Thursday


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The parallels between the US presidential election and the recent Brexit vote are so numerous and so telling and it is difficult to discuss one without the other. In both cases, almost every mainstream social institution declared itself for the status quo, the polls seemed to point to the maintenance of the status quo, the narrative of the media was a relentless drumbeat for the status quo that made the alternative not so much something to be avoided as something unthinkable, and yet the status quo was upended by a popular vote. The aftermath of the Brexit vote is still unfolding, and there are sectors of the media that, even today, months later, continue the drumbeat, which indicates that they are not yet reconciled to the accepting the result of the vote. Those who voted against the status quo did so in the face of overwhelmingly negative portrayals of such a vote, and of any voters who would so vote.

And make no mistake that this was a vote against the status quo. This was not a vote of left vs. right, or liberal vs. conservative, or even Democrat vs. Republican. This was a vote of insider vs. outsider, establishment vs. non-establishment, status quo vs. change (or even the media haves vs. the media have-nots). It is true that Trump ran as a Republican, but he did so in the face of many if not most of the party leadership explicitly in opposition to him. Indeed, the Republican leadership was every bit as bitter in its condemnation of Trump hijacking their party for his purposes as the Democratic leadership was bitter in denouncing Trump.

Perhaps the most telling headline I noticed was this: World media shock and dismay at Trump win. The media was not impartial in this presidential fight; they had a stake in the outcome, and, when the outcome failed to confirm their narrative, there was indeed shock and dismay. There was also this from the New York Times, indicating the first signs of soul searching on the part of the media: How Did the Media — How Did We — Get This Wrong? by Michael Barbaro. A surprisingly candid BBC piece from Rod Dreher, Senior editor of The American Conservative, US election 2016: America’s front-porch revolt, acknowledged that he, too, had been drawn into the media narrative — though, as I noted above, the presidential election was not about liberal vs. conservatives, so the conservative élites were just as likely to misread the election as were liberal élites.

In the wake of the surprise result, it will widely said that the polls cannot be trusted, and this will be used to imply that polling methodology is fatally flawed. But it is not the polls, but the pollsters, that cannot be trusted. Pollsters, like the media, have come to constitute their own political class — or, rather, pollsters belong to the same political class as journalists and pundits, and, sharing the assumptions of this class, they shared the idea that anything other than a Clinton victory was unthinkable. They formulated their polls on this basis, and so their methods dutifully repeated back to them the only message they were capable of hearing. There is a name for this in the study of cognitive bias: availability cascade.

It certainly isn’t rocket science to understand why the polls failed. Many people told me privately that they planned to vote for Trump, but no one who told me privately that they would vote for Trump said publicly that they would do so. (Yes, I understand that this is merely anecdotal evidence, but when statistical evidence has been compromised by statisticians in the grip of an availability cascade, telling personal anecdotes can provide a window into events that has been missed by the statistics.) Why was this the case? Why would individuals privately discuss their vote, but not discuss their vote publicly? Because to publicly state your support for Trump prior to the election was to be subject to a torrent of abuse (cf. the experience of Peter Thiel, alone among Silicon Valley notables supporting Trump, and who found his business interests threatened by this support). Not surprisingly, individuals do not wish to be subject to a torrent of abuse, so they simply choose to remain silent. I would not be at all surprised if Trump supporters intentionally misled pollsters, not out of any sense of malice, but simply knowing that they were talking to someone who had completely bought into the availability cascade of a Clinton victory, they may have found it easier to tell the pollsters what the pollsters expected to hear. This kind of thing cannot even be captured in the language of the questions of the poll: it may be the tone of voice or the attitude of the pollster that communicated the message.

The issue of subjecting those who differ from the establishment narrative to personal abuse and denigration is more important than is usually recognized. The phenomenon has been evolving in American political life since the tumult of the 1960s, first with the Civil Rights movement, and then with Vietnam war protests. With these issues it was widely felt that the establishment was not acting upon moral imperatives viewed as central at the time. Because no results were being had by traditional means of political participation, a culture of organized civil disobedience came into being. Traditional politicians told young people during their messianic stage (also known as youthful idealism) that the proper way to express themselves politically was to vote. But voting was not felt to be sufficient to address the evil at hand, so protest became an additional avenue of political participation.

