Low vol strategies
8 May 2020
Of Julia and R
8 May 2020
How to manipulate risk forecasts 101
30 April 2020
The five principles of correct riskometer use
27 April 2020
The problem with Backtesting
25 April 2020
The magic of riskometers
24 April 2020
Risk and scientific socialism
23 April 2020
Financial crises and epidemics
19 April 2020
Hayek and Corona
17 April 2020
Hayek et Corona
17 April 2020
Ignoring the Corona analysis
15 April 2020
The coronavirus crisis is no 2008
26 March 2020
Artificial intelligence as a central banker
6 March 2020
Systemic consequences of outsourcing to the cloud
2 December 2019
The dissonance of the short and long term
12 August 2019
Central banks and reputation risk
6 August 2019
The Brexit culture war
5 May 2019
All about BoB — The Bank of England Bot
29 April 2019
My tiny, tiny contribution to Apple's fall in profits
6 January 2019
The 2018 market in a 250 year context
1 January 2019
Short and long-term risk
3 December 2018
Perceived and actual risk
2 December 2018
Cryptocurrencies: Financial stability and fairness
9 November 2018
The October 2018 stock market in a historical context
1 November 2018
The hierarchy of financial policies
12 September 2018
Which numerical computing language is best: Julia, MATLAB, Python or R?
9 July 2018
Cryptocurrencies
26 June 2018
What are risk models good for?
3 June 2018
The McNamara fallacy in financial policymaking
1 June 2018
VIX, CISS and all the political uncertainty
20 May 2018
Here be dragons
30 March 2018
Low risk as a predictor of financial crises
26 March 2018
Cryptocurrencies don't make sense
13 February 2018
Yesterday's mini crash in a historical context
6 February 2018
Artificial intelligence and the stability of markets
15 November 2017
European bank-sovereign doom loop
30 September 2017
Do the new financial regulations favour the largest banks?
27 September 2017
The ECB Systemic Risk Indicator
24 September 2017
Finance is not engineering
22 September 2017
University of Iceland seminar
14 June 2017
Brexit and systemic risk
31 May 2017
Should macroprudential policy target real estate prices?
12 May 2017
Learning from history at LQG
13 April 2017
Is Julia ready for prime time?
12 March 2017
With capital controls gone, Iceland must prioritise investing abroad
12 March 2017
Competing Brexit visions
25 February 2017
Systemic consequences of Brexit
23 February 2017
Why macropru can end up being procyclical
15 December 2016
The fatal flaw in macropru: It ignores political risk
8 December 2016
Why it doesn't make sense to hold bonds
27 June 2016
On the financial market consequences of Brexit
24 June 2016
Cyber risk as systemic risk
10 June 2016
Big Banks' Risk Does Not Compute
24 May 2016
Interview on þjóðbraut on Hringbraut
21 May 2016
Farewell CoCos
26 April 2016
Will Brexit give us the 1950s or Hong Kong?
18 April 2016
Of Brexit and regulations
16 April 2016
IMF and Iceland
12 April 2016
Stability in Iceland
7 April 2016
Everybody right, everybody wrong: Plural rationalities in macroprudential regulation
18 March 2016
Of tail risk
12 March 2016
Models and regulations and the political leadership
26 February 2016
Why do we rely so much on models when we know they can't be trusted?
25 February 2016
Does a true model exist and does it matter?
25 February 2016
The point of central banks
25 January 2016
The macro-micro conflict
20 October 2015
Volatility, financial crises and Minsky's hypothesis
2 October 2015
Impact of the recent market turmoil on risk measures
28 August 2015
Iceland, Greece and political hectoring
13 August 2015
A proposed research and policy agenda for systemic risk
7 August 2015
Are asset managers systemically important?
5 August 2015
Objective function of macro-prudential regulations
24 July 2015
Risky business: Finding the balance between financial stability and risk
24 July 2015
Regulators could be responsible for next financial crash
21 July 2015
How Iceland is falling behind. On Sprengisandur
12 July 2015
Greece on Sprengisandur
12 July 2015
Why Iceland can now remove capital controls
11 June 2015
Market moves that are supposed to happen every half-decade keep happening
14 May 2015
Capital controls
12 May 2015
What do ES and VaR say about the tails
25 April 2015
Why risk is hard to measure
25 April 2015
Post-Crisis banking regulation: Evolution of economic thinking as it happened on Vox
2 March 2015
The Danish FX event
24 February 2015
On the Swiss FX shock
24 February 2015
Europe's proposed capital markets union
23 February 2015
What the Swiss FX shock says about risk models
18 January 2015
Model risk: Risk measures when models may be wrong
8 June 2014
The new market-risk regulations
28 November 2013
Solvency II: Three principles to respect
21 October 2013
Political challenges of the macroprudential agenda
6 September 2013
Iceland's post-Crisis economy: A myth or a miracle?
21 May 2013
The capital controls in Cyprus and the Icelandic experience
28 March 2013
Towards a more procyclical financial system
6 March 2013
Europe's pre-Eurozone debt crisis: Faroe Islands in the 1990s
11 September 2012
Countercyclical regulation in Solvency II: Merits and flaws
23 June 2012
The Greek crisis: When political desire triumphs economic reality
2 March 2012
Iceland and the IMF: Why the capital controls are entirely wrong
14 November 2011
Iceland: Was the IMF programme successful?
27 October 2011
How not to resolve a banking crisis: Learning from Iceland's mistakes
26 October 2011
Capital, politics and bank weaknesses
27 June 2011
The appropriate use of risk models: Part II
17 June 2011
The appropriate use of risk models: Part I
16 June 2011
Lessons from the Icesave rejection
27 April 2011
A prudential regulatory issue at the heart of Solvency II
31 March 2011
Valuing insurers' liabilities during crises: What EU policymakers should not do
18 March 2011
Risk and crises: How the models failed and are failing
18 February 2011
The saga of Icesave: A new CEPR Policy Insight
26 January 2010
Iceland applies for EU membership, the outcome is uncertain
21 July 2009
Bonus incensed
25 May 2009
Not so fast! There's no reason to regulate everything
25 March 2009
Modelling financial turmoil through endogenous risk
11 March 2009
Financial regulation built on sand: The myth of the riskometer
1 March 2009
Government failures in Iceland: Entranced by banking
9 February 2009
How bad could the crisis get? Lessons from Iceland
12 November 2008
Regulation and financial models: Complexity kills
29 September 2008
Blame the models
8 May 2008

