Why has the US resisted Trump but the UK acquiesced to Brexit?

This post is a response to a provocative piece by Anatole Kaletsky. He writes

“While the US has taken only 100 days to see through Trump’s “alternative reality” (though perhaps not through Trump himself), almost nobody in Britain is even questioning the alternative reality of Brexit.”

In other words, although both the US and UK succumbed to right wing populism, the US is strongly resisting while the UK has given up doing so. He contrasts the reaction of business to Trump and Brexit. “US businesses started lobbying immediately to block any Trump policies that threatened their economic interests” which has “removed Trump’s main protectionist threat.” In contrast “no major British companies have tried to protect their interests by campaigning to reverse the Brexit decision. None has even publicly pointed out that the referendum gave Prime Minister Theresa May no mandate to rule out membership of the European single market and customs union after Britain leaves the EU.”

One reaction that many will have is that while US elections are 4 year affairs, a referendum was meant to be ‘for a generation’. If the Leave vote had been 60% or more, I might have some sympathy with this view. But the narrow victory coupled with uncertainty about what Brexit actually entails means that the argument for a vote after negotiations conclude is compelling. But only around 30% of people support being allowed a second vote. In contrast, currently 56% of US voters disapprove of Donald Trump.

You could say this is because Donald Trump has done plenty of things for US voters to get angry about, whereas Brexit has not happened. I would put the point rather differently. The problems with Trump are visible to everyone. You just need to read his tweets! The costs of Brexit are economic and less clear to everyone. For example the depreciation immediately after Brexit was very visible, but you needed some knowledge of economics to know that this would mean lower living standards for everyone living in the UK.

This gets translated into how each are handled in the media. The New York Times and the Washington Post are in the front line against Trump, while if you want information on how Brexit is damaging the economy you will find plenty of it in the Financial Times. But that negative news does not normally make it into the broadcast media, because the broadcast media has decided that the Brexit debate is over. The reason it has done that is the real reason why the UK appears to have given in to Brexit, which is the Labour party.

It is difficult to get ideas discussed in a sustained way in the broadcast media unless one of the two major political parties is pushing it (see, for example, opposition to austerity before Corbyn). In contrast to the Democrats, who have been unified in their opposition to Trump, Labour have accepted Hard Brexit. It would be unfair to dump the whole responsibility for Labour’s Brexit U-turn on Jeremy Corbyn. Many Labour MPs pushed in the same direction because they thought it would gain them votes: austerity appeasement all over again. I think a strong leader who believed in EU membership could have overcome that, but Corbyn’s preferences were different.

As a result, we have had a general election supposedly about who will be best at negotiating Brexit without any discussion of Brexit itself. Despite the LibDems best efforts, there has been no discussion of all the events since the referendum which indicate bad times ahead, as outlined by Ian Dunt. There has been endless discussion about how taxes and spending might change under Labour or the Conservatives, but none about the elephant in the room: the cuts or tax increases that Brexit and lower immigration will require. There is a hope, expressed by Bill Keegan, that today’s vote may lead to a hung parliament, which in turn might just lead to a second referendum, but it is a very slim hope.

It may also be the only hope. George Eaton may well be right that Labour’s decision to back a Hard Brexit has helped them in this election. The danger is that Labour will draw the lesson that this will be true in 2022 as well, and their new leader (if there is a new leader) will also commit to hard Brexit. Again the austerity mistake will be repeated: assuming the electorate's attitudes will remain unchanged. If that happens, we may well see in four years time a rejuvenated US with a Democrat in the White House and Republicans routed because of their association with Trump, but a UK entering a long period of relative decline and isolation because it gave in to right wing populism. 

The wheels on the bus

I have an image in my mind. Its a bus running downhill, and its brakes have failed. There are four men in the front cab. The two men in the middle are both trying to control the steering wheel to keep the bus on the road. The man to their right has control of the accelerator, and is pushing on the gas hoping this will crash the bus to the right. The fourth man to their left controls nothing, but as his pleas to stop pressing the accelerator fall on deaf ears, he begins to wonder whether it would be better for the passengers to grab the wheel and crash the bus to the left. The three other drivers do not agree on very much, except that it is all the fault of the guy on the left, and now appear to be thinking about throwing him off. As the bus hurtles downhill swerving from side to side, its passengers are battered, some injured, and a few are jumping off.

I do not need to explain the symbolism. I tried to change the image to explain why the man on the right refuses to stop pressing on the accelerator of growing primary surpluses, but gave up because the real reason is that he wants to crash the bus anyway. (The argument that the Eurozone’s rules do not allow debt write-offs is just nonsense.) Otherwise I think the image works well. The two men in the centre represent Tsipras and maybe Hollande. Hollande is saying that if only you would let me have the wheel (‘structural reform’) all would be well, but in truth the main reason the passengers are being injured (unemployment and welfare cuts) or are jumping (migration) is the speed of the bus.

The central question is whether the men in the middle are delusional. By keeping the Greek economy on the road that is the Eurozone are they only going to prolong the agony with the same inevitable crash which is Grexit?

There is only one reason for optimism that I can see, although it assumes yet further reductions in Greek living standards. The hill the bus is travelling along will begin to flatten out and the road might even start to rise as Greece becomes more competitive in terms of price. I outlined here why that has not yet boosted the Greek economy to the extent it has in Ireland, but if unemployment remains at or above 25% Greece should get even more competitive. Instability and unwise Troika interventions may delay the process, but eventually the tourists will come. The Eurozone does contain a natural correction mechanism: it is just slow and painful.

If this does eventually lead to sustained growth in Greece, it does not excuse what has gone before: recoveries do not justify recessions, and government profligacy does not have to imply a 25% fall in GDP! However this correction mechanism is not bound to succeed, if it is countered by another dynamic, which is one that has been and continues to be imposed by the Troika. That dynamic is austerity chasing primary surpluses when that austerity makes the economy shrink. Macromodels would probably tell us which dynamic will win out, but they will not factor in a deterioration in the financial position of banks (already not good as Frances Coppola points out) as the economy stagnates, and the deteriorating social and political situation that austerity brings.

So the eventual outcome still depends on the decisions of the Troika. It always has of course. The truth that their apologists find so uncomfortable is that the Troika has been in charge of the economy since 2010, and therefore is responsible for the mess we are now in. The idea that all would be well if only Greece had undertaken every item of structural reform they specified (and a lot was done) is just silly. Now it appears as if it is all the fault of the former Greek finance minister, because he dressed funny, or kept wanting to talk about economics, or did some contingency planning - it is so absurd you couldn’t make it up.

One ray of hope offered by Anatole Kaletsky is that now “ritual humiliation” has been achieved, the Troika will be more forgiving. I wish he was right, but this argument fails to account for the German finance minister who clearly believes that exit is the best option. He wants the bus to crash for the sake of the other cars on the road. An optimistic view would be that the shock [1] of what was done to Greece a few weeks ago will bring others to their senses, and Schäuble’s influence on the Eurogroup (and strangely the IMF) will decrease. I fear the larger truth is that the non-German bloc in the Eurozone does not have an alternative economic vision to offer (although it clearly exists), and will never face Germany down.

[1] Link added 31/07