Why Hillary lost? Branding, charisma, and the media. Really.

The conventional wisdom on this election is that it was a huge polling miss, in which Trump energized enraged White men to rise up en masse. It’s not that this is entirely wrong, it just misses the main things that actually happened.

First, it wasn’t all that big a polling miss. As Five Thirty Eight point out, If the democrats turn out just 2% more of their coalition, then you’re right about where the polls said they would be, and the conclusions everyone draws are completely different: Totalitarianism is repudiated, the Republicans have lost their way, decency wins.

And for another thing, it seems that, well…

 You want more context? Here’s a more complete version:

Notice that this isn’t an unprecedented wave of support for Trump, as most of the reports we read claim. Really, the story here is that Hillary wasn’t able to persuade as many people to turn out for her as Obama was. She wasn’t uniquely horrible at turning people out – she got a similar vote share to Al Gore and even her husband, but the Republicans became slightly more energized through Obama’s tenure, and that slightly edged her when her numbers came back down to Gore’s level (technically, like Gore, she even won the popular vote, she just had slightly the wrong distribution of them).

Despite having access to the tools that Obama’s team developed to turn out supporters, she wasn’t successful at doing it to as high a level as he was. Why?

Well, partly she didn’t have the charisma of Obama or Trump –  the ability to capture the rapt attention and excitement of people who weren’t already strongly behind them.

But it’s also hard to escape the conclusion that voters were widely disgusted with the election, because they didn’t like either candidate. As the analysts never tire of pointing out, Hillary was the most unpopular ever major party nominee – other than Trump.

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Trump’s base did turn out to vote for him – at least to the level of a normal Republican candidate (I’ll have another post about why that happened), but not enough of Hillary’s potential voters were enthusiastic enough to drag themselves away from their busy lives and line up (sometimes for hours) at polling places. Even where they did vote, they generally didn’t feel enough enthusiasm to pull their friends and family along with them.

But why was she so very unpopular?

The conventional wisdom here is that it’s because she’s just somehow inherently unlikable; that the Democrats made a crazy mistake picking such a wildly unpopular candidate. But that’s not really true either. The start of the election season looked like this:

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Yes, Hillary has been hated for decades by the Republican base, but not by the rest of America. It’s really only very recently that she became unpopular at all, let alone very unpopular:

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So why this sudden collapse?

Yes sexism will have played at least some role (a lot of the swing states have little to no record of ever electing women to their highest offices; what is seen as assertive/ambitious in a man translates to ‘bitchy/pushy’ in women). But if a Black man was elected twice in a country with the USA’s record of racism, it shouldn’t be impossible for a white woman to win either – unfair handicaps notwithstanding.

In the opinion of this marketing academic, the more compelling explanation is: Branding.

I know, I’m biased to see the world that way, but let’s see if I can convince you. Starting with this picture:

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Networks did cover the policies of presidential candidates in past elections. But this time they spent far longer discussing a faux “scandal” (one in which the candidate was completely exonerated from criminal wrongdoing) than they did on all policy areas combined (and the discussion they did do 100%  omitted topics such as trade, healthcare, climate change, drugs, poverty, guns, infrastructure, or even the perennial favorite of political reporting, deficits). These are all areas where Hillary had prepared hundreds of pages Hillary had prepared hundreds of pages of carefully researched and described proposals on ways to make America better. Trump had almost none of this. But this was barely touched on in the press.

Did this emphasis really matter though?

The thing you need to understand here is that humans store information about the world as associations. Quick illustration: If I say to you “City of Light”, you immediately think of Paris, because that’s a strong association in your mind. You probably have no idea where you learned this association (i.e., you don’t know its source). It doesn’t even matter if you particularly BELIEVE this association (that Paris literally has more lights, or that it’s particularly a brighter place to visit than London or New York or Delhi), the link is still there in your mind – and as any person whose job relies on selling things knows, these links can powerfully drive your buying behaviour.

News media think their job is just to uncover and present information, and that they should leave it to the audience’s to sift the bad from the valuable. For the media, breathless reporting of the emails ‘scandal’ was kosher, because it was a legitimate story about a public figure that people would tune in to watch. Whether it added up to much, was for their audience to decide, not for themselves.

But that’s not how humans accumulate understanding. There’s a well-known thing called the sleeper effect: If a very low credibility source makes an attack on somebody, then we tend to ignore it – at first. But then, as time passes, we forget who told us the attack – how uninformed and biased they are – but we do retain the association between the target and the negative information. Given a day or two to forget the source of the information, we do start seeing the target in a correspondingly bad light.

Marketers use this all the time – they feed us a steady drip of adverts that link their products to ideas of reliability or sophistication or family fun (etc). Even if we don’t believe a single one of the ads, or really even pay much attention to them, over time we do come to just sort-of ‘know’ that this product is reliable, and that one is sophisticated, and that this one is one you can enjoy with your family. Marketers call these “brand associations”.

