Notes from the Edge

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The June 18th cover for The Spectator

 

With the BREXIT vote now only days away its worth taking a moment to consider the dramatic political shift that seems to be happening around the globe. Where once left/right politics dominated, or pro-capitalism vs. pro-socialist forces clashed, today the challenge is far more frightening. Today we sit on the brink of the end of the new internationalism and face the rise of old nationalism.

In Jon Ronson’s funny and insightful book THEM: Adventures with Extremists, the author describes his final meeting with a founding member of the Bilderberg Group (yes, that Bilderberg Group) Lord Healy, who explains that at the end of the Second World War a real effort was made to encourage trade and economic growth as a way of deferring future wars. The Bilderberg Group is but one of many, slightly shadowy and often undemocratic, organizations that exist to further those goals, encouraging powerful people to air out their issues and discuss ways to make that vision of the world more likely.

But for millions of people the new internationalism that has been fostered through trade agreements, globalization and corporatism has made the world more hostile to millions of “left behind” voters. It has seemingly given power to cigarette manufactures in Africa, or created unfair and uncompetitive “tax free zones” in South Pacific nations. It has fostered sweatshops in Sri Lanka, dangerous factories in Bangladesh, all at the expense of industrial workers in Western developed nations. In Europe this internationalism is blamed for feckless leadership on humanitarian, fiscal and bureaucratic issues. In America it is blamed for the rust belt through the mid-west.

The response to the growing frustration on all these issues has been a resurgence of nationalism and political “strong-men”. Putin’s Crimea grab was as much about returning pride to Russia as it was about diverting attention from his own domestic issues, reestablishing  Russia’s place as a significant regional power. Across Europe there are rumblings, both of renewed regional nationalism from within countries, as well as growing concern that a “leave vote” in Brexit could destabilize the entire EU experiment. In the United States these issues have given power to the Donald Trump populism, but have also fired the Bernie Sanders campaign.

Energy to these issues have undoubtedly been fueled as a result of 2008, a disaster so wide reaching and so disruptive to the Internationalist narrative about the skill set of the political and corporate classes that it shouldn’t be surprising that millions of people seem ready to do irreparable harm to the status quo. The subsequent inability to provide a strong and sustained economic recovery like some recessions of the past has only made matters worse. Every ill, every short coming, every poor decision and every injustice inherent within the structure that we inhabit is now expected to be resolved by setting the whole thing on fire and assuming that the problem is solved.

I am constantly surprised by how little people actually want to see changed by referendums like these. During the Scottish Referendum, the expectation was that Scotland would continue on exactly as it does, but without any association to London. The Leave campaign in Britain is quite sure that while Britain will no longer be part of the common market, a deal can be worked out that will allow free trade to continue unabated and for British people who live in places like Spain and Italy to continue to do so without visas or travel restrictions. Donald Trump is quite convinced that he can have a trade war with China without upsetting American business interests there, and the host of smaller countries like Venezuela or Turkey can slide into despotism without adverse impacts to their international reputation.

We’re at the edge, with the mob pushing for change (any change) with little real understanding of the consequences. It is little surprise that the technocrats and political establishment are so unlikable and so uninspiring in the face of the radicals and revolutionaries that want to see a sizable change that can’t be brought about until everything is torn down. And while it is true that the status quo can’t remain, it is equally unlikely that the end of the EU, or a British exit will stem the tide of migrants from Eritrea, or that tearing up NAFTA will return factories to Michigan, or that Marine Le Pen can turn the clock back on France and bring back the beret.

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I expect market volatility over the next while as investors and deal makers try and figure out the correct response to either a leave or remain vote. If Britain does leave, the next 100 days will be telling as pronouncements will be made to try and smooth the troubled waters. But the real work will come in the next 2 years, as negotiations will begin to do all the hard work that the referendum creates. You can’t just burn it all down, you have to build something in its place. How successful the reformers are at the latter will be the real test of the new nationalism.

 

I’m So Tired of Europe

hu·bris

noun
  • excessive pride or self-confidence.
  • (in Greek tragedy) excessive pride toward or defiance of the gods, leading to nemesis
Who doesn't want to love this place? AMIRITE?
Who doesn’t want to love this place? AMIRITE?

I love Europe. I love it’s culture, its cities and architecture and the pace of life. I think in many ways Europe seems more usefully progressive, with things like public transportation and even energy. But god I am tired of hearing about Europe. Since the beginning of the financial crisis Europe has become the wounded, but never dying, member of some ill fated expedition. Every time the expedition seems likely to escape their fate, Europe goes and breaks an ankle…or something.

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From an investment standpoint Europe makes a lot of sense. It’s the largest economy on the planet. It’s highly industrialized and very productive. It has created one of the largest economies by knocking down trade and exchange barriers between nations. It has many multi-national firms, advanced R&D, and exports much to the rest of the world. And yet it constantly represents a problem for investors.

I believe the source of that problem may be hubris. There’s not a lot of science around that statement, there is no Hubris Index to track (although that would be neat!), nor is there some ratio to calculate. But there is a pattern of behavior that seems to lend itself to such an analysis.

Caricature_gillray_plumpuddingWe should be clear though, you need hubris to do great things. Name a nation that has attempted to reach beyond it’s grasp and risen to great military and economic might and you will uncover a great deal of pride and arrogance. But something must temper that pride or what could have been great becomes the next Greek crisis.

Europe’s problem is that it seems to have little regard for the inner voice that advises caution. The Euro Zone, initially an economic endeavour to improve financial and diplomatic ties (the belief is that trading partners don’t go to war with each other) has spilled out into a messy, difficult and byzantine organization that has had a difficult time following it’s own rules. It has rapidly expanded into new markets, making it’s non-EU neighbors (like Russia) nervous about it’s intentions. It has turned countries with no business being part of the EU into powder-kegs ready to disrupt the whole experiment.

Ya, this isn't a joke. This is a real law that real people spent real time making.
Ya, this isn’t a joke. This is a real law that real people spent real time making.

Europe has lots of problems, but almost all of them are their own making. Greece may have borrowed the money that exploded their debt, but French and German banks lent them that money. Concerns that a Greek exit from the Euro could trigger a domino effect as deeply indebted nations choose default over austerity is also the  result of hubristic action. Countries like Spain and Ireland were hit with austerity because the government bailed out the banks, not because the government had mismanaged their finances.

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Europe’s desire to expand the mandate of the EU from economic integration into integration has also eroded a great deal of natural support. Exhausting, silly and pointless rules have caused nothing but ire within member states, and attempts to push through a new constitution within Europe were met with such local resistance, the whole things has been on hold.

All of this reeks of arrogance and overreach. But Europe has done this to itself, and the more we continue to hit regular road bumps on the road to financial well being, the more it looks like Europe is undoing it’s own purpose. It’s no surprise then that the economy that has recovered the quickest from 2008 has been the one supposedly worse hit. The United States has remained the foremost place for investors, safer, faster growing and more profitable than Europe. Europe, who is still dealing with the same problems of five years ago.

I’m so tired of Europe.