Realist, not conformist analysis of the latest financial, business and political news


We’ve been watching the deroulement (a nice little French word there that sounds a lot like what’s going on—a clash of Titans [and no, it doesn’t mean unwinding, it means event or operation]) of exiting the EU with some interest. As a person living in the Sceptred Isles, we’re part of it whether we want to be or not. But the same goes for those living in the European Union.

Perhaps Parliament in its wisdom (that would be cool, eh?) when it passed the European Union (Withdrawal) Act 2018 knew what an argy-bargy leaving the EU was all going to be. Maybe that’s why we phlegmatic Brits are not rioting in the street although a few in Parliament Square like to engage in cosplay. We’re cool with it because we know economic arrangements rather than fundamentals come and go like the British weather—roll on Florida, we say.

For others, maybe the recent little gyrations in Parliament seem at first sight weird (and even second glance) to those who don’t have a clue about British democratic practices. Now while we’ve the mother of all parliaments (it makes us wonder about the father of some of ‘em and what the mother was up to—but that’s another story), it can seem a little weird that with just over a month to go before EUED (that’s exiting the EU Day as currently enshrined in the above law) they’re still squabbling over the details. But that’s negotiations for you.

It’s boiling down to complaints about the whole process. Just to point out a recent “development”, there’s been a lot of comments in the press on the most recent defeat to Theresa May’s Plan B 17, as you can read here for instance in the remain-supporting Independent:

[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””]Brexit vote: Theresa May suffers embarrassing defeat as Tories rebel over no-deal anger[/perfectpullquote]

It’s all going to end in disaster, it would seem. The reason given is:

[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””] Theresa May’s Brexit plans have been dealt a body blow following a “fiasco” in the House of Commons, which saw dozens of Tories inflict an embarrassing defeat on their leader. Eurosceptic Conservatives refused to back a motion reiterating support for the prime minister’s negotiating strategy, deeply suspicious that she might try and use it to rule out a no-deal Brexit. [/perfectpullquote]

Body blow eh! Now we’ve no knowledge of whether the PM wishes or not to rule out said no-deal Brexit, which is of course a nice little bit of newspeak there anyways. There’s deals a plenty, really. What’s being contested here is whether the Withdrawal Agreement as is or in some revised fashion is agreed with the EU. There’s already agreements on standby to be activated in the event of said no-deal on substantial elements of the UK’s future relationship with the EU because the consequences for both parties are such that not having these would lead to political difficulties in Europe—perhaps less so in the UK. But who knows? They’ve got EU Parliament elections in May (see the nice little irony there?) that might just be more troublesome if the backwash from a messy (in whose terms?) exit takes place in March. Think of Spanish cabbage growers sitting on their produce unable to deliver it to starving Brits. No, on second thought, forget the idea. Scrub it from your mind.

What we’re seeing, of course, is a complex negotiating game going on. Most games we normally encounter are simple—the one’s we learn about in econ 101 are trivial in comparison—like the prisoner’s dilemma. Come to think of it, isn’t that what’s happening here? UK “escaping” (we’ve got to use quotation marks here because unless we’re very much mistaken, the British isles, minus that part of Ireland wedded to the EU isn’t going to go sailing off and anchor off the coast of Florida. If only…) Europe could be seen as a simple prisoners’ game.

But it ain’t so. The Brexit game belongs to that class called N person games. No not simply the Nigels, Neils, Nancys and Naomis of this world. It means a type of game involving lots of players—you’ve probably come across these at the post-Christmas sales, for instance, when you’ve been seeking out “that” bargain. (Sorry, we seem to have come down with an epidemic of quotation marks. Must get the pit disinfected. Note to Tim: call in the exterminators.)

Just step back a bit and think how many players there are in this game. We’ve Theresa herself looking for that place in the Prime Minister hall of fame, we’ve the cabal of cabinet ministers seeking to take over when she – as agreed – steps down. (In case you blinked, for the moment, she’s safe given Conservative party rules on contesting the leadership.) That’s before we get to Conservative members of the House and then the other parties. But each member, party, and clique has a view and for these groupings some alternatives are better or worse to each other.

Moving further afield we have the European Commission of course, but then the rest of the EU countries each with their politicians and their electorates somewhere in darkest Europe.

You get the picture.

So where does that leave us. It probably means that whether we deal or no deal (anyone remember that game?), when the number of players becomes large (that’s N being a biggish number—we don’t know what it is but it must be quite a few), there’s a complex process of forming coalitions (Second Referendum anyone?), re-formation of coalitions (no-no-dealers?) and deal making (anyone for this?).

When we’ve got a significant number of players in the game, guess what happens? No, Tim, you’re not allowed to take part because you know the answer.

Yep, the negotiation produces an outcome close to what a traditional market would produce. Isn’t that interesting?

Our modest little proposal to deal with the Brexit problem everyone seems so het up about, therefore, is for us to set up a little prediction exchange (as they have in the United States, courtesy the University of Iowa). Put skin in the game. You play the game by backing one or more of the alternatives with a bit of real dosh (that’s Brit argot for money to those reading this and wondering if the sarky economist has lost his marbles. Sad to say, we have misplaced a few. They rolled off the desk and disappeared into the pit we inhabit. Like the groundhog, they’re not re-emerging until spring—that’s April here. After the deluge, the Gotterdammerung of us being so democratic as to wish to revoke the European project and set sail on the high seas, storm or not.).

Use a market to determine what everyone wants. Go out and buy those no-deal investments, those second referendum ones, those Norway options, and so forth. Those who back the losing side end up out of pocket, as they should be. The winners get a return on committing their dosh. We get the market signal as to what to agree to, and, voila! The solution.

And us?

Well, we take a little bid-ask spread between the buyers and the sellers. A modest fee for hiring the University of Iowa’s software and on the modest proceeds we can buy a condominium in Florida and not worry whether the British Isles manages to sail across the Atlantic or not.

What’s not to like?


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Jonathan Harston
Jonathan Harston
5 years ago

Theresa May can’t rule out No Deal, No Deal is the status quo, and the status quo requires legislation to change, and it seems to have slipped the minds of our legislators that legislators legislate, not the executive, and Theresa May is the executive.

Unless…. Remainers are playing the long game and really do want to overturn Parliamentary Sovereignty in favour of Executive dictat. Never mind Henry VIII, Louis XIV here we come.

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