Saturday , June 23, 2018

Global Ramifications of Brexit: Implications for the U.S.

Global Ramifications of Brexit: 

Implications for the U.S.

Gillian Tett, U.S. Managing Editor of the Financial Times, recently shared her masterful insight into the U.S. and global economy, with a special focus on the global ramifications of Britain’s pending exit from the EU, as part of the World Affairs Council of Charlotte’s speaker series.

What is immediately valuable to glean from her remarks are the implications of Brexit for the upcoming elections and for the future of the United States. Will we choose—as Great Britain has—nationalism, or will we embrace globalism?

Tett shares her political perspective on everything from how the U.K. (including the FT) got Brexit so wrong; to growing economic, social and political polarization, and the “elites” disconnection; to living in a time of anger when voters no longer fear taking big risks; to effective communication and the power of simple, clear, positive messages; to the importance of boring, geeky details of voter registration.

Tett shares her global perspective on the meaning of Brexit for the rest of the European Union from fundamental tension at the heart of the Eurozone project; to the lack of European cohesion and social glue and political unity; to how you create a functioning economic union without a political union; including her keen analysis of the range of trade options and the state of the international finance system.

Perhaps most interesting of all is when she branches out to implications for the U.S. and to the population generally, from income inequality, to technological/digital displacement, to income redistribution, to educational reform, to infrastructure projects.

She provides cautionary messages including one she described in her latest book as “the silo effect,” being essentially fragmented into self-reinforcing silos:

“If you look at who people are getting information from for decisions in their lives, whether it’s where to go out for a meal or where to go to college, or where to vote, it’s increasingly through the social media networks rather than authority figures. That’s fueling this sense of tribalism and of polarization because one of the things about technology is it’s fantastically deductive. It gives us the illusion that we’re all hyper-connected and yet you know that in a world where you can customize, where you can choose where to get your information from, people are increasingly fragmenting into their own classical tribes.”

This is an incredibly important thought-provoking piece. You’ll want to make time to read her remarks in their entirety and appreciate the breadth of her perspective and the genuineness with which she reflects on the world order and human condition.

Gillian Tett, U.S. Managing Editor of the Financial Times (remarks edited for clarity only and emphasis of major points added):

Gillian Tett_Financial TimesWhen I first started working for the Financial Times two decades ago, people used to refer to the FT as being the Financial Times of London. What some of you may not know is—quite apart from the fact that these days we’re not really a paper, two-thirds of our subscribers are digital and, in fact, 90 percent in America are digital—America today is our biggest market, not London, not Europe. So in many ways we’re not so much the Financial Times of London, we’re the Financial Times of New York, San Francisco, Washington, Chicago, and Charlotte.

I’m going to be talking today a bit about some thoughts in mind to do with the wider trends in the political economy. I’m happy to take questions on any topic at all. I’d like to first start by talking a bit about what’s going on in Europe these days because in the last few months the U.K., which is where I hail from, has undergone two shocks—one of which you all know about, which is Brexit, I’ll talk about it in a minute. The other one you may not quite have registered but it’s top of most British people’s minds—and it’s actually the most commented article of all at the moment on the FT.com website—is the Olympics.

About two decades ago when I was growing up, British people used to assume that they would never win anything at the Olympics. We used to come to sort of number 47th on the medal table, but this month we are celebrating the most extraordinary result, which is that the U.K. has come second in the table, Team GB beating Russia and China. On one level that’s absolutely wonderful. It’s done wonders to restore a sense of natural confidence at a time when a lot is quite tumultuous. On another level though, it reveals some of the big splits that are going on.

Because no sooner did that tally of medals come out—the U.K.’s Team GB has won 67 medals—I noticed a series of very snide comments from elsewhere in Europe complaining that the British people had only won because they rigged up the usual convention in Europe of giving money equally to all sports, in the wonderfully Socialist way, and so they targeted the sports that they thought that Team GB people would actually win, that they were too focused and a bit too results-orientated.

In fact, the European Union parliament seemed to be very cross when they tweeted yesterday, “Congratulations to Europe for its medals,” and totally ignored the British result. In fact, it was left out that Britain, for the first time ever, got 21 medals over Germany. That, of course, then started a whole great angry set of comments in the British blogosphere saying, “Well, if you want to understand why Britain is leaving the European Union, just look at what the European Union parliament has said about the Olympics.”

