic decisions by referendum. Voters are fickle. They make decisions in the heat of the moment and change their minds quickly. Twitter has been filled on Friday with stories of regretful “Leave” voters waking to realize that they’d made a mistake, that they’d never believed Brexit would actually prevail. The final count in a single election can be influenced by freak accidents or the weather; on Thursday, storms flooded much of southeast England and turned London’s evening commute into an unholy mess as trains were delayed and canceled, which surely cost the “Remain” side some votes. If the result of the Brexit goes poorly, there isn’t necessarily anybody to hold accountable—a country can’t vote itself out of office. That’s all fine if the results of a popular vote are reversible, if you’re deciding on whether to legalize marijuana or cap property taxes. But when they’re not? Perhaps its better to leave the decision-making to the people elected to do so. You wouldn’t put a war up to a popular up or down vote, since you can’t unfire the first shot. The decision to leave Europe forevermore shouldn’t have been any different.

You also have to ask: Whose will is being represented? The “Leave” campaign relied largely on the votes of aging English people—those younger than 50 generally preferred to remain in the EU. Of course, older people are typically more enthusiastic about voting. But should the rash decision-making of Britain’s senior citizens really be the factor that decides whether a child born today will get to be a citizen of Europe, whether someone who graduates college in a couple years can work in 27 other countries, or just one?

According to Cameron, it should. Which is why historians will throttle him.

*Correction, June 24, 2016: This post originally misidentified George Osborne as the counselor of the exchequer. He is the chancellor of the exchequer.

June 24 2016 9:27 AM

The Brexit Just Gave Us Global Financial Turmoil, Just as “Remain” Supporters Warned

A political gambit dreamed up by David Cameron in a pizza place at Chicago-O’Hare Airport is producing one of the worst days in the history of financial markets.

A narrow victory for Brexit will see the United Kingdom out of the European Union, ending a fifty-year period characterized by progressive steps towards financial and political union on the continent.

June 24 2016 8:23 AM

Will Texas Law Trip up a $10 Billion High-Speed Rail Project?

In the heady days of his first term, President Obama dreamed of a series of high-speed rail lines in the US, and included $8 billion in the 2009 stimulus package for that purpose. Seven years later, GOP governors in Wisconsin, Ohio and Florida have all rejected the money. Only California seems poised to develop public high-speed rail, which won’t be complete for more than a decade. Florida has a private passenger rail line under construction, but its 125 mph max speed does not hold up to global HSR standards.

The best hope for true high-speed rail in the United States is in Texas, between two cities where hardly anyone travels without a car.

June 24 2016 12:15 AM

The U.K. Voted “Leave,” and We Are Truly in Uncharted Waters

And the Brexit campaign has won. Both the BBC and ITV have called the United Kingdom’s referendum on whether to secede from the European Union in favor of the “Leave” campaign, defying early polls that suggested the country would choose to stay and sending financial markets into tumult.

We are truly in uncharted waters. No country has ever left the EU before. Already, some are questioning whether members of Parliament will even approve the vote since, as the BBC has noted, it is technically nonbinding. At the moment, however, most seem to be working from the assumption that the British government will honor the referendum’s results and begin the process of withdrawing from the union. Investors have reacted harshly; the value of the pound has already collapsed by about 10 percent to lows not seen in more than 30 years. U.S. stock futures are falling fast.


In many ways, the vote broke down as expected, with Scotland and the districts in and around London voting to remain, and much of the rest of England voting to leave. Turnout, however, was generally higher in pro-Brexit districts, which seemed to make the difference. As is so often the case in Britain, and so many other parts of the developed world now, the cosmopolitan financial center found itself at odds with working-class districts that have fared poorly in a post-industrial economy. And this time those poorer, working-class cities and towns won out.

What will this mean for Europe? It’s hard to say. For the first time in more than six decades, since France and Germany began a common market for coal and steel, the process of European integration has been thrown significantly into reverse. And it’s thanks to a vote driven in large part by fears over immigration, as well as concerns about national sovereignty. Perhaps this referendum will force the EU to address the issues that have alienated so many working-class Europeans—but it’s hard to imagine how they might. The eurozone has largely failed as a currency bloc during the post-financial crisis years because Europe hasn’t been integrated enough. Now, the world’s fifth-largest economy has declared that it was already integrated too much. And there’s a palpable fear that Eurosceptic forces in other countries will follow the U.K.’s lead and demand their own referendums. Should Brussels push for an even closer union, as its technocrats would like, the backlash could come harder and faster.

Is this the beginning of the end for Europe? Not necessarily. But it’s the end of a chapter—of an uninterrupted move to ever-closer union. And the world is frightened, because nobody knows what that means.