My take on Brexit The information I need to make my decision (Response to “Where the grass is greener” article by Gary Smith)
A fellow financial market professional wrote an insightful article on the question of Brexit http://www.omfif.org/analysis/commentary/2016/march/where-the-grass-is-greener/ His piece was refreshingly concise and clear, at a time when the Brexit debate feels like a competition to see who can make the facts more opaque and hence, the decision more difficult… The author achieved this by the clever use of simple metaphors, and I particularly liked the way he looked at Brexit through the lens of a personal divorce. I have for some time been wondering how to express my own views with regards to Brexit, and his article helped me crystallise some thoughts. So I hope the author will excuse me for making use of his metaphor to make my point, and for reaching an opposing conclusion. The author of the original piece argues that since one can only speculate about the long term contentment resulting from a divorce, but one can be more precise about the short term costs or benefits of the break up, that we should focus on the short term analysis when deciding whether to part ways; and since «there seems to be general acceptance, including among Brexit proponents, that departure would bring costs»… therefore, he seems to argue against Brexit. To continue with the divorce metaphor would be useful in taking the discussion from here… In the same way that we have some idea about the short term costs of a divorce but have no real clue about the long term consequences (in financial or contentedness terms)… so it is that we have very little idea about the actual future economic consequences of Brexit, because as most proponents of either camp will agree, all economic scenarios are full of very speculative assumptions. So why make our decisions on the basis of such dubious data? Who do you believe? I would argue that you should not believe (and therefore, you should not base your decision) in any of the economic forecasts. The truth of the matter is that no one ever embarks on a divorce on the basis of the likely economic outcomes (except perhaps a few mercenary folk) and certainly not, on the basis of any short term costsbenefits analysis, because as everyone knows… a divorce will always cost you money! (whether amicable or otherwise)… and so it will likely be with Brexit. The fact of the matter is that people take the very difficult step of divorcing each other, because of more fundamental reasons… for example, if they have grown apart and they have irreconcilable differences, or if they want different things from life etc. And if the marriage is over… it is over, and you get divorced despite (not because of) the short term costs and the long term uncertainties… and so it should be with Brexit. In other words, I believe that one should approach the question of Brexit based on fundamental principles. So what do I mean by fundamental principles? Expressing it again by way of the metaphor (i.e. for example on the grounds that the spouses want different things from life)… if one spouse just wants to be part of a very integrated trading block but the other spouse wants to be part of a federal political structure (i.e. a federal country of Europe)… then this might be sufficient grounds for a divorce, whatever the economic costs. If one spouse is happy to delegate local political power to unelected politicians in faraway lands, but the other spouse is not happy to do so… then this might be sufficient grounds for a divorce, whatever the economic costs…
So I believe that Brexit should be about sovereignty and democracy, not about costs and benefits, migrants, trade and employment forecast, and all the other arguments and scaremongering offered by the two sides in this debate; particularly, as I believe that in the long run, the cost-benefit consequences of either outcome will be «six of one and half a dozen of the other». At the moment I am biased towards Brexit because, the original benefits of being part of the EU will become increasingly reduced, while at the same time, I have become increasingly uncomfortable about the way membership seems to dilute the link between the electorate and those who govern them; and the increasing discomfort is directly correlated with the increasing powers of the EU and its progress towards a federal Europe. British politicians are elected by the British electorate to govern in its behalf. When a British elector votes for a member of parliament or a political party, they have the power to revoke that mandate if they become unhappy with their elected politicians. Does the British electorate have the same opportunity to exert their democratic rights in relation to EU politicians? Is the democratic deficit within the EU construct a myth or is it a reality? These and many other related issues are what I would like proponents of the two camps to explain better... but they are not doing so. They are focusing on the more nebulous costs-benefits analyses; and in the absence of such explanation, I have to go with my instincts. For another (less UK centric) way of looking at the whole EU question, see my note entitled “Why Greece should abandon the euro and maybe walk away from the EU”. However, as with everything else in life, what is important (and particularly for traders) is not what we think should happen but what is likely to happen… The fear of the unknown and the more effective marketing campaign of the ‘stay’ camp will likely win the day. Furthermore, the British political establishment will not risk Britain leaving the EU, because it still thinks there are more benefits to be gained from membership (see the same above-mentioned note) and in the murky game of high politics anything is possible… so there may be some surprises before June 23rd. For example, it makes no sense for senior members of the government to support Brexit, an outcome that was always unlikely to win… their political careers will be over as soon as the ‘stay’ campaign wins. So I would not be surprised at all if some high profile member(s) of the ‘leave’ camp turns tail just before we go to the polls, for (some as yet unknown) «very good reasons» of course… a final coup the grâce to end the Brexit camp’s race.
Virgilio Mendoza