Britain is heading for a no-deal Brexit on 29 March

If Britain shares a characteristic with the EU it is the capacity to muddle through with a fudged compromise. So I, like most people, expected Brexit to go that way. But after last night's vote in the House of Commons against the government's negotiated deal with the EU, I now don't think that is likely. Like many English people I have underestimated the capacity of Irish politics to impinge on those of Britain.

Why? Let's think of the possible ways forward. Apart from a no-deal these might be a referendum, a new deal based on a full customs union, or a new deal without the so-called Irish backstop. Last night's vote showed how none of these are viable.

So why did the government's deal fail so badly? Firstly the official opposition united against it. The SNP, the Lib Dems and the Green MP all hope for a referendum to end Brexit entirely. They voted the deal down to clear space for that. Labour voted against it so as to keep its options open: the leadership's main aim is to take power, and to do so it would rather not take up a firm view on Brexit which could alienate a large chunk of its supporters. To the official opposition were added more than 100 MPs from the Conservatives and the DUP. A small number of these (no more than a dozen) are holding out for a referendum. The rest are hard Brexiteers who either do not want any kind of a deal, or who took exception to the Irish backstop.

The Irish backstop is key. The deal as a whole is the combination of a hard legal withdrawal agreement, and a soft political statement of intent about future relations. Alas the backstop, designed to ensure that the border between the north and south of Ireland remains open, is part of the former. Hard Brexiteers seem to think it is a Trojan horse which will allow the EU to impose a customs union on the UK against its wishes indefinitely. Personally I think that's nonsense: the only way that the UK can stay in the customs union indefinitely is if that is what Parliament wants. Political reality trumps international law. But reason has never had much to do with politics.

What kind of new deal could be negotiated to replace the current one? Not that the EU side will admit that any kind of new deal will be allowed. One option is to build a commitment to the customs union (and single market) into the political part of the agreement, an option referred to Norway plus, because of its similarity to the Norway's current status (though Norway is not part of the customs union, as it happens, and there are border checks on the Swedish frontier). That would render the backstop harmless or redundant. There are some Conservatives who favour this, but most dislike this approach even more than the current deal, because it would mean no independent trade policy, and freedom of movement for EU citizens. To be viable such an approach would need Labour to get behind it, and even then it would struggle. In fact this approach seems close to the sort of deal that the Labour leader, Jeremy Corbyn, says he wants. But there is no chance that Labour will play ball. The party is in fact very divided and any move to favour any particular solution would open up those divisions and prop up the hated Tory government at the same time. It is hard to see that such a deal could command many more votes in parliament than the 202 that the current deal got.

Hard Brexiteers, like the DUP spokesman and Boris Johnson, the former Foreign Secretary, that I saw being interviewed last night, have another idea. The EU will blink at the prospect of a no-deal and make the Irish backstop go away. That raises two questions: could the EU do this? And if they did, would there be a parliamentary majority for it? The answer to the first question hinges on the Irish government. If they were prepared to retreat on the issue, the rest of the EU would take their lead. But if they didn't want to, then I don't think the other EU governments couldn't or wouldn't force them too. And this is where I may have got things wrong in the past. The impact of a no-deal could be even worse for the Irish Republic than for the UK; and it would not help keep its border with the north open - so I assumed the Irish would prove flexible in the end. But the Irish prime minister, Leo Varadkar, seems prepared to endure a no-deal rather than cave in to the British. English Brexiteers affect a strange combination of idealistic fervour for national sovereignty with an easy-going realpolitik that assumes that other governments will fall in line because that is in their economic interests. But there are red lines in Irish politics that are not susceptible to realpolitik. The DUP is demonstrating this for the northern Unionist community. For the Irish republic caving into the British interests is another such red line. They will blame the mess on both the British government and the DUP.

But even if the Irish did back down, would that be enough to save the deal? It might add about 70 votes to the government tally when it needs 115. It would not be enough to satisfy a core of no-dealers, and neither the referendum supporters. It would need a number these, together with some opposition MPs, to shift out of desperation. This is such a long shot that Mr Varadkar is unlikely to budge, lest he gets the worst of both worlds: a retreat that fails.

And what about a further referendum? If parliament is as stuck as it is, it might seem logical to put it back to the people. Leaving aside the difficulty of what question to ask, and how many options to offer, I don't think it will be possible to get a parliamentary majority for it. For all the smooth logic put by the idea's supporters, a further referendum would be seen as a betrayal by most Leave voters. The repercussions would be terrible for both main parties. The leadership of neither will throw their weight behind it, which means that it would struggle to get many more than 200 votes in parliament.

Could the withdrawal date of 29 March be deferred? The EU is getting ready to do this, but why would they if there is no resolution in sight. And very soon elections to the European Parliament would be upon us, and Britain's status needs to be resolved by then. The only good reason for a deferral is if there is a referendum - and I don't think that has enough parliamentary support. If Theresa May came back with substantially the same deal as last night just before the deadline, and got it through, then doubtless the EU would extend the deadline to allow the necessary UK (and EU) legislation to be enacted. But can parliament conduct such a U-turn? The various factions would prefer to blame each other for the impending disaster instead.

Which leaves the prospect of a crash out on 29 March. Could this be Mrs May's plan (as suggested by a friend on Facebook)? Once the UK crashes out, the Remainers are defeated, as there is no easy way back in. That means that the government can try rallying these towards reinventing the deal to rescue the country from the chaos that is likely to be overwhelming it. And some hard Brexiteers, and their many supporters in the public at large, might be less sanguine about the no-deal environment too. That latter is unlikely though: people do not admit they are wrong in politics, and always prefer to find others to blame instead. Attitudes against the EU may actually harden.

Gloomy stuff, but my optimism has deserted me. Britain's weak political leadership is mainly to blame - not helped an inflexible EU negotiating approach. And above all the entrenched attitudes of people and politicians on both sides of the Irish border.

Postscript

Interestingly my view that the vote makes a no-deal Brexit more likely seems to be the exact opposite of the conventional wisdom, including from the FT's lead political commentator and some financial market advice I have been sent. The betting odds of an exit on 29 March dropped to 6 to 1 against. For the first time I have made a political bet, that the UK will leave on that date!