And that is what happened to Hillary. The constant drumbeat of coverage linking her to corruption and lying and coverups had people feeling that they just ‘know’ Hillary is dishonest (I saw this even in people I talked to here in the UK). It didn’t matter at all that this impression simply was not true: When fact checkers went through the controversial statements made by all the candidates from this year’s primaries, Clinton scored best of the entire field. But that is the power of branding.

And boy is it powerful. Take this article, for instance. It breaks down the email ‘scandal’ in enough detail to show that it was almost totally meaningless, and yet even after all of this careful and methodical debunking, it concludes (emphasis added):

The Hillary email scandal has been brewing for a long time. Like the Benghazi scandal, this one has fizzled out, and one can imagine the frustration of reporters and politicians who had been savoring a climax that just didn’t come through. The Times published three front-page stories and two more on the inside that said basically nothing that everyone didn’t already know: Yes, the Clintons are slippery, they have an unpleasant record of doing things their way, they have a problem when it comes to trustworthiness. Beyond that, there’s nothing here, folks, move along.

Why does even this reporter say they are slippery and untrustworthy, even after combing so carefully through the facts that fail to support this conclusion? Well, because, um, Bill lied about this one thing that one time, and well… everyone just knows that they are. When you think about the Clintons, slippery is the first thing that comes to mind. It’s just GOT to be true of them on some level, right? Right?

That’s branding for you.

Still not convinced? How about this?

… in eight of the ten weeks between July 11 and September 18, “email” was the word most Americans associated with the Clinton campaign coverage, according to Gallup.

The first woman to be nominated by a major party for president is defined, almost completely, by the electronic communication platform she used several years ago while serving as secretary of state. She’s defined by that and by the Republicans’ Ahab-like attempt to turn that story into a career-defining scandal.

Please note that Colin Powell isn’t defined by the private emails he used as secretary of state. (And then deleted.) Jeb Bush isn’t defined by the private email he used as governor of Florida. President George W. Bush’s administration wasn’t defined by the fact that nearly two dozen White House aides used private email accounts controlled by the Republican National Committee. And Mitt Romney wasn’t defined by the fact that his staff wiped away all the emails from the Republican’s years as Massachusetts governor.

It’s only Clinton who gets defined by emails. Because the press, reading off the GOP song sheet, says so. And because the press, alongside the GOP, has been trying to criminalize the Clintons for 20-plus years.

Issues be damned.

 

EDITED TO ADD:

 

Boris to foreign minister a clever but risky move (no really)

Theresa May has shocked the world by nominating Boris Johnson as foreign secretary. Why appoint a man who has spent a career mocking the wider world (most recently a disparaging limerick about Turkey’s PM) to be our representative to it. Why send a man whose appointment is already causing people around the world to struggle to keep a straight face? Why give one of your top policy jobs to someone who is famous for knowing little to nothing about international policy?

It didn’t make any sense until I saw that she had also installed a long-time Euroskeptic Tory heavyweight as Brexit minister. And then the penny dropped.

On some level it really doesn’t really matter all that much who England’s negotiator is, because it’s likely to be closer to a dictation than a negotiation. You can read the full reasoning here, but the short version is that we need trade with the EU far more than they need it with us. They can credibly threaten to walk out on us, but if we tried to play hardball back, they can just smile and say “good luck with that.” The EU is not only in a position to more or less dictate terms, but they also are pretty much obliged to give us a harsh deal, pour encourage les autres (i.e., they can’t afford to make leaving the EU look like a good deal, because too many other countries would want to follow).

So let’s game it out: If May gave these jobs to moderates, then they would inevitably limp back with a bad deal in hand, and then Johnson and the Brexit-mongers would shout to the heavens that Britain has been betrayed by weak negotiators who didn’t get Britain what it deserves. When the blame game starts, they will kick it off by pointing at the negotiators.

This way, the outcome will be pretty much the same – bad for Britain. But it’s the Brexiters who will be the ones landed with the unpleasant business of being on the sharp end of a lop-sided negotiation, sitting across from people who hold almost all the good cards, and are angry at them. And then, later, when the results are in, the people who were the public face of Brexit will be the ones left publicly holding the bag. There will be nobody to point to, BUT them.

The risk, of course, is that in the meantime Foreign Minister is an important job, with a lot of responsibility. But Britain is no longer the major first-tier world player that it used to be (and sometimes still thinks it is), so there’s only SO much damage to be done.

I think Theresa May is making a smart play on the long game here. At least in terms of the internal national politics of it.