That might seem incredibly trivial but it illustrates a very important point, which is that if nothing else, the Brexit vote shows that we’re living through a period of extraordinary political fragmentation, political polarization, political volatility and great political uncertainty. That has implications not just for the U.K. but also for the U.S., as you’re placing your own very momentous vote in a few months’ time. To make the right obvious point, up until the very last minute with the Brexit vote, most of the establishment, including the Financial Times, were assuming, often quite complacently, that it would be almost inconceivable for the British public to vote to leave the European Union.

Yes, I know that in theory, the polls were showing up until the very last minute there would be a proclamation of a fairly even split and yes that’s equal, with myself included, as saying intellectually that yes of course there is a chance that the British voters will vote to leave the European Union. But when it came to that night and when it came to people like me actually standing there in the news room of the Financial Times as the votes were being counted, I and my colleagues and most of my friends and most of my generation who are absolutely, for better or worse, part of that intellectual elite globalized generation, like many of you I’m sure, we didn’t quite believe that the British electorate would do it.

It’s not just us. If you talk to the people who actually headed up Brexit, the people who were leading a whole movement for revolution, and ask them were they expecting to win, it’s pretty clear in retrospect that up until the very last moment, most of them could not quite believe that a political earthquake of this sort would actually happen. I’m sure the question most of you want to know is, “What’s going to happen next?” I’ll come to that later on, but I think it’s worth pausing for a moment and asking how and why did the U.K. get into this position that people were voting for Brexit, and why did so many people get it wrong about what was going to happen?

When I look back at what’s happened in the U.K. in the last few months, I think there are really four or five key lessons, all of which have a lot of implications for the U.S. right now. The first and most obvious one is that we are living in a time where there’s growing economic, social and political polarization, and then frankly the elites, if you like, are pretty disconnected from what many ordinary voters think.

If you look at the results of the Brexit vote and the breakdown, it’s very clear that party affiliations, the traditional dividing points that people have used to try and imagine British politics—right, left, Conservative, Labor—actually was not a good predictor of which way people would vote. Instead, what emerged was, first of all, a very stark geographical split between north, south, rural and urban. For the most part it was the urban south, the wealthy London areas, which wanted to stay. It was the rural areas, particularly the north, who wanted to leave. There was a generational split, the older generation much more strongly in favor of leaving than the younger. There was also a strong educational split, and there was also a wealth effect.

What people like myself who hail from a London background, work in a very nice job in the Financial Times and tend to mostly talk to, like ourselves, business leaders, international people, what we’ve been forced to recognize is actually we are getting sucked into a bubble in a very dangerous way. It’s not just because we live nice, cushy lives. It’s not just because we tend to talk to people with also our professional jobs. It’s also because the entire structure of the media today, if we’re not careful, reinforces this sense of polarization separation, this problem of what I call in my latest book “the silo effect,” being essentially fragmented into self-reinforcing silos.

Lesson one is the elites right now need to stop very quickly and think about how much they actually know about what’s going on in the rest of the country. In the U.K., that’s a big issue.

Lesson number two, I think, is that we live in a time when a number of people in the voting groups feel so angry with what’s going on that fear of jumping into the unknown, taking big risks, has diminished dramatically. Or to put in another way, when somebody like Donald Trump stands up and says, “What do you have to lose?” a lot of people say, “You know what? Not much. Why should we keep bucking the status quo?”

That partly reflects, I think, the level of economic anger at people who feel they have been excluded from economic growth in recent years. I think it also reflects something much more subtle, which is that in the last 10 years we have lived in a world where many of the old certainties have been ripped up. To cite Alice in Wonderland, people have had to grow up and start believing six impossible things before breakfast almost every other day.

By that I mean before 2008, very few people thought that banks would collapse. Very few people ever thought it would be possible to see the government in a country like the U.S. step in to rescue big banks. Very few people ever thought it would be possible to have negative interest rates, and yet as certainty of the certainties starts to crumble, the idea of challenging some of the political status quo, some of the conventions, starts to seem less remarkable.

Which leads me onto my third point, which is if you look at the Brexit vote, it’s also clear is that one of the reasons why the Brexit camp won and the Remain side lost was because the elites were very detached. They had no idea how to communicate effectively with angry voters who were increasingly fed up with the status quo.

It’s very striking that if you look at the messages that came out of the Remain camp in the run-up to the vote, they were either driven by scare stories along the lines of “Don’t be so stupid. How could you possibly vote to leave? It would be disastrous”—very patronizing—or this very rational set of economic arguments where practically every large institution in the world that’s got a multinational economist came out and said, “It would be a really bad idea for the U.K. to vote for Brexit.”