Today's confidence vote changes nothing. Mrs May's attempt to engage with opposition MPs is both narrow (no party leaders) and shallow (with a restricted scope). It is not serious. I don't think either major party leader will contemplate a referendum, which is the only thing that would stop an exit on 29 March, as far as I can see.

The Econocracy – is something rotten with the state of economics?

The Econocracy is a book written by three recent British economics graduates. It had quite a big initial impact, especially about the teaching of economics in universities. But although it rated a chapter in John McDonell's recent book Economics for the Many,  it looks as if not much is actually changing. Does that matter?

The scope of the book (which is quite short) is broad, combining specific complaints about university tuition with more fundamental issues for public policy. That is both a strength and a weakness. It helps draw people in, but it ends up being rather lightweight as a result. I have identified five main claims, and two main proposals. I will consider each in turn.

Claim 1: Public policy is controlled by a class of economic experts who shape policy choices in a way that is obscure to non-experts. This is the "Econocracy". These experts try to frame political choices as a technical exercise which only they are capable of engaging in.

This is undoubtedly true. It is one reason that I decided to take an economics degree in 2005 after I left the City. If I was going to make headway in the field of public policy, as I hoped, then I had to master the internal language, and that was based on economics. All experts try to accrue power to themselves by making their field appear technical and mysterious, and this is what economists have succeeded in doing with public policy. But the public largely accepts this. The importance of jobs, pay and tax to our daily lives naturally gives space for experts who understand how these things fit together, or think they do. Making economics more transparent to the public, however, is easier said than done.

Claim 2: Economists operate according to a set of ideas, which should be open to challenge but are in fact a protected orthodoxy. The core of these ideas is what the authors call "neoclassical" economics, based on a holy trinity of individualism (people treated as independent economic agents), optimisation (these individuals act to maximise their welfare, or "utility") and equilibrium (the interactions between agents settle down to a steady state which remains stable until external conditions change).

This is too shallow for me. The holy trinity of classical economics (and I don't think the prefix "neo-" adds anything useful) leads to the use of relatively straightforward mathematical tools which can be used in a wide variety of contexts. Orthodox economists use these techniques far too much without question. In spite of what some claim to be a "physics envy", theoretical economics are stuck in the economics equivalent of Newtonian mechanics, the first law of thermodynamics and Boyle's law of gases for physics - what used to be O-level in my day. True physics envy would mean that they would be trying to push the boundaries out from this, by looking at non-equilibrium systems, for example. This looks much more realistic for financial markets and monetary policy, for example. Thus far I agree with the authors.

But orthodox economists are more open to challenge than the authors do not allow for. The most important way is through empirical studies of evidence, which takes up much, or even most, of the energies of modern economists. This has its own flaws. Classical economics underpins the theoretical predictions that are tested, and the assumption of IID (independent and identically distributed variables) is not challenged enough. But it does mean that modern orthodox economics is subject to a constant process of challenge that will eventually shift the theory and tackle awkward issues. For example there is now much study of inequality and the "left-behind" - areas that orthodox theoretical models tend to glass over. New approaches grounded on evidence do gain traction - like Thomas Piketty's ideas on wealth distribution.

Meanwhile the authors seem to be too taken with what they consider to be alternatives to "neoclassical" theory. They list a series of rival theoretical approaches: three flavours of classical economics, Post-Keynesian, Marxist, Austrian, Feminist, and so on. This is a dangerous break from the idea of dialectical process, where new ideas should lead to challenge and synthesis, rather than a series of academics ploughing their own furrows. I can well understand the suspicion of mainstream economists that a lot of these schools are either obsolete (i.e. having been rolled into the modern synthesis) or attempts to bypass proper critical challenge. In the former case a bit like the first law of thermodynamics, and in the latter like climate change denial.

Claim 3: The economic conventional wisdom is rigidly enforced by universities who reject and suppress unorthodox approaches.

I find this very hard to offer a view on. There is a very strong system bias towards the mainstream, and in particular for research ratings and publication data. But how much are fresh ideas being suppressed, rather than flaky approaches (by which I mean people who are not open to their own ideas being challenged robustly) being denied oxygen? Every heterodox economist thinks they are being persecuted, but that by itself does not prove things one way or the other. Some social sciences have gone down the route a fluffy inclusiveness, where academics are allowed to publish their wacky ideas, but others don't properly challenge them. Researchers submitting spoof papers can make a surprising amount of headway. It would be disastrous if economics went down that route.

Claim 4: Economics tuition is based on a narrow, hollowed out version of the orthodoxy, reduced to mathematical formulae and multiple choice questions. Students are not encouraged to think about their subject in a broader perspective. The current system of university finance encourages this narrow approach. Institutions must both protect their research status, which discourages heterodox approaches, and maximise student numbers while limiting costs, which pushes them towards the hollowed out approach to tuition.

Here the authors are on stronger ground, as they are able to draw on their direct experience as students. This criticism would not be fair of my course at UCL in 2005-2008. Lecturers were careful to relate the ideas they were teaching to the world outside, which was going through the early stages of the great financial crisis. And they did include a certain amount about rival ideas. There were gratuitous mathematics and graphs, especially in development economics, which I found irritating, however. (That may have cost me my first, as I struggled to play the game in my last year). But that was then: before the new university finance system was introduced. The authors paint a credible picture of how pressures on universities are reducing the quality of tuition. Beyond that I find it hard to comment.

Proposal 1: The authors want universities to adopt a more liberal approach to both the ideas and the way in which they are taught, and allow the "neoclassical" foundations to be challenged.

It is surely right on the face of things to support a more liberal approach. The problem is that the universities have responded to complaints with a new curriculum, which the authors reject, asthey still do not embrace heterodox theory. The universities' reform efforts are being led by Professor Wendy Carlin from UCL. She was both my tutor when I was doing my degree, and the lecturer that I found the most valuable. She kept very close to the conventional theoretical models, but was very skilled, and rigorous, in applying them to the real world. Her criticisms of the Euro proved very apt. I naturally tend to sympathise with her side of the argument on this. I think that the authors are pointing to a fluffy inclusiveness rather than a proper liberal education which includes robust challenge. That may be unfair, but their list of alternatives to "neoclassical" theory does not inspire confidence. Still I think economics should push their curriculums to more essay type discussions, even if they are much harder to teach and mark.

Proposal 2: The authors also want to open up the public policy making process so that it is more accessible to the public and not dominated by obscure technical analysis.