Why Brexit won: It’s not (just) what you think

Much has been written on why 52% of UK votes were cast for Leave, with different writers lining up behind different theories, of varying degrees of accuracy. Perhaps this is just the consumer psychologist in me, but I like to break it out into layers. Here’s the map of how I see it:

  1. What it wasn’t
    • Careful policy analysis
  2. The marketing that set the stage
    1. Badly run Remain campaign
    2. Years of poor branding for the EU
  3. Voter coping with despair (in negative and positive ways)
    1. Anger at Elites
    2. Xenophobia
    3. Need for control

Let’s break these down.

  1. Careful policy analysis

The simplest explanation is also the kindest: People considered all the available information and outcomes, and made a calculated decision that Brexit was the best means to an end. It’s a nice idea, but here’s a simple test: if you stop passing strangers on a UK street, it would probably take a good while before you found one who could explain very basic policy questions about the EU, such as: “What is it allowed to do to member nations, and what is it not allowed to do?” For the vast majority of Britons, Brexit was not a technocratic solution to policy problems.

Independent experts nearly universally thought Brexit was a weak idea at best, and while it may not live up to the worst depictions of the leave campaign, it has already cause a completely foreseeable crash and placed the UK into a much worse spot going forward.

While there are plenty of things wrong with the UK, and plenty of things wrong with the EU, those are two largely separate lists. The EU didn’t force the UK to follow its most destructive policy choices. We did those all on our own.

 

  1. The Marketing that set the stage

Part 1: Badly run Remain campaign

The Remain campaign’s only strategy was what tech marketers call “FUD” – Fear, Uncertainty, and Doubt.  The problem is not that their warnings were especially wrong, just that they weren’t overly effective. The word “uncertainty” does not terrify the public in nearly the same way it does business executives and economists. To business people, uncertainty is about whether you can invest millions in a project that might be profitable or turn a big loss depending on whether things like interest rates or consumer confidence change in a year or two. To normal people, uncertainty is not being sure whether the shop will be open for a Friday evening milk run. It means you give things a shot, and muddle through as best you can. It’s not so very scary.

Direct warnings about job and financial losses got more traction, but at the end of the day they are just statistics, and normal people just don’t think about the world such distant and abstract terms – they often aren’t very comfortable with statistics, and don’t have a lot of confidence that they will be enlightening, rather than misleading.

Early in the campaign, the Leave side’s response was to counter by shouting its own numbers right back (“No this bad stuff won’t happen, and £350 million a week!”). While the Remain campaign generally had the better of this argument, it wasn’t by much, and many Britons concluded that there just weren’t any particularly solid facts to go on, so who could really know? I’ve heard this from many of the very people I talked to, even highly educated ones.

You almost never see commercial marketing basing its appeals on statistics and macro trends, because there are only a handful of situations in which they are convincing, and marketers get fired if their products don’t sell. When the leave campaign pivoted to more emotional issues (immigration and taking control), their poll numbers shifted slightly from a narrow loss to a narrow win. The Remain campaign had no emotional counter (well, their advertising people did – good ones – but the campaign leadership was so muddled that it refused to run them).

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A rejected ad for Remain

Part 2: Years of poor branding for the EU

The strategy that does very much work is to drip feed people a steady diet of plausible sounding and emotionally resonant messages for years on end. This is an awful lot of what marketing practitioners do for a living: Find a framing for your brand that a suitable target audience is willing to believe, and that positions it well against competitors, and then find little ways to dramatize that into messages that you can push out into communication channels (TV, social media, store environments, etc), so that over time they are slowly internalized by your audience as being just the way the world is. And what works for pet food also works for politics.

This might all sound a bit lame and bloodless, but there is a reason that companies collectively spend billions of pounds on marketing, and it isn’t because they like giving free money away to their friends who make TV shows. This stuff matters. And when it comes to Europe, British people have been fed a steady diet of largely inaccurate stories about the ludicrous things that Brussels bureaucrats were supposedly trying to enforce. Boris Johnson pioneered the form, but many went on to imitate it, because… well, they are fun audience-pleasing stories that sell newspapers. News editors may or may not get in trouble for running wildly inaccurate stories, but the fastest way to get canned is to have circulation numbers that fall too fast. The gatekeepers for informing the British population thus fed the population a steady diet of propaganda trashing the EU – whether this was their direct intent or not (and it certainly was for some of them). It doesn’t particularly matter if the population remembered, or even really believed any of the individual stories, any more than it matters if they remember any specific McDonald’s advertisement. What matters is the cumulative effect they had to define the EU in people’s minds.

By the time of the vote, people’s immediate image of the EU wasn’t “keeping warring neighbours together in peace, and building opportunity and influence for us and our way of life.” It did mean that to a lot of people once, but this is a countervailing narrative that the EU did not actively push to the public. It didn’t see that as its job. It probably didn’t see that kind of thing as a seemly activity, or a good use of money. We don’t for question for a second when we see this kind of goodwill-generating messaging coming from petrochemical companies or purveyors of snack foods – when they do the exact same thing we regard it as suitable self-interest, but for cultural (rather than rational) reasons, the EU imagined that it was different for them.