The rise of protest as a form of political participation — and the observed efficacy of well-staged protests — resulted in what I will call the dialectic of activism and electoral politics. Activism has been so effective as a political tactic that some political pressure groups have entirely abandoned electoral politics (i.e., seeking a vote on an issue) in favor of activism. Activists do not need an electoral majority in order to realize their political ends; they merely need to be effective activists. The emergence of activist politics changed the political landscape of the US, allowing small minorities to advance their agenda in a way that electoral politics would not have allowed. One might say that it is the business of successful activism to create an availability cascade and so give the appearance that their cause represents the electoral consensus. But the success of activist politics that serves minority viewpoints means that electoral politics then becomes the opposite swing of the pendulum, and society is moved back and forth between votes that express an actual majority of the electorate, and activism that expresses the views of the most motivated and most effective activists.

With the Brexit vote and the US presidential election, the élites of their respective societies — political élites, policy élites, journalist élites, celebrity élites, business and financial élites, and even activist élites — not only created an availability cascade that was at odds with the electoral majority, they moreover believed the narrative that they themselves had created. Thus the shock at the electoral correction. And this dialectic of electoral and activist politics should be expected to continue. The most motivated and passionate activists will continue to press for political change unrelated to electoral politics, and electoral politics will repeatedly place politicians in office unrelated to the political demands of activists.

It is often noted that the US political system is gridlocked and incapable of functioning effectively (I wrote about this in Checks, Balances, and Gridlock, and a recent Harvard study, Problems Unsolved & A Nation Divided by Michael E. Porter, Jan W. Rivkin, and Mihir A. Desai, with Manjari Raman, focused on political paralysis; also cf. an article on this study at Geopolitical Monitor by Oscar Silva-Valladares, American Decline and the Limits of Academic Thinking). On the one hand, activism is a response to political paralysis, since it promises results outside the usual mechanisms of political influence, but, on the other hand, the dialectic of activism and electoral politics is itself a source of gridlock and stagnation. In order for democracy and popular sovereignty to have a future in the twenty-first century, it may be necessary to find a way around the traditional mechanisms of electoral politics that is nevertheless responsive to the electorate. Consider this a research question in the future of democracy.

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The BBC main page was more concerned with Clinton's concession speech than Trump's victory speech. This is one way to keep banging away on the same flawed narrative.

The BBC main page was more concerned with Clinton’s concession speech than Trump’s victory speech. This is one way to keep banging away on the same catastrophically flawed narrative.

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Europe’s Options

24 June 2016

Friday


Headlines on the BBC

Headlines on the BBC

In the wake of the vote by the British to leave to the EU (i.e., “Brexit”), the UK and the EU both have many options on how to manage the transition, and the vote in and of itself is not enough to predict how exactly British exit from the EU will occur. We have to wait and watch if we are to understand, and to correctly interpret, the subtle clues and telling details in a political landscape defined by a lack of subtlety and a barrage of trivia no item of which is a telling detail. Whatever happens, and however it happens, we are seeing geopolitics played out on a grand scale.

As a divisive political confrontation, the immediate fallout of the “Leave” vote will be accusations and recriminations, short term market fluctuations, dramatic public statements being made, a painstakingly detailed analysis of the demographic breakdown of the vote, and so on. The press will focus on these immediate consequences, and as the press was enthusiastic in backing “Project Fear” it is more or less obligated to report the worst possible news that it can find in order to confirm the narrative that the world will come to an end in the event of a “Leave” vote. The immediate consequences are the “white noise” of political conflict, and must be set aside in order for a more rational assessment of short-term, mid-term, and long-term consequences.

From The Future and Accessibility, OZeWAI Conference 2011, Jacqui van Teulingen Director, Web Policy

From The Future and Accessibility, OZeWAI Conference 2011, Jacqui van Teulingen
Director, Web Policy

In a previous post on futurism I cited the “futures cone,” which depicts the arrow of time flaring outward into the future, with the probable future in the center, the plausible future just beyond the center, the possible future farther yet from the center, and the preposterous future at the outside edge of the futures cone (see above — I have adopted this language from Joseph Voros’ exposition of the futures cone). We can employ the futures cone to distinguish classes of outcomes from the Brexit vote.

Some of the most obvious outcomes neatly fall into the categories of the futures cone:

● Probable The UK negotiates a trade deal with the UN that allows both Britain and the EU to continue to employ the City of London as the de facto banking capital of western Europe, which is overwhelmingly in the interest of all concerned. Very little of substance changes. The press selectively reports on economic problems so that the sore loser “remain” faction can maintain plausible deniability that it was right all along, while the “leave” faction gets what it wants in changes to immigration policy.