The Brexit culture war

5 May 2019

In all the disappointments about Brexit, one stands out for me — the inability of the libertarian Brexiteers to outline a coherent vision of what Brexit will accomplish. They used to see rational economic management as as a virtue, now what matters is culture.

Brexit discussions have degenerated into a culture war.

I have many friends who voted Brexit and see themselves as libertarians. People who value the ideas of Adam Smith, John Stuart Mill and Karl Popper, and think Margaret Thatcher was the greatest prime minister ever. For them, a vote for Brexit was a vote for freedom.

Freedom from European control, the freedom to make our own decisions good or bad. The economic consequences don’t matter all that much.

That is a big departure for the libertarians. They used to celebrate Margaret Thatcher’s rational economic management and vision. In her words, “there is no such thing as society”.

Brexit is all about society.

The bête noire of the libertarians used to be socialism, an idea that consistently has failed to deliver but keeps coming back. You see, it only failed because it wasn’t done properly. We just have to keep trying and trying until we get socialism right.

The fallacy of that argument is the same as those for libertarian Brexit.

What the libertarian Brexiteers and the socialists have in common is that when the facts don’t support the ideology, the facts must change. Recall Michael Gove’s statement “the country has had enough of experts.” Because the experts say Brexit is hard, the experts must be wrong.

When the Soviet Union was fighting the Spanish Civil War in 1938, its strategy was to amass large forces, moving forward together, using tanks and heavy artillery. No retreat allowed. Why? That is the communist way of fighting a war, as dictated by Joseph Stalin. Franco’s army found it easy to defeat the Soviets by using smaller dispersed forces. Retreat, isolate and kill. Ideology didn’t allow the Soviets an effective counter-strategy.

Stalin didn’t listen to the experts either.

The libertarian Brexiteers tell us the EU inefficient, bureaucratic and anti-market. We need to to be able to create our own policies that will make us successful, negotiate our trade agreements. Use all the money sent to the EU more efficiently.

And besides, as they all say, its only matter of time until the EU will have a big crisis and it will be much better to have left by then.