So, by the time of the referendum, the EU campaign was running with the wind at its back. It didn’t need to come up with convincing stories about how the EU had messed things up. All it needed to do was knowingly reference “Brussels bureaucrats”, and instantly voters would dredge to mind years of associations with bizarre rules and perverse enforcement. If the Brexit campaign had been the first time these ideas were introduced, they would have been seen as controversial claims that Boris was trying to sell, and so might have been regarded with skepticism. But by the time it started they were already so well established in people’s minds that they emerged there as largely indisputable truisms about the shape of the world – everyone knows that Brussels is full of meddling petty bureaucrats, we’ve always known that. As I say, this is why commercial organisations spend so much time, money, energy, and effort on nurturing their brand images.

  1. Voters coping with despair

All of the above set the context for the vote. It created the conditions for a tight race. But what fueled much of the Leave vote was more profound than just works of political spin. This story alone doesn’t explain nearly enough of what happened.

Take a look at these two maps, side by side.

 

 

It’s not a perfect correspondence, but it’s striking that the darkest blue bits line up fairly well across both of them. The most deprived areas of England also tended to be the most pro-Brexit. This is something that some reporters have noticed on a more personal level. One reporter who traveled around talking to poor people found they were angry:

“What defines these furies is often clear enough: a terrible shortage of homes, an impossibly precarious job market, a too-often overlooked sense that men (and men are particularly relevant here) who would once have been certain in their identity as miners, or steelworkers, now feel demeaned and ignored. The attempts of mainstream politics to still the anger have probably only made it worse: oily tributes to “hardworking families”, or the the fingers-down-a-blackboard trope of “social mobility”, with its suggestion that the only thing Westminster can offer working-class people is a specious chance of not being working class anymore.

As good as globalisation, and the pro-market ideology might be at creating wealth, they are famously poor at distributing it evenly enough. We’re all familiar with the statistics about rich-poor disparities having got back to where they were in the gilded age, and about lower and middle class incomes stagnating, while all the gains in wealth have gone to the top tenth of a percent of the population.

It has been building for a couple of decades now. As one sharp analysis observes, the English version of it started in the 80’s: “Thatcherism gutted [the North East] with pit-closures and monetarism, but generated no private sector jobs to fill the space. The entrepreneurial investment that neoliberals always believe is just around the corner never materialised.” It goes on to note that well-intentioned attempts to ameliorate this haven’t necessarily helped.

Labour’s solution was to spread wealth in their direction using fiscal policy: public sector back-office jobs were strategically relocated to South Wales and the North East to alleviate deindustrialisation, while tax credits made low productivity service work more socially viable. This effectively created a shadow welfare state that was never publicly spoken of, and co-existed with a political culture which heaped scorn on dependency… In Nancy Fraser’s terms, New Labour offered ‘redistribution’ but no ‘recognition’.

it has since emerged that regions with the closest economic ties to the EU in general (and not just of the subsidised variety) were most likely to vote Leave.

While it may be one thing for an investment banker to understand that they ‘benefit from the EU’ in regulatory terms, it is quite another to encourage poor and culturally marginalised people to feel grateful towards the elites that sustain them through handouts, month by month. Resentment develops not in spite of this generosity, but arguably because of it. This isn’t to discredit what the EU does in terms of redistribution, but pointing to handouts is a psychologically and politically naïve basis on which to justify remaining in the EU.

(It’s an excellent piece. As they say, read the whole thing).

When people are feeling bad about themselves, it can come out in different forms, depending how people frame their suffering. You see this in the Brexit results.

Anger at Elites

One famous theory says that you get different types of positive and negative emotions based on how you understand the situation you are in. For example, you feel shame if you feel like a bad thing was caused by your own self, and that you could have avoided it. You feel despair when you see yourself as responsible for bad outcomes that you can’t control or avoid. Fear can crop up when you can’t avoid the bad thing they someone else might do to you. And if a really bad thing is done to you by someone else, and they could have avoided it, and you feel that you can do something in return – well, in that case you feel anger. Anger is an active emotion that is directed at someone who (you believe) did you wrong, by choice or by negligence. When you are fearful you want to escape. When you are angry you want to make them pay, even if it is very costly to do so. Angry people will sometimes go to self-defeating lengths for vengeance.

The UK’s depressed communities will have worked through most of the negative emotions at one time or another. And when they were handed a referendum ballot that let them vote on something that the elites in all the main parties really wanted… well, they were finally handed a little slice of agency. Something they could do to get back. It might not have been in their own self interest, but that really wasn’t the point. The point was to hit back by breaking some sh*t.

