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Just blow it all up?, by Scott Sumner

In addition to the split between the left and the right, there’s also a split between people who favor incremental change and those who want to “blow it all up.”  In 2016, the British voted in a referendum in favor of exiting the EU.  The referendum did not have the force of law, but the government (quite reasonably) was reluctant to ignore the results of this poll.  After all, why even have a referendum if you plan to ignore it?

The supporters of the Brexit campaign promised that there would be no “hard Brexit”, as the EU would want to negotiate free trade with the UK.  But they also promised that the UK would make a substantial break, with a much greater degree of freedom than before.  In other words, it would not be merely a symbolic break where (like Norway) the UK still adheres to almost all the EU rules.  The government of Theresa May found it impossible to negotiate an agreement with the EU that achieved all these objectives.  The EU demanded substantial concessions (adhering to many EU rules) in exchange for the UK continuing to have relatively free access to the EU market.

Thus May negotiated a compromise that pleases neither the “leave” nor the “remain” supporters.  As of now, it clearly does not have enough support in Parliament, although that might change.  Most people in Parliament actually favored keeping Britain in the EU, and there are not enough votes for the “hard Brexit” option, a clean break.  Many fear that a hard Brexit would be extremely disruptive to the UK economy, which has close trading relations with the EU.

So how should Parliament vote?  The subtitle of a recent Economist article suggests that there is radical uncertainty as to the impact of a no vote on Theresa May’s negotiated agreement with the EU:

The consequences of saying no to Theresa May’s Brexit deal

If Parliament rejects the prime minister’s deal next week, the result could be no deal—or no Brexit

That sort of uncertainty is actually rather unusual, and reflects a change in our politics.  Most votes are between option A and B, where it’s pretty clear which option will advance each agenda.  Not in this case.  The odds markets confirm this, showing a significant probability of any number of possible outcomes, including an entirely new referendum.  Lurking in the background is the possibility of a new election, which (far left) Labour might win.  Making things even more complicated, it’s not clear what Labour would do.

In retrospect, many believe that complicated legislative problems should not be solved via referenda.  Alternatively, the UK government should have said from the beginning that after the new treaty was negotiated, the British public would have another referendum where they’d choose between the negotiated agreement and the status quo.  This is because referenda are suited to deal with binary choices, and there seemed to be no majority in the UK in favor of any of the various possibilities.  Thus in 2016, those favoring a hard Brexit and those favoring a soft Brexit both voted to leave the EU, but neither group was large enough to later put together a compromise that would attract 50% of the public, or 50% of the MPs.

While this dilemma is rather unusual, the exact same thing is now occurring in the US.  Donald Trump ran for President promising to (metaphorically) “blow up” the existing way of doing things.  He was unable to get rid of Obamacare, but did have enough power to renegotiate Nafta.  Once in office, he seemed to realize that Nafta was actually a pretty good deal, as the new version is not much different from the old version.  But he’s also a sort of prisoner of his populist rhetoric, and doesn’t want to stick with the old Nafta.

The problem here is that it’s not at all clear that there are enough votes in Congress to pass the new Nafta agreement.  Then what?  Trump has promised to blow up the old Nafta if Congress rejects his proposal.  Similarly, Theresa May has suggested that a hard Brexit would lead to economic chaos, and the UK government has done little to plan for a hard Brexit.  (The don’t even have customs facilities in place in Dover, and there’d be massive lines for trucks from France.)  She claims that there is no plausible alternative to her negotiated agreement with the EU.  Some think this is bluffing, and that there might be a softer Brexit option, such as Norway’s arrangement.  This is complicated by the weak position of the Conservative government, and by Labour’s unwillingness to give the Tories a win.  Labour would rather see the Conservatives tear each other apart, opening the door to a new Labour government. (And I won’t even try to explain the complicated Northern Ireland problem.)

And what about President Trump?  Is the promise to blow up the old Nafta a bluff?  Perhaps if Congress rejected his plan he’d actually keep the old Nafta in place, and add a few “national defense” tariffs on Mexico and Canada, as a face saving gesture.  After all, completely blowing up Nafta might cause a severe disruption in US supply chains, and perhaps a stock market slump.

I’m actually not sure how bad it would be if Trump ended Nafta, as US tariffs tend to be pretty low, even on goods from countries outside Nafta.  But it would certainly be quite controversial, and perhaps not what Trump wants as he’s in delicate negotiations with China.  The point here is that just as with the UK politicians contemplating their vote on Brexit, it’s not clear whether Congressional supporters of the old Nafta should reject Trump’s proposal, or vote for it.

Our politics is increasingly full of this sort of brinksmanship.  Trump has told Congress that he’ll shut down the government if they don’t approve his wall, a tactic that has become increasingly popular in recent decades.  Furthermore, this new brinksmanship seems to be a global phenomenon.  Here’s The Economist describing a dramatic change in Australia’s (conservative) Liberal Party.

In politics, says one senior party member, you used to make progress through compromise. “Now, it’s, ‘If you don’t give me something I want, I’ll blow the place up.’” Perhaps Mr Abbott and his like really do have a death wish. Perhaps they fancy that defeat by the Labor Party will have a wonderfully purgative effect, clearing the wets out of the Liberal Party and allowing their faction to enjoy unadulterated rule. What is nearly certain is that a grand old party faces a whipping next year. The question is whether it can survive at all.

Politics has never been polite, but it seems to be getting even rougher.

PS.  I’m agnostic on both the Brexit and Nafta votes, for the reasons explained above.  That’s very unusual for someone as opinionated as me.

PPS.  Here’s a picture of Theresa May along with Boris Johnson, a somewhat Trumpian politician who would like to take her place as leader of the Conservatives.

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