● Plausible Eurocrats in Brussels are vindictive and seek retaliation for their humiliation; the EU attempts to economically isolate and marginalize the UK, and both sides erect trade barriers that result in UK and EU growth turning negative. A long recession and a slow recovery ensues. This scenario could well be exacerbated by actions taken by the US, as both major political party candidates for the US presidential election are opposed to free trade.

● Possible The “Leave” vote is set aside (the EU has a long history of setting aside votes that fail to conform to its narrative); endless negotiations drag on for years while the EU and the UK are at best economically stagnant; or additional votes are taken until the desired result is obtained.

● Preposterous There is no end to the number of preposterous scenarios that can be constructed upon the “Leave” vote. For example, the unraveling EU might lead to widespread chaos and disorder, ultimately meaning the end of civilization in Europe. Or a royal coup might set aside the popular vote and reverse the decision by royal decree, suspending democratic process. Or the unraveling of the EU might be followed by the constitution of alternative trade zones, as I once suggested in several posts on a northern trade zone (which I called the “Hansazone”) around the Baltic.

In my previous posts on futurism and the futures cone I emphasized that it is a relatively easy matter to predict what tomorrow will be like, because there are definite limits on how different tomorrow can be from today. However, it is extraordinarily difficult to predict the long-term future, so that between the predictable short term and the unpredictable long term, it is in the mid-term that our predictions go wrong. With this in mind, to get a better sense of the foreign country that is the future (and in this sense like the past), we should attempt to construct plausible paths by which probable and plausible short-term actions issue in implausible mid-term and long-term consequences.

For example, in the short-term there will be conflicting motives, with the EU being torn between cutting a deal that is good for all, or seeking a vindictive settlement that will punish Britain. Why should Eurocrats want to punish the UK for going its own way? Because despite the constant drumbeat in the press of the economic risks to Britain to leave the EU, the EU is much more vulnerable than the UK, partly because it is much less resilient and robust in its institutional structure. The “Leave” vote shows this up, and has the symbolic meaning that is the EU, and not the UK, that is weak, and that states can choose to leave the EU and it is not the end of the world. The illusion of the inevitable triumphal expansion of the EU has been rudely shattered, and some will want the UK to suffer for this, regardless of the cost. Thus the negotiations on the EU departure of the EU will be fraught, and may be in equal parts conciliatory and vindictive.

The kind of sausage-making that will result from mixed motives in the EU departure negotiations could result in radically different outcomes in the mid-term. While I regard it as unlikely, it is nevertheless possible that the EU might drag out its negotiations with the UK while fast-tracking the accession of candidates for entry into the EU, meaning that the UK is stuck and stagnant while the EU is expanding. Under this scenario, the EU grows and thrives while the UK becomes a marginalized economic backwater.

Another example of a mid-term future veering away from the most probable future constrained by concerns for stability and vested interests, is that the departure of the UK does begin the process of the unraveling of the EU (meaning the end of “Eurozone civilization” as was the concern of Donald Tusk). Other nation-states may hold referendums and depart from the EU, which shrinks as more and more parts are lopped off. The EU might continue in name only, as a ghost of its former self, and be remembered as a grand but failed visionary political project, the last gasp of the spirit of Yalta and Bretton Woods.

Under this scenario, the EU becomes economically marginal (sort of like Mercosur in South America), but the unraveling need not stop there. One might see the UK break up also, with Scotland and Ireland holding their own referendums to leave, and possibly even trying to rejoin the EU as independent nation-states. Paradoxically, this degree of Balkanization in western Europe, while it would be met with horror by the chattering classes, would probably result in far more pluralism and democracy than the EU model for pluralism and democracy in Europe. Also, in this pluralistic context it would be relatively straight-forward to constitute new economic zones, and so my “preposterous” scenario above could become plausible in the fullness of time.

The “Leave” vote was just the beginning of a process, and the immediate fallout will simply be theatrics. Only time will tell what the process itself will actually be (the situation is unprecedented, as no nation-state has previously negotiated its departure from the EU), and what outcomes are likely to follow.

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Pricing Political Risk

25 February 2016

Thursday


David Cameron wants to keep Britain in the EU, and negotiated a deal with the EU to this end, but the deal undermines the EU, so that the EU is weakened regardless of the referendum outcome.

David Cameron wants to keep Britain in the EU, and negotiated a deal with the EU to this end, but the deal undermines the EU, so that the EU is weakened regardless of the referendum outcome.