You don’t read much about this in the media, but then these are people that reporters have never been very comfortable hanging out with. They don’t get interviewed much, nobody puts them as talking heads behind studio desks. Reporters don’t hanging around the dodgier parts of Newcastle talking to them. Not until after the vote, anyway. Here’s a 62 year old called Martin Parker who went from steady jobs as an engineer, to increasingly unsteady jobs, to getting repeatedly cut off from the government support on which he relied, over a dozen tiny hassles.

Many of his possessions are gone, sold to get by. Two years into his three-year benefit sanction, he survives by “begging for small favours”: cleaning someone’s garage in return for food, say. Friends give him meals or bits of cash.

“It’s funny,” he laughs, quietly. “They’re all foreign. Polish. Italians. No one English has helped me.”

The government, he says, wouldn’t mind if he starved.

So you would think he would be in favour of keeping immigrants around?

Parker wouldn’t normally have bothered to vote – “I couldn’t really care less about the EU” – but last week he walked through a rainstorm to put his cross next to leave. His vote was not only a sign that he, like many, had no prosperous future to risk but a message to the elites that he feels have let him down.

“People are sick and tired of being ignored,” he says. “I don’t suppose I’m the only one to use this opportunity. It was a chance to kick the whole establishment where it hurt, for us to send pain the other way. And we took it.

That is an angry man. He wasn’t the only one.

Xenophobia

When really bad stuff happens, one of the immediate human impulses is to find ways that it isn’t your fault. “I didn’t trip, I’m not clumsy! I was pushed. The floor was wet.” And traditionally in politics, immigrants have been high up the list of people to blame. They aren’t like you, nobody can accuse you of being one, they have very little power to push back against you, and you probably don’t know many of them personally so it isn’t socially awkward (and if I do know one or two, well I didn’t mean you, you are one of the good ones. I obviously meant the OTHER immigrants).

It’s hard to deny that this was a strong motivation for at least some Brexit support. The Leave campaign talked about immigration quite a lot, it famously put out a poster called “breaking point” showing a long line of Syrian immigrants (not even in the UK – that wasn’t the point), it fretted in public that Turkey might be allowed into the EU, causing millions of Turks to descend on the UK’s shores.

Britain’s racist minority appears to feel vindicated by the out vote, and there has been a spike in overtly racist actions, with, among other things, random immigrants on the street being told by strangers to go home. These people apparently believe that the Brexit vote represented the majority of the UK finally saying out loud what they have been prevented from saying before – that it’s all the fault of outsiders, and now we have collectively decided to be rid of them.

You don’t have to be flat out racist to be pulled into this, though. Resenting Europeans is baked into part of England’s cultural DNA (as John Oliver amusingly illustrates). Even if you don’t actually hate anybody, it’s still easy to let biases towards them shape your thinking.

Need for control

Anger and resentment aren’t the whole story though. There is one local vicar from near where I live, who I personally know to be an exceptionally kind and thoughtful person, deeply sensitive to the world’s social injustices, and she, after much deliberation, voted Leave.

There is a huge amount of psychological research showing that humans have needs for control and for meaning. When we experience these things we thrive and feel happy, and when these things are denied to us, we suffer.

Control is something that is heavily denied to poor people. And when the rich become super rich, and the poor become poorer, it makes it impossible to ignore that others are living well whereas they have few choices in life, and have to struggle hard to overcome even small obstacles like a broken car they can’t afford to fix, or being able to pay for both food and rent.

And the Leave campaign worked out how to play to this yearning. One of the articles I shared above continues on to talk about this too:

“… the slogan ‘take back control’ was a piece of political genius. It worked on every level between the macroeconomic and the psychoanalytic. Think of what it means on an individual level to rediscover control. To be a person without control (for instance to suffer incontinence or a facial tick) is to be the butt of cruel jokes, to be potentially embarrassed in public. It potentially reduces one’s independence. What was so clever about the language of the Leave campaign was that it spoke directly to this feeling of inadequacy and embarrassment, then promised to eradicate it. The promise had nothing to do with economics or policy, but everything to do with the psychological allure of autonomy and self-respect. Farrage’s political strategy was to take seriously communities who’d otherwise been taken for granted for much of the past 50 years.

To people who didn’t get to control much in life, who feel kicked around a lot, here was a powerful offer: Tick this one little box on a ballot paper, and we will have agency again. We will be in control. We will be able to do the hard things we have been blocked from. If people are here taking our jobs, or driving down our wages, well, we NEED that money. Not want, we need it to be able to look at ourselves in the mirror and know that we can look after ourselves and our families. If they are overcrowding the health and other services we need, then vote Leave, and we can look after this to. If you feel like rules are just dictated to us from Brussels, then vote leave, and we can be able to look after ourselves again. No more getting pushed around and told what to do.
You don’t have to be poor to feel this way. Obama’s slogan in 2008 was “yes we can”. That was intoxicating to American liberals who felt helpless at George Bush had run their country, as they saw it, into the ground for 8 years straight. Obama was offering, as the Leave campaign did, to meet a basic psychological need to people starved of it. That was like offering water in a desert.