In principle I agree with this, but it will be very, very hard. A lot of economics ideas are counter-intuitive. This is evidenced by a lot popular fallacies which economists rightly see through, such as the fallacy of composition (e.g. a national economy can be run like a household economy), the lump of labour (immigrants take away jobs...), and trade as a zero-sum game. Even trained economists can be led by their intuition into traps, as I think they are doing in most of their analysis of productivity, for example, though another version of the fallacy of composition. It is exactly these counter-intuitive insights that make the discipline so powerful. But they also make the analysis very hard to make accessible. Improving economics education will only make the economically literate a slightly less tiny minority.

It should be easier, however, to expose economic analysis to more widespread challenge from the experts themselves. And their needs to be a broader debate on how impacts of human wellbeing and the environment are accounted for when examining proposals. But much analysis is doomed to be both technical and obscure.

Conclusion

I find that this book disappoints, even as it makes a number of valuable points. Readers of this blog will know that I think there is much that is wrong with conventional economic analysis. But the authors fail to put their finger on where the problems really are, and what needs to be done.

True liberal: I will miss Paddy Ashdown

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Like many I was shocked by the recent death of Paddy Ashdown, the former Liberal Democrat leader, at 75. Having seen him in only September I thought that he had a lot more to give. That's cancer. He was a very special person.

I only met him a couple of times. The most substantial was early in his leadership in 1989 when he held a reception for local party chairs at the House of Commons. I remember little of our conversation, except that he had that way of giving you his total attention... and then he was whisked on to the next person by a colleague. After that I was in the same room as Paddy many times, but rarely got beyond a handshake. Unlike many of my Lib Dem friends I have no photo of him and me.

I first became aware of him after he entered Parliament as a Liberal in 1983. But his main impact came when he became the first Liberal Democrat leader in 1988, following the merger between his Liberals and my SDP. He was inspirational. His speeches to conference were thought-provoking and inspiring. Looking back on it, a couple of things stand out. First, he really did seem to be in it to promote a cause rather than pursue a successful career. It was typical of him that he saw that the purpose of the party was to achieve real political ends, rather than just being a feel-good place for liberal activists. After saving the party from the oblivion that faced it in 1988 (its standing was even worse than it is now), he therefore engaged with Tony Blair's New Labour project, looking to a possible coalition. This gave rise to a sort of non-aggression pact which helped crush the Conservatives in 1997 and, with over 40 seats, took the party into the political second division - still the happiest election night I can remember, even though the party lost vote share. The size of the New Labour victory, and ongoing Labour tribalism, meant that coalition was in fact out of the question. But a degree of collaboration with Mr Blair's government achieved a number of things, especially in the area of electoral reform: establishing a regulatory framework for political parties, which in turn allowed proper disclosure of donations; proportional representation in the Scottish and Welsh parliaments and the London Assembly (and the European Parliament too, though that had less to do with the Lib Dems). The collaboration was quickly dropped by his successor, Charles Kennedy, in 1999, who was much less focused.

A second characteristic was his willingness to engage with people. While he did not have much patience with formal consultative processes, he was very happy to listen to people that disagreed with him. He managed to engage with the party's conference Glee Club, a notorious hotbed of party whingers, while leader and afterwards. No other leader has come close to managing this.

Towards the end of his leadership the chorus of whingers was becoming ever stronger. Members struggled to keep up with his bright ideas, and he tended to run roughshod of the party's internal structures. By the time he stepped down the party was ready to move on to a less charismatic leader who would be more comfortable to be around. He then disappeared from party politics as he was awarded tough diplomatic jobs in the former Yugoslavia, especially as UN High Representative in Bosnia. He impressed many with his energy and toughness, though he inevitably attracted snipers. The contrast between him and his SDP counterpart David Owen, who had earlier also taken on an international role in the former Yugoslavia, showed the latter to be a much less effective operator, for all his clever talk. Paddy was nominated to an equivalent role in Afghanistan, but was vetoed by Hamid Khazai, the Afghan president, doubtless because he knew that Paddy would call out the corruption in his regime. That tells you all you need to know about the failure of western policy in that country.

Paddy then returned to Lib Dem politics as an elder statesman, where his role was quite selfless. He supported the party leadership in the difficult coalition years of 2010 to 2015, though he must have had reservations. The then leader, Nick Clegg, then put him in charge of the 2015 General Election campaign. This was not Paddy's finest hour. He was dynamic and focused, but badly misjudged the Conservative campaign. Whether anybody could have saved the party from its relegation to the political 4th division in that campaign is open to question, but others might have less the party in a less weakened state afterwards.

But the really striking thing about this dismal episode was how quickly he bounced back. Unexpectedly the party's membership surged after the 2015 election, and grew some more with its unequivocal stance for Remain in the EU referendum. Paddy made it his business to engage with and encourage this flood of new members, which had done so much to encourage him. A new generation found him inspirational.

By 2016 Paddy's political judgement was much more realistic. A couple of weeks before the referendum he came to visit us in Tooting, where we were fighting a hopeless by election. He was very gloomy about the probable outcome of the referendum: he had seen the writing on the wall. And, he said, if the referendum was lost then exit would almost certainly follow. He said that it was possible that a Leave result could be reversed, in the event of a constitutional crisis, but that would be so bitter and messy that "it was not to be wished for". How right he is proving to be. Brexit might yet be averted, but the mess that would leave does not bear thinking about, even if it pales beside the mess a no-deal Brexit would create.

Above all I remember Paddy as a liberal whose values I share. A loyal servant to his country, he hated nationalism. He saw that our Westminster-based politics was failing most people, and needed radical surgery. He was not afraid to speak bold ideas, even if many of them did not stand up to close examination. I will miss him a lot.

Extraction to sustainability: Australia is at a crossroads

Bushfire Dreaming (2003) by Ronnie Tjampitjimpa

Every nation is riven by historical tensions that are overlooked by their boosters, and yet come to define them. In Britain, the island's relationship with the rest of Europe, an especially visible problem now, is just the latest iteration in an unresolvable conflict that has been playing since before Julius Caesar. In America we see the conflict between the individualism and vigilantism of the frontier playing out against a worship of the rule of law. Australia, from where I have returned after a six week visit, is no exception. And it approaches a decisive moment.