These were laid out over and over again, and yet they didn’t have much resonance with ordinary voters, who simply were uninterested in the economics and were very irritated by all the scare stories and what they thought was essentially a very patronizing campaign. Instead, the thing that really swayed the voters, and I think it’s got a lot of implications for America, was the fact that the Brexit camp had a very simple, clear, positive slogan. The slogan was “Take back control.” Nice, short, memorable slogan with a verb. Verbs matter. Positive momentum.

If you talk to people after the vote about why they voted for Brexit, it wasn’t just a negative, “We’re fed up with the status quo.” It was also a sense that they were voting for something positive. They were voting for a sense of sovereignty, for identity, for control. Again, this tapped in very much to this idea that people are fed up with statistics, fed up with being lectured. They want something positive.

The reason I brought this out is because I’m probably the only person in the room who went to both the RNC and DNC campaign. What struck me, I must say, and I’m not … We can talk about Trump versus Clinton later on, but going into the Trump convention and the Clinton convention, whatever else you might think about Donald Trump, the one thing that you could not leave that convention without knowing was what the campaign slogan was—“Make America Great Again”—emblazoned above the central stage. It was there over and over again.

If you went to the DNC campaign, you came back with a sense of being a wildly slick professional production—very, very mesmerizing—but actually most people didn’t have much of an idea of what the slogan was supposed to be. Yes, “Stronger Together” is all of it, except there’s no verb there. “I’m With Her” was the other one, but it’s actually a lot of mishmash of statistics, some scary stories about Donald Trump, and a fairly, I would argue, confused message. When I look back at Brexit, the fact that the Brexit side had a very clear-cut slogan with positive momentum and the all-important verb, I think it’s a very key reason why they managed to gain so much momentum.

Just one other quick point about why Brexit won. It also came down to the fine, boring, nitty-gritty details of voter registration. Sound familiar? After the vote came out, the results came out, a lot of people said, “The problem was with the vote. The reason why Brexit won was because those wretched kids,” i.e., people aged 18 to 25, and these days they do look like kids to me, “those wretched kids didn’t vote.”

That was incredibly important. If you did a poll on the population as a whole, in fact there was actually a slight advantage for Remain and not Brexit, but the older generation were very strongly more in favor of Brexit than the younger generation. We can talk about why that was if you want later on, but the older generation were very, very inspired and motivated to get out to the polls.

Unfortunately, on the day of the polls, there was a giant thunderstorm, a lot of rain, what’s new with Britain in June? That meant that you had to really want to get out to the polls to vote, and the older generation did. The younger generation didn’t, and people said later at work because they’re all so lazy. “Those kids are all playing with their iPhones. They think that they tweet that means they’re taking part politically. Don’t they realize they have to get out to vote?”

This graphic from Geopolitical Futures contains two maps of the United Kingdom. On the left side are the results of a YouGov poll that identified different parts of the U.K. as more or less Euroskeptic. On the right side are the official results of Britain’s vote to leave the European Union.

polling-vs-reality-in-brexit-vote

The reality is actually the ones that were registered, for the most part, did get out to vote. The problem was that a couple of years ago there was a little-noted reform to British voting law, which meant that you couldn’t be automatically registered by your parents anymore. You had to go and do it yourself. That little tiny detail that no one had noticed meant that actually come polling day, lots of kids woke up and realized that they weren’t registered, and it was too late. Again, sounds familiar? One lesson for Brexit which matters for the U.S. vote is the fine, boring, geeky details about registration could really matter.

Populism, volatility, unpredictability, all big, big themes. It has implications going forward. The big implication was obviously for the U.K., because the fact is the vote has now happened. While there was a huge amount of emotional thinking in the immediate weeks after the Brexit vote—which literally ran from the Remain camp that the whole thing could be reversed, thus far at least—the establishment has scurried to stress that they’re not going to reverse it. “Brexit means Brexit” is the new slogan of Theresa May, the British Prime Minister, and everybody is proceeding on the assumption that Brexit is going to happen.

What will it mean for the U.K.? The honest answer right now is we just don’t know, because one of the extraordinary things about the current situation the U.K. finds itself in is that, although this dramatic political earthquake happened two months ago, Theresa May, the new Prime Minister, has indicated that she doesn’t actually plan to invoke what’s called Article 50, which is really the kind of button you press to signal that you’re actually going to leave. She doesn’t plan to invoke that until next year.