This motive isn’t a negative one. It’s not about trying to be cruel or exclusionary. It’s about trying to get what you need as a human being to thrive. You can fault people’s logic for believing that Brexit would in any way deliver these outcomes, but the desire for them, on its own – that was a deeply human thing.

 

It’s curious that that reasons for voting Brexit seems very little discussed. It’s not hard to find people talking about racism, or anger at elites, but I’ve only seen a few small mentions of the positive need for control popping up here and there. I’m not sure why. Perhaps it needs more psychology background to follow, or perhaps it just isn’t as fun a story as “horrible racists hurt country”. That is one thing I don’t know.

How’ll Brexit work out? Assume a parachute…

As Adam Silverman points out, Brexit may have won, but they don’t seem to have done so with any idea about what is supposed to happen next. The strategy seems to have been:

  1. Campaign to get out of Europe
  2. Win vote!
  3. Freedom and democracy! All the bad parts will now go away!
  4. Ok, maybe the EU has a few good parts, but we’ll just negotiate to keep those.

This is a bit like telling your boss that you quit your job, but you’d still like to negotiate about keeping the salary and company car, and maybe a few of your more enjoyable work tasks.

I’ve not seen one person articulate a list of what those good and bad parts are, but here’s what the campaign rhetoric would seem to imply:

GOOD

  1. Access to the common market.

BAD

  1. Control of the UK’s borders.
  2. No more paying money in
  3. No more Euro red tape

 

It is taken for granted by Brexiters that the EU would sign on to this deal. They don’t seem to have done any behind-the-scenes negotiating or persuading or sounding out to confirm this. Heck, they haven’t even figured out whether they will invoke article 50 (i.e., the separation mechanism) immediately, or not for a little while, or not for a very long while, or maybe not use all all, except for waving it as some kind of bluff that would let them issue demands (“We’re giving Pilate two days to dismantle the entire apparatus of the Roman Imperialist State…”).

I have watched conservative MP’s parading across my TV set, saying with a completely straight face that of course we’d still have access to the free market because “Germany will still want to sell us cars, obviously.”

Except that isn’t obvious. At all.

Germany can sell us cars with or without the European market, our leaving will just make them a bit more expensive, because we could wind up with import duties, and more complex logistics in selling across market boundaries. WTO rules would probably set duties at a maximum of about 10%, so that would add a bit on to the cost of everything made in Europe. But then there would be extra hidden costs, because, taking the example of cars, Britain would now have its own set of regulations covering everything from how bright headlights must be, to what emissions are allowable, to how mileage is measured (i.e., my company isn’t free to claim a hundred miles per gallon for its cars by rolling them down a hill in neutral gear – rules have to be in place to force an apples-to-apples comparison for consumers).

Imagine that the UK, free from the tyranny of the EU, passed slightly different rules about fire safety standards for fabrics. Fabrics sold in the UK might now have to be manufactured as a whole separate batches than ones from the EU. That would add costs to design and manufacturing, and remove economies of scale. It would mean you couldn’t sell off any leftover Calais couches in Dover, or vice versa. It would require whole new rounds of paperwork and testing, and experts paid to track all the small differences in rules. And those extra cost will be passed along to consumers in higher sales prices.

Bottom line: Germany doesn’t have to let us into the common market to sell us cars (or anything else). Their goods will just get a bit more expensive over here, and ours will get a bit more expensive over there.

But wouldn’t they like to be able to sell stuff cheaper here? Surely that is in their interests?

Indeed they would! In fact, the EU has already agreed to let both Norway and Switzerland into the common market, without their being full members of the EU. So why not the UK too?

Because the EU didn’t let Norway and Switzerland in for free. They both have to pay a price for being given free access to the large European market. Specifically, they have to allow free movement of workers across their borders, pay into the EU pot, and follow EU regulations. In other words, they have to give up every single thing that Brexiteers imagined this vote was supposed to liberate the UK from.

Britain would almost certainly be required to pay that kind of price too – we no longer have the leverage to demand otherwise.

Statistics are a little hard to find, but it seems that of everything the newly reconfigured EU (i.e., minus the UK) exports out of its borders, about 16% of it is sold to the UK. That’s about a sixth of it – roughly the same amount as they export to the USA (who you might note, has not been granted full access to the European market). Now that’s a lot of trade, and the EU really doesn’t want to lose a chunk of it to higher cross-border prices. All else equal, they’d prefer to keep us in the market.