The tension that runs through the Australian nation is that between the people who have migrated there and the natural environment and indigenous people they found. Those immigrants are the people that made the Australian nation as we understand it. Before that the continent was a complex tapestry of indigenous tribes with much commonality but no national identity. Those immigrants have treated the land they found as resources to be pillaged for their greater wealth, and indigenous peoples as an obstacle to be cleared. The artist William Ricketts had this searing indictment:

From William Ricketts Sanctuary, Mount Dandenong, Victoria

And yet Australians love their country and all the things that make it unique in the world - its breathtaking series of natural marvels; its unique plant and animal life; the astonishing landscapes; the incredible Barrier Reef. They are philosophical about the dangers they bring: poisonous snakes and spiders, bushfires and so on. They are even coming to incorporate aspects of aboriginal culture, especially its art, into their own identity. (Indeed in my view the work of modern aboriginal artists, like the one at the top of this piece, are the country's most striking contribution to the world art scene). All these things are part of what it is to be a modern Australian. Ricketts's diatribe and the reserve it is displayed in are as Australian as an open-cast coal mine.

And yet the culture of extraction remains dominant. Recently the Economist produced a special report on Australia praising what is, in conventional terms, a very successful economy. But dig deeper and a darker picture emerges. This economic record has been driven by very successful export industries in mining and agriculture. In conventional economic analysis these are highly productive. So much so that they have driven up the Australian dollar to kill off a lot of more traditional industries. In the 1980s most vehicles on Australia's roads were manufactured domestically. Now local motor manufacturing has ceased to exist. But the conventional analysis does not include damage to the environment. This damage is pretty obvious in mining, which destroys whole landscapes, but it is also severe in agriculture. Australian agribusinesses (I can't call them farms) are highly mechanised and dependent on artificial inputs such as fertilisers. Earth is left bare for long periods, often allowing the soil to blow away (we experienced a big dust storm in New South Wales). Ideas such as soil rotation are for nostalgic romantics. Meanwhile many of these agribusinesses are being bought by Chinese corporations with no stake in the country's long term future. Agricultural (and mining) run-off is killing coastal eco-systems, including the Barrier Reef. Meanwhile wasteful agricultural use of water (for example in growing cotton) is also placing huge strains on the landscape. The Murray River runs dry before it reaches the sea.

Nobody is more aware of this than the Australians themselves. But the current political leadership, from the Liberal and National coalition, are indifferent. For them the focus is on short term living standards and low taxes. They deny that climate change is anything Australians should do anything about. They readily give permission for new coal mines, even in prime agricultural land. These policies command widespread support, and the coalition's leaders seem to think that by following Trumpian tactics they can mobilise this support to stay in power.

And yet this may well fail. Australia is no America. The coalition has become very unpopular after they ditched a moderate Prime Minister, Malcolm Turnbull, who sought compromises to face up to environmental challenges. The Liberals were crushed in a recent state election in Victoria. Most Australians, it seems, want to find a different way.

Actually a more sustainable Australian economy should be perfectly feasible. There is plenty of sunshine and wind to produce renewable energy. The masses of agricultural land could easily be farmed more sustainably. Australians are well-educated, technically savvy and commercially enterprising. They could make more themselves rather than import, using modern AI and robotics.

But moving towards such a path would be a shock. It would require a much lower exchange rate, and doubtless a cut to nominal living standards. Are they really ready for it? Perhaps it will require an economic shock. That may happen. Changes to the Chinese economy could weaken the country's terms of trade. Excessive property prices and personal borrowing may also force a crisis.

Australians have come a long way to facing up to their demons. But they now face some important and difficult choices. Australia's national identity could be o the threshold of a transformation.

Will 2019 be the year of the liberal backlash?

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As I finally overcome the effects of flu and Christmas celebrations, it is a moment to reflect on 2018 and what 2019 might bring. In common with most liberals (I hesitate to say all...), I am not feeling cheerful. But surely there is hope?

The anti-liberal wave continued through 2018. I will come back to Donald Trump and Brexit in a moment, but the trend has been visibly much more widely. In Europe we had the rise of anti-establishment parties in Italy and Germany, with the former achieving power (though to be fair the 5-Star movement does have some liberal elements). Anti-liberalism is well entrenched in Poland and Hungary, and the one apparent liberal bright spot, France, has now hit a big bump in the road with the gilet jaune movement. Outside Europe things look no better, with Erdogan in Turkey, Putin in Russia and Assad in Syria all looking unstoppable. And then there was the election in Brazil. At least the kleptocrat Jacob Zuma was finally thrown out in South Africa.

So the soul-searching amongst liberals continues. Critics from left and right attack a liberal establishment that just doesn't get it. To those on the right, what liberals don't get is patriotism and standing up for national interests in a wicked world. From the left, with its love of abstract nouns, liberals don't get that "neoliberal" economics and "austerity" are total failures. And, of course, there is something to both critiques - though right's answer of crony capitalism, and the left's of extending the central state's reach, both leave liberals as sceptical as ever. Liberals are clear about elements of a new narrative - environmental sustainability and internationalism, for example - but can't string it together coherently.

The biggest surprise to me over 2019 has been the success of Donald Trump. I had assumed that his regime would collapse into incompetence. The incompetence is there, evidenced by its inability to deal with anything complicated, like healthcare, but there is method in Mr Trump's madness. He is slowly developing a coherent narrative and a government team that believes in it. This includes the pursuit narrow US interests (and maybe Israel's too...) abroad, an attack on free trade, stimulus to the US economy, and stirring the pot on immigration. He is getting some grudging credit even from critics for his robust handling of China, for example. His claim that he is keeping his promises has currency and, through rose-tinted spectacles, it is possible to accept his claim of a transformative administration. Then you remember the growing healthcare quagmire, the roll back of environmental protection and the malign effect of tariffs on the domestic economy, and a more realistic assessment beckons. 2018 has been a fortunate year for Mr Trump. His trade war has been well-timed, and the tax stimulus too.