The inability of the financial sector to price political risk is being made painfully clear by the “Brexit” situation and what it portends for Europe, for the EU, and for global finance. Now, “Brexit” is an unlovely neologism — much like “Grexit,” from which I believe it derives, both being conjunctions of the names of nation-states with the word “exit,” meaning an exit from the Eurozone, and, symbolically, ouster from Europe, the European project, the European idea — but I will employ it anyway, as it has rapidly become the convention.

It is important to observe that there are no good outcomes for the Eurozone in the wake of the British referendum on Brexit. If Cameron gets his way and Britain retains its EU membership, it will maintain this membership under specially negotiated terms, which demonstrates unambiguously that all members of the EU are equal, but some are more equal than others. If the British people vote against the deal and Britain voluntarily secedes from the EU, it will mean that one of the strongest economies in the EU, including the fabled banking center of London, have chosen to leave the EU, like the first rat leaving a sinking ship.

It isn’t just Britain and Brexit, of course. There is the lingering aftermath of the financial crisis, which began with the sub-prime mortgage crisis in the US, spread contagion-like to Europe, but was never resolved satisfactorily because of the financial difficulties of southern European nation-states like Italy and Spain, but especially Greece. Decisive and definitive action to reform Europe’s banking sector could not be pushed through under these circumstances, and now these unresolved problems are manifesting in unexpected and unintended ways due to the refugee crisis in Europe.

I am not predicting financial collapse in Europe, nor I am predicting social collapse in Europe; nor I am predicting large scale social turmoil. Europe is a very civilized place; the Europeans, by and large (and after spending hundreds of years killing each other), understand that it is in their interest to maintain economically, politically, and socially stable societies in which as many citizens as possible can live stable and prosperous lives. The approximately 500 million people in the EU are not going to suddenly shutter their shops, close their businesses, and stop buying things. Business as usual will continue, with interruptions and disruptions. Europe is, however, facing an existential crisis every bit as momentous as the Civil War that tested American unity as a nation-state. The basis of unity is distinct, and the test is distinct, but the danger is parallel.

We all know that, in cases of warfare, violent revolution, or even extreme social turmoil, that a financial position can unwind with shocking rapidity, leaving investors (typically, those investors slowest to respond to the crisis) holding the bag. The combination of financial ruin and the suddenness of its occurrence can be too much for some, and this is when we see people jumping out of windows rather than facing life as impoverished has-beens. It is no surprise that financial traumas of this kind, that emerge not from predictable market forces, but from human, all-too-human events, driven by emotion, passion, and and what Keynes called animal spirits, are put behind the market as quickly as possible, as the survivors go about the again-predictable business of picking up the pieces and going on with life.

Investment advisers like to tell potential investors that “market timing” is irrelevant, and that a prudent and long-term investor will consider market spikes and dips as somehow too petty to notice, almost beneath contempt. But if you invest your life’s savings in something as stable as bonds (like the investors in WPPSS, the Washington Public Power Supply System) or even in the very corporation that employs you (as with Enron employees who were actively encouraged to invest everything in Enron stock), and these apparently stable investment vehicles go sour due to reasons that have little to do with investment strategies, there is nothing left over to get back into the market. Yes, of course, the market will recover again, in time. By that time your retirement may be long over and you will have lived your final years in poverty before dying penniless. In the big picture such instances of individual suffering are unimportant and irrelevant, but to the individual who loses everything, it is everything.

This investment advice to disregard market timing is a rationalization and justification of the inability of the financial sector to price political risk. Political risk is a blindspot for finance capital, and as the world becomes more economically and politically integrated, this blindspot is becoming a serious stumbling block both to understanding and to action.

We have good economic models to describe how even complex industrialized economies function. But an economic model of a society is only a partial model of society. Sometimes business as usual continues even as a society is disrupted by political and social unrest (like the growing US economy despite Civil Rights protests in the 1960s and Vietnam war protests in the 1970s), but sometimes political and social unrest can cross a threshold beyond which business as usual ceases and the political and social unrest become the focus of all attention and business as usual does not recommence until the turmoil is resolved and business begins again under changed circumstances, sometimes even under changed institutions (as happened with the collapse of the Soviet Union).

A more complete model of society would include social and political factors in a way that the social sciences have not yet been able to pull off. At the end of this process would be a model of civilization itself, including economic, political, social, religious, and other factors. I have often pointed out that we lack a science of civilization, and the financial blindspot in pricing political risk is a perfect practical example of what it means to be without a model of civilization.

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