At the same time, though, 45% of the UK’s exports are sold to the EU. Losing some percent out of nearly half of everything we export to the entire world would make that a far more painful loss to us than it would to the EU. When you are negotiating with someone and they want what you have, but you NEED what they have, that’s a recipe for being taken to the cleaners. Especially in cases like this where all sides know exactly what the stakes are, so there’s no real room to get away with bluffing.

And it’s not like the UK is mostly exporting commodities like crude oil that can just as easily be sold to China or the USA. A disagreement over trade doesn’t mean that we can simply reroute our tankers to a different port, and unload our wares for sale there instead. The top 5 types of commodity the UK exports are mechanical appliances,  motor vehicles, pharmaceutical products, electronic equipment, and mineral fuels. Those things generally have to be built and designed for specific needs and markets and regulatory environments in specific places. You can’t take a suspension systems designed for a Skoda, and simply plug it into a Hyundai instead, just because you’re having a tiff with the EU.

So the UK is walking into a high stakes negotiation in which everyone can see that the other side holds most of the aces. But it actually gets worse from there.

Let’s game this out. The EU starts out by offering Norway’s deal: We keep access to the common market, but we are required to pay in money, allow free movement of people across the border, and follow EU regulations.

The UK’s new Brexit Prime Minister says no. Those are the exact things we demand to escape from. We’ll take anything BUT that. It’s our bright red line, put one toe over it, and we walk away.

Now the EU has to look at the various nationalist movements bubbling up in France and the Netherlands and some of its other countries, and realize that there are a whole lot of angry people looking to try to win over their countrymen that leaving is painless, and let’s you keep all the good stuff. If the UK is seen to get a sweetheart deal, then that enables these people to start a rush for the exits. Countries, big and small, would start flooding out of the EU. Why buy the cow if you can get the milk for free, as the old saying goes. If the EU wants to survive (and it does), then it needs to make an example out of the UK, giving us the ugliest possible deal, in order to send a message to its other malcontents who have been conspicuously eyeing the doors.

Bottom line, the EU could not offer the deal that pro-Brexit MP’s seem to imagine is there for the taking. Not even if they wanted to. The UK doesn’t have the leverage to demand any better, and the EU has a gun to their head that prevents them from offering any better.

If you look at what they are saying, the EU politicians clearly know all of this. Analysts on the sidelines can see all of this. The only people who don’t seem to have taken the time to work it out are the ones who have just won a referendum. They’ve fought for, and won, a mandate for a plan that they haven’t bothered to think through, and are now noisily demanding control of the driving seat in the UK Conservative party so they can be the ones to implement it… at some point in the future, maybe, somehow, and please stop hassling them for details. The details aren’t important. Winning is. And Britain, ra ra, and FREEDOM!

There’s an old joke about economists who “assume a can opener”. This appears to be a darker version, in which politicians win a referendums with the line “assume a parachute”.

Brexit wins, why is the market crashing?

We wake up this morning to Brexit winning, the pound dropping like a stone, and UK bank stocks losing a lot of value. One Tory MP appeared on BBC News explaining that these are Remain’s “scare tactics” turning into reality. Norman Tebbit was there to say that no, this little crash is just the result of the Leave side scaring gullible markets into believing that terrible things will happen, even though they won’t really, because France will still want to buy cars off us (his exact example).

With all due respect to Mr. Tebbit, while stock and currency markets are certainly capable of some pretty irrational hijinks, this really isn’t one of them.

The problem was never that Brexit would mean we never sell a single pencil south of the channel again. Nobody ever claimed that the EU was the only thing physically holding the British Isles above the grey North Atlantic waves.

But imagine that you are a successful, let’s say Italian, company. Things are going so well that you want to open up a UK headquarters. That’s great news for the Britain, because it means you’re guying to hire a lot of locals to work in the offices, do local sales, manage the local HR, wipe and vacuum it at night, supply food to the cafeteria, etc. Those people will all get paid, then take their wages to the local supermarket, pay rent, buy houses, pay taxes, etc. So it provides jobs and income for a whole lot of Brits beyond even the ones who are directly hired. As I say, good news.

But when you open an operation like this, there are lots of potentially expensive things you have to worry about. You have to pay your lawyers to make sure that you comply with all the local labour and business practice laws. You have to pay accountants to make sure that you are complying with all the local rules about how you spend and account for your money. This is the kind of boring, tedious, invisible but necessary legwork that goes into running big operations.

If Britain is part of the EU, then those regulations and laws are pretty much the same here as they are in Milan, Rome, Frankfurt, or Madrid. Opening a new regional headquarters in Birmingham or Manchester is easy, then. You don’t even need visas for any workers you move over – they just show up, follow all the normal rules (for the most part), and get on with it.