Brexit played out closer to my expectations. The government has been forced into a deal that keeps a customs union going for the time being at least. I am taken aback, though, by the strength of resistance from hard Brexiteers. I would have thought a tactical retreat was in order: get past 29 March 2019 and into formal exit with relatively little dislocation, and then start work on dismantling the hated compromises. We have taken back control after all. This is clearly the calculation of those still in the cabinet, like Michael Gove; but many others seem happy to contemplate a no-deal Brexit instead. But Theresa May is rapidly making that option untenable. Bexiteers like to talk of a "managed" no-deal, with a series of side-deals to handle the bigger problems, like air flights and medicines. They assume that the EU would play ball because, after all, they export so much to us. But we are rapidly running out of time, never mind goodwill. Others seem attracted to the idea of a hard landing, in order to bring out a "Blitz spirit" in plucky Britons. I get fed up with Remainers jumping on every scare story that gets dreamt up, but the shear delusionality of the more extreme Brexiteers is unbelievable.

Still, with the current tactics of both Mrs May and Jeremy Corbyn the chances of a no-deal crash are much higher than they should be. There is, alas for my Lib Dem friends, almost no chance of a further referendum. If Mr Corbyn supported the idea it might have been feasible, but he clearly doesn't. He wants a bad Brexit that can be blamed on the Tories to Labour's advantage.

So what hope in this dismal picture? I am waiting for the backlash (against the backlash, if you will). This liberal backlash is based on two things. Firstly that younger people don't hold with the anti-liberal movement. For them global warming is a real threat, and diversity a real asset. This needs qualification: less educated youngsters are picking up on the right-wing attack, and indeed they are behind a lot of the associated violence. But they form a lower proportion than they used to, and are prone to apathy. Meanwhile a large part of the original backlash comes from older people. This gives the potential for the pendulum to swing back. Time may be on the liberals' side.

Secondly, it is clear that the anti-liberal populists don't have long term solutions for the main problems afflicting society. In fact, beyond the headlines, their solutions involve the breaking down of democratic institutions to provide cover for crony capitalism in league with a crony state. Where those institutions are relatively weak in the first place, they may succeed in entrenching themselves well enough to head off any backlash (look at Venezuela for an example of where things can go). But in most developed countries, including the United States and Britain, I think the institutions are too strong.

How might the backlash play out? In the US the most obvious way is for a full Democratic victory across all branches of government in 2020. We had a hint of this in the mid-term elections in 2018, but the backlash has to develop further for this to happen. And yet Mr Trump's end could be hastened if senior Republican politicians and donors start to panic. Trump's confrontational, insurgent game has produced brilliant success but it does not make for secure political alliances. This could happen in 2019.

In Britain? Things are harder to call. Labour are currently trying to combine a liberal backlash with an anti-liberal left backlash. This is creating a lot of stress, and a well-led, well-prepared and well-funded Conservative party (to say nothing of the continuing appeal of the SNP), could well be enough to keep them at bay. And the impact of Brexit on our politics is unknowable. A wider realignment is possible.

That is my hope and maybe 2019 will see the turn of the tide. But one thing is clear about any liberal backlash. It will not be led by reheated liberal politicians from the past. It will depend on appeal to younger voters, and that will need something fresher. And that is something all the mainstream political parties, in Britain anyway, are struggling to do. There will have to be changes at the top. Happy New Year!

Britain’s fate is in the hands of two people: Theresa May and Jeremy Corbyn. Which is the problem.

I'm back from Australia, but alas recovering from a bout of flu combined with tooth trouble. What with Christmas coming, normal service will not resume for a while. But I can't help myself from commenting on  Britain's Brexit drama. 

It is striking that so much of what happens next depends on just two individuals, the Prime Minister, Theresa May, and the Leader of the Opposition, Jeremy Corbyn. This is not a comforting observation.

First, and most obvious, is Mrs May. She is in charge of the Government - and when it comes to taking the initiative, the Government has the upper hand over Parliament, even though the latter is technically sovereign. Parliament has tried to wrest some control over the process, with need for a "meaningful vote", but Mrs May has easily outmanoeuvred it. She alone dictates when the vote will take place, and simply postponed it a month when things weren't going her way. She still needs parliamentary consent though, which leaves a deadlock.

Meanwhile, Mrs May has fended off an ill-advised attempt from within her parliamentary party to unseat her as their leader. There's nothing much they can do now to remove her. She's in complete control.

How does Mrs May choose to use this power? She clearly wants the deal she has negotiated with the EU to be ratified, allowing the UK to formally leave on 29 March, and to get on with the next phase of the negotiations about the trading relationship with minimal disruption to commerce and daily life. She interprets this, fairly enough, as fulfilling both the mandate given by the 2016 referendum to parliament, and the election promises she made in 2017. What if she can't get that consent? She says that there are two alternatives which are No Deal or No Brexit. But she has not expanded on what exactly she means by this, except to rule out a further referendum to decide between two or more of the options.

The closer we get to No Deal the more horrifically it looms, completely giving the lie to Mrs May's earlier mantra that "No deal is better than a bad deal". She consider this to be a realistic option - but it is still what happens if parliament does not consent to an alternative. So what does she mean by "No Brexit"? If she rules out a referendum then that means a unilateral decision by parliament to revoke the Article 50 Notice to leave the EU. This has been shown to be legally feasible, but only if it is a complete revocation, and not shenanigans to simply resubmit the notice a bit later. That idea looks horrific too. Even the most ardent Remainers feel that Article 50 should only be revoked if a further referendum endorses it.

This is highly unsatisfactory, but Mrs May is the person in charge and we must play to her rules, even if she doesn't explain fully what they are. Only one person has the power to break the deadlock: Mr Corbyn. The most obvious way would be for him to throw his weight behind Mrs May's deal, mobilising enough Labour MPs to neutralise Tory rebels and the DUP. It would be very easy to argue that this is in the national interest, and Labour committed to Brexit in the 2017 election. However, he has spent so much energy rubbishing the deal that the effect on his authority would be catastrophic. 

There is another way. As Leader of the Opposition he can table a confidence motion allowing parliament to bring the government down, either leading to a new government or an election. This is what he says he wants to do, to force an election, which he hopes Labour would win. But it is hard to see how he would win an election at this point in the process, without a clear policy on Brexit of his own. Even a deeply split Tory party should be able to see him off. Anyway, if he won he would not have time to renegotiate Mrs May's deal, so it does little to resolve matters.

But there is a bigger problem with using a confidence motion: neither the Tory rebels nor the DUP would support it. They do not want an election on Mr Corbyn's terms, or, heaven forbid, risk a Corbyn-led Labour government.