But how will Brexit Britain be successful? It is not enough to say the EU is horrible. The Brexiteers need to give us a practical and realistic roadmap for making Brexit a success, at least if they want to win remainers over and put Brexit behind us.

Take trade, which is an excellent way to study how libertarians think about Brexit. After all, they are pro-business and pro-trade and anti-regulation and anti-trade restrictions. Leaving without a deal means initially having no trade agreements, then joining WTO, and perhaps eventually trade blocks. Except of course the EU trade block since we will have just left it. See the Department for International Trade for details on future trade arrangements.

A large number of entities, public and private, have pointed out the difficulties with leaving without a deal. Almost half of the British trade is with the EU, and as a general rule, trade increases when countries are closer to each other. Most companies say that leaving the EU without a trade agreement will be quite challenging.

When confronted with such arguments, the Brexiteers respond with ad hominem attacks. The other side lacks purity, is anti-Brexit, anti-UK, anti-liberal, anti-democratic or something else ideologically unacceptable.

What about the facts?

After no deal Brexit, Britain will join the club of countries that do not belong to any trade blocks beyond WTO? The Holy See, Mauritania, Monaco, Palau, Timor-Leste, Sao Tome and Principe, Somalia, South Sudan, Sudan and Western Sahara.

The rest of the world sees benefits in trade blocks but the libertarian Brexiteers are not concerned. Why do they think WTO is good enough for Britain when the governments of the United States, Australia, China, India and Germany do not find WTO to be sufficient for their countries?

The only answer I can come up with is ideology. If one’s view of trade is based on David Ricardo’s 1817 notion of comparative advantage, trade blocks are not necessary, and even WTO is not needed. After all, the 1846 repeal of the Corn Laws was a unilateral removal of trade restrictions that greatly benefitted Britain. Viewed through the ideological lens of Ricardo’s comparative advantage, no deal Brexit is a good idea.

Trade policy has moved on since 1817, and modern experts like Richard Baldwin in his 2016 book The Great Convergence: Information Technology and the New Globalization tell us that trade is highly complex and difficult to negotiate. Without belonging to a trade block, the world is a cold place.

But that is the view of the expert, and since it implies Brexit is hard, the expert must be wrong.

While a large number of studies warn against the consequences of Brexit, I don’t recall a single study showing the opposite, how Brexit will be successful. We have IEA’s “Plan A+: creating a prosperous post-Brexit UK”, and a few like that. But those studies express a desire and do not engage with the arguments for why Brexit is not all that easy. No practical vision, only ideology.

In Friedrich Hayek’s 1944 takedown of socialism, The Use of Knowledge in Society, the main argument is that socialism does not work because information is highly diffuse. It is impossible to aggregate all the necessary economic information into a single system used by the central planner.

Hayek showed us that ideology is not enough, socialism does not work in practice. It is the same with Brexit.

After three years, the libertarian Brexiteers are very adept at making the ideological case for Brexit. When challenged, they say Brexit will hard in the beginning, but over time the advantages of not being shackled to the EU will let Britain boom.

They don’t tell us how that will happen in practice. Unless they do, their intellectual case for Brexit is no better than the case for socialism, so effectively criticised by Hayek.

What is sad is that Britain has always had a reputation for competent pragmatism and disdain for ideology, a great model for conducting the affairs of state, one that has given us considerable soft power. Now all of that is being squandered. For ideology. Sad.

p.s.

After I posted this piece initially, one of my libertarian friends told me that he agreed with almost everything I said, but none of it mattered.

His decision to vote Brexit, and continuing support for no deal Brexit, was purely cultural, an atavistic response to European countries exercising control over Britain.

As he explained it, Britain is not culturally compatible with Europe. Britain is law-obedient and follows the rules, while France ignores most rules, Italy all and Germany some. One should not belong to the same political and cultural entity as those. When it had been tried, it fails.

Instead, he wanted Britain to make decisions for itself. Even if it made bad decisions and became worse off, what mattered was that those decisions were British and not French or German or EU.

In other words, the economic consequences of Brexit are secondary. What matters is the cultural.

That is the reason it is impossible to debate Brexit with the Brexiteers. Brexit is emotional, not rational. Practical outcomes don’t matter. Smith, Hayek, Popper, Mill and Thatcher would have been appalled.

© All rights reserved, Jon Danielsson, 2020