Although she initially said it would be the start of next year, she has now indicated that they won’t leave until after the general elections, which will be more like the autumn. She doesn’t even plan to press the button to start the process for another year, and even when she presses the button it’s likely to take at least two years for the U.K. to actually complete the Brexit process, so right now you’re looking at probably three years before the U.K. actually have Brexit in reality.

Anyone who’s in business, and particularly in finance, knows that if you are in the business of business, you can’t sit around for three years and wonder what’s going to happen next. What you’re seeing right now is a series of indications for big business CEOs but they’re not actually pulling out of anything in the U.K. yet, but they’re not actually investing anymore because there’s so much uncertainty. It’s very little indication yet as to what kind of relationship the U.K. will actually forge with the European Union going forward.

Those of you who follow the debate today will know that there’s a range of options right now. They range from something like Norway, which is what they call an EEA situation where essentially if the U.K. went down the Norwegian route would have access to the European Union market for goods and services, but as a quid pro quo it would have to allow free movement of people, which at the moment seems pretty unpalatable given the immigration hostility in the U.K. We’ve got that at one end of the spectrum. You’ve got the Albania option of the other end of the spectrum, which means pretty much just relying on WTO and nothing else.

You’ve also got what they call the Swiss option, which is doing lots of bespoke trade deals to try and let your financial services industry have access to the single market in certain segments, but in a bespoke way. Best yet from the British politicians that I spoke to recently, and I was with one of the key negotiators just this weekend at Aspen, is that something like the Swiss plus option is what the U.K. will end up with, which means a lot of bespoke negotiations which may allow the financial services sector access to the single market, it may not be, we just don’t know.

If you’re going to be optimistic, and this is the argument of the pro-Brexit camp, the cost of that uncertainty will be more than outweighed by the sense of liberation that small businesses and companies feel over the red tape in Brussels. People who are pro-Brexit would argue that actually now the U.K. will go forth and forge trade deals with China, with India, with Latin America, with many other countries, all the far-thrown countries in the world.

The honest answer is we just don’t know, but we at the FT are desperately trying to work out this cost-benefit analysis, so much so that we actually now have a special page at virtual on our website called Brexit Briefing, which does nothing else than track what’s actually happening as regards Brexit. What’s striking about that page, which I was looking at this morning, is that right now the balance is both pros and cons, both positive and negative, but the one thing is clear that there’s nothing, absolutely nothing tangible which indicates what’s actually going to happen next in terms of rules and regulations. We just don’t know.

The second big point is what obviously happens for the rest of the European Union, on the back of the Brexit vote. Since the Brexit vote has occurred, essentially there has been a circling of the wagons by the leadership in the European Union. You might have seen that over the weekend with the leaders of France, Germany and Italy meeting to very much signal they are together. Certainly the polls suggest that the sheer shock of seeing Brexit go through has made voters elsewhere in the European Union at the moment say they actually are less excited about the idea of leaving than they were before.

What Brexit has exposed is that there are some really fundamental problems at the heart of the Eurozone project, in terms of trying to work out how you take this union which started life as a coal and steel union and economic union, how you take that union and turn it into some kind of effective union for the 21st century where half the union wants to have essentially a United States of Europe and a federal structure in every sense, and parts of the Union don’t. There’s a fundamental tension and contradiction there which has not been resolved.

One of the things that has emerged from the whole Brexit debate is the sense of not just democratic deficit, the idea that actually voters are cross because they’ve got no idea what this faceless, big bureaucracy in Brussels are doing, and as someone who used to work in Brussels believe me, the Brussels bureaucracy, the European Union bureaucracy, is absolutely hideous. It makes Washington look totally rational. It’s huge. It’s sprawling. It’s just dysfunctional.

It’s not just about democratic deficit. It’s also about an issue of sovereignty and identity. Probably what really brought home to me recently this question of sovereignty and identity and to my mind it encapsulates the challenge of Europe today, is the issue of bank notes. I don’t know how many of you travel frequently but those of you who do, the next time you travel you should take some notes out of your wallet and have a look at them. It’s very revealing. I pulled out five notes just now, and if you look at most bank notes around the world, be that the dollar, I’ve got dollars with sterling and real, Brazilian real because I was down at the Olympics last month.