So what else could Mr Corbyn do? He could put forward a confidence motion with plan to replace the current government with a cross-party one with the single aim of resolving the Brexit deadlock through a referendum. This would require cooperation with Tory rebels (though different ones from the hard Brexiteers that are causing Mrs May her main problem). I think this idea has been referred to as a government of "national unity", though it is hard to see that it would do anything but promote yet more national discord, even if that may be necessary.

That would leave the rather tricky question of who would lead it. It couldn't be a party leader. It would help to bring as many parties on board as possible: the SNP for sure, but the Lib Dems, Greens and Plaid Cymru too. There would also need to be clarity on where it would end and how. It would need to resign pretty much s soon as Brexit formally happened, or Article 50 was revoked. Would the Conservatives and the DUP be given another chance after that? Or would there be an election, with the Conservatives irretrievably split?

This final option is a very long shot, but these are desperate times as the prospect of No Deal looms. But the real problem is that I don't think that Mr Corbyn has the vision or ability to pull it off, even if he wanted t, which is doubtful. And without Mr Corbyn it cannot work.

Which leaves us with Mrs. May's grim brinkmanship. At a time needing great, visionary and persuasive leaders, Britain's don't measure up.

Are there Australian lessons for Brexit?

I have now just a week to go in my long trip to Australia. I’m not all that surprised that I haven’t managed to update this blog regularly on my travels. It turns out that it is quite hard to fit into my holiday routine. But witnessing the mounting political tension on Brexit in the UK from afar, I will manage one more post. Does an Australian perspective have anything important to say on Brexit? Well, yes and no.

Australia is beloved of Brexiteers, partly because it is part of an “Anglosphere” which they hope can substitute for Britain’s European identity. But there are two more substantive reasons. One is that Australia shows that a medium-sized nation can be economically successful as a fully sovereign state. The second is that a country that attaches itself to the booming Asian, and especially Chinese, economy will prosper.

Let’s start with the first proposition. Australia is undeniably successful without being part of a wider formal economic block like the EU. Indeed most Australians would probably be horrified at the loss of sovereignty that such an arrangement involves. They are fiercely self-reliant and independentlyminded. Most of the Australian6s I have had proper conversations with have been internationally aware and sympathetic to Britain’s membership of the EU. That makes them unrepresentative. It is very hard to get any kind of international news on television or radio out here. The bulletins are consumed by stories on the latest bushfires, weather events, local political spats and sport. Only the Royal Family can intrude. I suspect that most Australians are pretty sympathetic to Brexit. The country has half or less of the population of the UK, and still makes a very good go of things. Indeed it is prosperous. One shouldn’t make too much of this, though. Australia’s dependence on the US for security has meant that it had to send its boys to be killed in Vietnam. And Australians worry about Chinese intrusion into their state currently.

Australia’s success has a lot to do with the second proposition – that its economy is tied to the fast-growing Asian economy, rather than the lacklustre European one. Australia exports substantial amounts of minerals and agricultural produce to China, in particular, and attracts lots of Asian tourists and students. There is a lot of Chinese investment. That keeps its exchange rate high, so that Australians can afford lots of exotic imports. A popular theme of the Brexit case was that Britain should unshackle itself from the European corpse, and trade more with Asia. Although the example usually given is Singapore, Australia seems to make the case even more convincingly.

But, of course, we have to think of the differences between Britain and Australia. The first is Australia’s relative isolation. The country has little choice but to go it alone, as it is not geographically close to any other large nation – if you exclude Indonesia, which is not close to any of Australia’s major economic hubs, quite apart from a cultural gulf that makes the divide between Britain and its European neighbours look trivial. Indeed the internal distances within the Australian continent are often more daunting than those between Britain and even its more distant European neighbours. Australians are self-reliant because they have to be.

But they are still a success. That is surely down to the next big difference: it is a vast continent with huge exportable assets. These include massive mineral wealth and agricultural land. The Australian economy has a highly extractive character. That even applies to its agriculture, where few farmers give serious consideration to the long-term sustainability of their methods. While on our trip we experienced dust storms in New South Wales. Dust of that sort doesn’t come from deserts (where such fine particles would have been blown out long, long ago) nor form vegetated land; it is agricultural top soil being left exposed by exploitative farming methods. Even without leaving vast areas of topsoil exposed, agriculture depends heavily on artificial fertilisers, which can only do so much. All this means high agricultural productivity and competitiveness of exports for the time being. Britain does not have the option of exploiting its natural resources in a similar way, even if it wanted to – which it very clearly doesn’t. Nobody suggests that despoiling hundreds of square miles of British countryside is what the country must to to escape economic dependence on Europe.

So what could Britain do instead to ride the Asian wave? Asia has strong demand for capital goods. But Britain has hollowed out its manufacturing industry (unlike Germany which is riding the Asian wave successfully from within the EU). There is hi-tech expertise and products. Britain could do better here, but China is investing hugely so that it becomes less dependent on foreigners. Tourism? Professional services? Universities and schools? There are possibilities in all of these, though Britain tends to shoot itself in the foot, especially with over enthusiastic anti-immigration policies. But it would be a hard road. Anyway it is far from clear that Britain is better off being outside Europe and free of its regulations and trade restrictions, or within it and so having a wider semi-domestic market in which to scale up its products and services. Britain’s proximity to the rest of Europe is one of its comparative advantages over Australia – it seems silly to get in the way of that.

Another point is worth making. Some Brexit supporters suggest that Australia could be part of a wider international support network, economic and political, rather as the Commonwealth was before Britain joined the European Community. From here that looks naïve. Australia has long outgrown its old links to Britain. We used to be a significant source of agricultural outputs – but now Britain cannot compete with the closer and larger China. On other matters, education or business services, Australia looks more like a competitor than a partner. Distance prevents the intimate supply chain links that are a feature of Britain’s economic relationship with its neighbours.

While the Empire 2.0 and linking up to Asia’s dynamism look like fatuous arguments for Brexit, Australia still shows that smaller countries can plough there own furrow if they want to. Outside the EU Britain would still keep its strong links to the continent, and the laws of comparative advantage suggest that the economy would in due course rebalance to a new reality. The only question is how much poorer (or, for the Brexit optimists, richer) that new reality would be. Lacking Australia’s natural assets, it seems likely that it would be quite a bit poorer.

Western Australia: a place to live rather than visit?

I’m now in Hobart, having moved from Australia’s largest state to its smallest. We only spent a six days in WA, and purely as a tourist. We didn’t visit anybody living here. So my view is inevitably superficial – but I hope it will still be of interest.