But if Britain is not in the EU, then it’s going to have its own regulations that will be different from the EU ones. That means that you need to hire a whole new set of local lawyers and accountants, and spend time training your managers on the different rules. It means you need to worry about work visas for employees. And that all costs money. Quite a lot of money. Enough that you might want to take a serious look at putting your headquarters in Ireland or Northern France or somewhere else nearby instead. Which means the jobs and the income all go somewhere else, and Britain loses out.

It’s a similar problem if you are an American or Japanese company deciding where to set up local shop. GB isn’t has an economy the size of California, so it’s got plenty of people with money to sell stuff to. But even without Britain, the EU has an economy the size of almost the entire USA (including California). That’s a much bigger and richer market. So if you are deciding which side of the fence to put your HQ on – which side you want to pick to be easy to operate in, and which side to take on the extra border hassles of working over – all else equal, you’re probably looking for the place with the biggest market potential. Out of the available choices, Sheffield just got a lot less likely.

This is an example of the ways an independent Britain loses out economically (there are others too).

Now you might ask what that has to do with bank stocks and pound sterling crashing. After all, nobody has yet taken a single one of these business decisions, so why be so dramatic? Is this just silliness from crazy investors scared by the Remain campaign’s over-hyped rhetoric?

Well, possibly, but the thing about these trading markets is that the prices they pay for things have a lot of expectations for future success already baked into them. When I buy stock in Lloyd’s bank, it’s not because I necessarily think they are making lots of money now (Amazon sold stock for very high prices when it first opened, despite losing money hand over fist at the time). It’s because I think that they are going to keep on making lots of money into the future, and so they will be able to pay me dividends, or their stock will become even more popular, letting me sell mine for a profit (which is what happened with Amazon – they lost money initially because they were investing so much of it in growing their business – if you bought the stock then, and still own it now, then you are reaping the payoff you invested in). If I suddenly realize that LLoyd’s or RSB’s future looks a lot less rosy than it used to, then all of a sudden the price I’m willing to pay drops, because I’m not expecting to get nearly so much future reward out of them.

That’s exactly why the pound and bank stocks crashed this morning. The people who have staked their own cash in Britain’s future prosperity believe that yesterday’s big decisions means there’s going to be less of that prosperity coming down the road than there used to be, and so they are not putting nearly so much of their cash on the line for it any more.

None of which means that Britain’s economy is over – it will still go on, there are still 60 million customers on this island who buy things, there are still companies here who will sell products and services. Britain will continue to sell car components abroad (though probably fewer of them if we get new border tariffs – which are entirely now possible, depending on the outcome of negotiations that Britain won’t necessarily have a ton of leverage for). But the markets are now suddenly seeing a whole bunch less potential here than they did yesterday. They are now expecting less jobs and less revenue, which means less tax revenue that will support fewer government programs, and so on. In other words, Britain’s prosperity is likely to take a hit.

That’s not scare tactics anymore, it’s our immediate future.

False advertising

A delicious sandwich, with yummy pastrami and emmental cheese, piled high on farmhouse rye.  Not your average sandwich, this. It’s a premium! Taste the difference! For an accordingly premium price!

Oh Sainsbury’s, what are you tempting me into?

Mmm.

Let’s open this bad boy up, and brace ourselves for gustatory nirvana…

sandwich2

Oh.

Sainsbury’s.

This is it?

A few shreds of meat piled up on one side to make it look like a big pile through the little window on the box, half a slice of cheese, and a few scraps of salad. But at least they were generous with the mustard. Premium!

This is something you can pull off once per customer. Twice if the mark is forgetful. But even if you do get away with burning someone twice, it’s at the expense of having them rehearse a memory of how untrustworthy you are.

It’s the sort of thing you normally see at tourist spots where shops can pretty much count on never seeing the same customer twice, no matter what they do. Not so much at supermarkets that build everything on the back of repeat business.

Greecing the skids

i had thought that the ‘Yes’ side was almost certainly going to win in Greece’s Sunday referendum. Polls showed a very close race, edging ‘yes’, and poli sci types observe that referenda are inherently conservative (small c), in that they tend to affirm the status quo. I figured that the status quo for Greece was troikas, bailouts, austerity, and the Euro, so that would push things a few more points towards ‘yes’, and seal the win.

Boy was I ever wrong. ‘No’ got 61% and a landslide victory.

I take two lessons from this.

One, when the status quo suck sufficiently hard, for, let’s say five years, it loses it comforting patina of safe familiarity.

Two, this underlines the hazards of projecting what happens under one set of conditions (such as generally functional middle-classish normality), and project it into entirely different circumstances (grinding depression, etc). It’s worth keeping in mind that the generalisations of truth that we uncover belong very much to the places in which they are found. They may well extend beyond, but then again… Science (lay and professional), properly done, is a humble, humbling job.