WA is vast, taking up one third of the Australian continent. It is mostly empty of people. 80% of its population, we were told, lives in the Perth area. Most of the rest live in the south western corner, which includes Margaret River. We didn’t get beyond these populated areas.

Central Perth is underwhelming. It has an undistinguished skyline of the usual tower blocks. Its setting, on the Swan River has potential, but the urban planners have given almost all the riverside to roads and speeding motor traffic. Only a small harbour area is free of traffic, and that is now mainly a building site. There is a pedestrianised shopping precinct but it is nothing special. There is a lovely park, King’s Park, just off centre (the largest central urban park in the world they claim), but even this is rather spoilt by trying to make it accessible to people in cars. The best views over the city are next to a busy road. There is quite decent public transport but car is king. Outside the centre there is the usual Aussie suburban sprawl, including some lovely waterside properties, once the roads have moved inland. These are surprisingly dense; all houses are detached, and they are mainly single story, but the backyards are tiny. The houses are cheek by jowl. Once you have acquired your building plot, the thing to do apparently is to cover it almost entirely with one storey of house. This holds throughout the residential districts of WA we saw. This may be a countrywide trend, but here even the posh homes on the river side looked a bit squashed up against their neighbours.

The best bit of the Perth area is the old port of Fremantle. A lot of old buildings have survived and they aren’t dominated by newer ones. You can have a fish lunch on the fishing harbour watching dolphins near the fishing boats (real, working ones) without traffic whirring by. The port itself isn’t all that big. There were just three ships there when we visited, two stock carriers and a single container ship. Barcelona it isn’t. WA’s vast mineral exports don’t go close to populated areas.

Outside Perth the main attraction is the continent’s southwest corner, around Margaret River. This is lovely. An attractive coast, with boutique farming inland, featuring its now famous vineyards. It’s a popular holiday district and deservedly so. We perhaps saw it at an ideal time of year, in between the wet winter and hot, dry summer. It was verdant, and the temperature in the very pleasant mid-twenties. There are plenty of wilderness sights in WA, but we didn’t have time to sample them. We will next time. And there could be a next time. We flew here because of the new Qantas non-stop flight from Heathrow by 787 Dreamliner. This was a success, and we prefer it as a way in to breaking the journey to the east cost to Dubai or Bangkok. But if they manage to put on a nonstop flight to Sydney, that might be a tempting alternative.

This is a mainly economics blog, so what could I make of the WA economy? It seems to be healthy and growing, though homeless people were to be seen frequently in central Perth. This appears to be mainly about mining, of which iron ore is the most important, but which covers a multitude of other things. This happens in the wilderness and is quite astonishingly destructive of the local environment. But as almost nobody lives there, that doesn’t seem to be an issue. The presence of aboriginal inhabitants is light. In the south west we only found any serious reference to them in the art gallery. Doubtless in the outback their presence is stronger, but the mining businesses clearly don’t have too much trouble.

The mines do need quite a few people, even if they aren’t sent down holes in the ground when you can simply remove all the rock that is in the way. These are flown in for periods of one to three weeks from Perth and outlying towns. As these workers spend money in their home towns, and go on holidays, this drives much of the rest of the economy, or so we were told. The Economist suggests that automation is far advanced in the mines, and fewer workers are needed. There was no sign of that – perhaps because this affects workers shipped in from outside WA to a greater extent. There are a lot very wealthy people on the back of the mining boom – who in turn invest in the boutique wineries in Margaret River, as well as fabulous properties to live in. But there seem to be plenty of decent mid-level jobs too, which are the key to a broadly prosperous economy. One thing we noticed was that there were quite a few older workers – including just about all the tour guides we used.

So my rather superficial verdict is that Perth and Margaret River are very pleasant places to live, with all the civilised comforts. If there are world-class tourist attractions they are probably in the outback, though apparently the surfing is world class too. But if you are visiting Australia anyway, it’s a nice place to go, though still over three hours flying time from most other places.

Is Australia a neoliberal success story?

I have just started a six week tour of Australia. Right now I am in Perth pictured), our first stop. Australia is a country I know quite well. I have visited it in every decade since the 1980s. In the late 1990s and early 2000s my visits were frequent as I was working for an Australian-owned company. But my last visit was in 2006. I am interested to see some new places (Perth is one; Tasmania will be another), and also to understand how the country has developed.

I have just finished reading a special report by the Economist on the country. It paints it as a neoliberal beacon; it doesn’t use that word of course - neoliberals never use it themselves. That is an interesting thought to challenge while I’m out here. The country is a remarkable economic success story, with continuous growth since 1991: a better record than any other developed country. It has weathered two financial crises (the 1997 Asia crisis, and the 2008-09 crash), and several twists of the commodity cycle, impressive for a country for whom mining is so important. Doubtless raw materials and hitching the country’s fortunes to China’s economic growth, play an important role – but other Southern Hemisphere countries do that without Australia’s success. Its economic policies have a clear neoliberal bent. Fiscal policies have been conservative; pensions and healthcare have been substantially privatised. The currency floats freely. Levels of immigration are high. It stands as a reproach to the conventional wisdom of the left, which hates the involvement of markets in public services as well as governments aiming for low levels of public debt. It also stands as a reproach to the conventional wisdom of the right, which holds that multiculturalism is doomed to failure, and that high levels of immigration undermine social cohesion.

These headlines cover a much more complex picture, of course. In fact the Economist’s report is maddeningly shallow. But Australia is an interesting case study. To me the it looks as if the critical element to its success, which helps explain the way it has beaten the conventional wisdom of left and right, is healthy incomes across a broad stretch of society. This allows people to take more responsibility for health and pension expenses. It also makes them less stressed about the economic impact of immigration. But why? That is one of the questions I want to gain insights into by talking to people who live here.

Maybe Australia shows that it is too early to write off neoliberalism. Interestingly it is making a comeback in South America, as Brazilians follow Argentinians (and others) in turning their backs on leftist economics. Indeed outside some developing economies (including China perhaps), there seems to be no example of a successful economy that has abandoned neoliberal tenets. Even Scandinavian economies have tilted in the neoliberal direction in the last decades. And yet things are clearly not right in most neoliberal economies, including Britain’s. A lot of this has to do with pressure on those with middle and lower incomes, and in the phenomenon of left-behind places: middling and smaller towns, and rural areas. It will be interesting to understand how Australia has met these challenges, if, indeed, it has.

The Master and his Emissary: is modern society too left-brained?

I have at long last finished Iain McGilchrist's The Master and his Emissary. It studies how the right and left sides of our brains differ, and develops the idea that there is a conflict between the two hemispheres that has wider implications in our society. It is a fascinating book that has changed the way I look at the world.

The first part of the book describes how the two brain hemispheres work. It is a brain structure that has evolved in vertebrates, with the left side being task-oriented and the right being aware of the environment. This simple idea is explored thoroughly by Mr Gilchrist, and he notices that in the modern world there is a bias towards the left hemisphere's way. It likes rules and calculation, while the right takes on emotions and context. Revealingly, early brain scientists described the right hemisphere as weak and useless. Our society loves the order that laws bring, and likes to pretend that nature operates under an analogous system to the human legal system - we are simply in the process of discovering its laws. The second part of the book takes this much further by trying to interpret the development of Western thought and art in terms of a conflict between the hemispheres. Classical Greece achieved a happy balance, before the left side took over following Plato. The theocracy of the Middle Ages was also very left hemisphere, before the Renaissance brought in right hemisphere thinking. The left hemisphere fought back with the Enlightenment, leading to a reaction with right hemisphere Romanticism until finally the left hemisphere triumphed with scientific materialism. This is very thought-provoking. But I did find some aspects of his argument lacking.

First is Mr Gilchrist's focus on the West. Other cultures are generally assumed to be much better balanced, with a small excursion into Japanese culture to substantiate this point. This has an annoying post-colonial aspect to it: the modern narrative that all the world's ills are down Western greed and exploitation. While this is a corrective to the attitude that saw Western civilisation as the only worthwhile sort on the planet, it still denies non Western peoples and cultures agency. Everything still comes back to the West. One of the things that the BBC series Civilisations did well was to show how we need to see Western civilisation in a wider, more human context. Mr McGilchrist's analysis would be stronger if he found parallels in his battle of the hemispheres in non-Western cultures, rather simply dropping into lazy West is bad, East is good thinking. In fact I don't this would have been hard to do. Perhaps the two most spectacular examples of left-brained extremism in modern times were Mao's Cultural Revolution and the Khmer Rouge's Year Zero. While both of these might have had some Western heritage there is surely much more to it than that. And what about the complaints from Asian leaders about Western decadence, which seem to boil down to us being too sentimental and right-brained?

A second issue is more serious. When exploring the evolution of Western thought he focuses mainly on art, and as the story progresses this focus increases, so that by the 20th Century art is pretty much all he analyses in detail. It also seems to be a rather skewed survey of art: I don't think there is a single reference to Impressionism, the movement that seems to have had more impact than any other in the last two centuries. Actually what I am more interested in is political thought and business practice. He hints at his view that Fascism and Stalinism were left-brained excesses - and yet his survey of art shows that things are never as simple as they appear at first, and I can see many right-brained aspects to Nazism in particular. Indeed if he had tried to take apart and compare Fascism, Nazism, Stalinism and Maoism instead of Surrealism and Post Modernism the second section would have been much more valuable

And it is through thinking about its application to political thought that I developed my biggest grouse with this book. It is too Right Brain Good, Left Brain Bad. The only real virtue he admits for the left-brain is effectiveness, and the only real vice for the right is corresponding ineffectiveness.  But I think there is more light and dark on both sides. What gave me this insight was watching Donald Trump. He is a right brain genius; he rejects rules, values belonging and always thinks in context (which is why he is so often appears hypocritical). It is more complicated than that of course - his lack of empathy is a left-brained characteristic, as his transactional way of doing business. But it got me to understanding that tribalism is a right-brained characteristic. It wasn't left-brained white intellectuals who used to spit at coloured children. There was something much deeper and visceral going on. And correspondingly it is the left hemisphere that builds bridges between tribes - it literally and metaphorically builds a common language. It was the Enlightenment that brought Jews into mainstream Western society, and Romanticism that led to their rejection until scientific materialism finally triumphed after the Second World War. Interestingly Mr Gilchrist does hint at this in a caption to one of the colour plates, of a 14th Century picture of the Resurrection of the Dead: "Grasp, the left hemisphere's means of control, is not intrinsically self-serving: it can also reach out to others. Here the life-giving force comes from the left side of Christ's body." There is dark and light on each side of the brain, and it is balance that we should be striving for.

But fundamentally Mr Gilchrist is right. We in the developed world are far too seduced by left-brained thought, and value right-brained insights too little. While there is no proper analysis of political thought in the book, one thing is extremely clear: modern liberalism is rampantly left-brained. This is the most searching critique of liberalism that I have read, and it does much to help me understand why it is failing. It does not put enough weight on emotions, on belonging or on context. Mastery of these things is why Mr Trump is so successful, setting up a strong emotional bond with his supporters. Liberal attempts to counter this are intellectual and dry. They sound clever but miss the point. People will not wake up one day and decide that the liberals were right after all. Liberals must put themselves back in touch with people's values and emotions. They claim they want to give people more control over their lives, but often they do the opposite: they try to make them conform to a set of  politically correct norms.

There is another important insight that I take from this book. Mr McGilchrist is right that too many people think that humans are machines - or use that metaphor to understand humanity. This is very left-brained. The most egregious example of this is the way artificial intelligence is being hyped. If humanity is a machine, the view goes, we will replicate it very soon. And yet we are nowhere close. There is an irony in this: scientific materialists, the arch left-brainers, do not believe that people were designed by a god, but that we evolved; but they act like believers in Intelligent Design. Humans were not designed by anybody, and that is why they are so hard to understand, and still harder to replicate. And then there is a supreme arrogance about the power of data. The world does not reduce to data. Data give you a small fraction of the past, and that is it.

A further reflection is that the duality of the brain is a very good way to think about effective management. You need focus, and you need awareness of the world. The two are incompatible (attempts to achieve awareness in a focused way usually end in disaster - of which the financial crash of 2007-09 is a particularly clear example) - so you have to do both and make them cooperate. Alas far too management thinking worships task-oriented achievement. Excessive focus is perhaps the biggest reasons why human enterprises fail.

This is a flawed book. But its insights are very powerful indeed.