If you look at most bank notes in the world, what you’ll see on one side of the notes at least is at best, some kind of national hero, some kind of national figure whose stands for what the country stands for and essentially a running point, a kind of flag if you like, something which creates a sense of national pride. That’s no surprise because as an anthropologist, one of the things you learn is that the things that create social glue, political glue, are these creation myths in any society. In America you’ve got various figures. You can see you’ve got the Queen here. You’ve got some random Brazilian I don’t know, a Swiss inventor I don’t know, and of course no prizes for guessing who that is.

Anyway, the Eurozone note, I don’t know if any of you have got Eurozone note in your pocket but if you do you should look at it, because on the back of the Eurozone note you have some made-up, imaginary bridges. It’s true. When it came to design the Eurozone note, and I was talking to one of the people who was involved in this, one of the Central Bank governors over the weekend in Aspen, basically when the designers sat around the table, first off they realized that the different European countries couldn’t agree on a single national hero who epitomized Europe.

The last one they had who really probably was pan-European was Charlemagne, and all the recent characters, the people who created the European Union were people like Jean Monnet, no one knows who he was or what he looked like…the face of a bureaucrat. Most of the other European figures are just too darn controversial to provide a unified sense of glue. I once suggested to one of the central bankers, if you wanted to find faces that would get everybody in Europe to feel together, united and happy, they probably would put ABBA on the bank notes.

There are no other single figures, and the problem is there actually is no strong, single, positive, unifying glue that links Europe together. A generation ago it was about trying to avoid the war, but trying to avoid war kind of is not even on the scene today and that positive Founding Father mythology, which is so crucial to creating American national identity and community at its best, is simply not there in Europe. The question of how Europe is going to actually create that sense of cohesion and social glue and political unity, never mind a functioning democracy, is very, very much unanswered and very problematic going forward.

Last but not least, the U.S. The lessons for the Brexit for the U.S. are pretty clear-cut and frankly I think most of you put in there much better than I do. America, today, is a country which is very polarized in every sense; politically polarized, economically polarized, socially polarized. Increasingly in some ways fragmented, increasingly marked by the same problems that they had in the U.K. vote, which is a sense of political tribalism reinforced by the media.

Very interesting work done recently by a group called British Edelman, a public relations firm, which shows that in the last decade if you look at the question of public trust in institutions, you’ve not just seen a collapse of trust over most of the major institutions, government, business, banks, and the media I must say, traditional media. You’ve seen a shift in the nature of trust in that all this technology has proliferated, as we’ve all come to learn about smartphones. We’ve increasingly come to rely not on authority figures you trust but actually a person known as a person like me, i.e. my Facebook friends.

If you look at who people are getting information from for decisions in their lives, whether it’s where to go out for a meal or where to go to college, or where to vote, it’s increasingly through the social media networks rather than authority figures. That’s fueling this sense of tribalism and of polarization because one of the things about technology is it’s fantastically deductive. It gives us the illusion that we’re all hyper-connected and yet you know that in a world where you can customize, where you can choose where to get your information from, people are increasingly fragmenting into their own classical tribes.

Increasing polarization, increasing fragmentation. I would argue probably increasing volatility as well. People today are very susceptible to, if you like, cyber flash mobs and the power of rational reason and argument to sway voters, I would argue, is probably ebbing. The same slogans that won the Brexit vote about “Take Back Control,” positive, easy-to-remember slogans with verbs with momentum, I suspect, are the kind of slogans that would have an awful lot of impact come November. Then when you add into that the fact that we’re living at a time of, at best, economic … I’ll call it stagnation of stability, if you like. A world of zero rates are turning up many of the ordinary assumptions upside down, and you have the makings for really quite an unpredictable, potentially volatile landscape.

The one thing that’s clear is that there’s a lot to write about as a journalist. In my career I used to joke to my colleagues that for a paper like the FT, we could either have a great political story or a great economic story or a great popular story, but probably not all three at once. I think this year in America we probably have got all three at once. It’s been a great bonanza for us as a media organization but it’s also been a year of great surprises.

If you want to be optimistic, speaking of the Brit, nobody would have ever guessed that Britain could win so many medals. Now I’d like to think that’s going to be a metaphor for what happens going forward for Brexit, but it will surprise the naysayers when they say, that’s myself included, and turn Brexit into a positive. On the downside, it also shows that if anyone is leaving here today fully confident about how November is going to play out, think again.

Questions & Answers

Question: One question is on two things, pragmatism versus vindication. Germany is being voted as one of the most powerful countries in the EU, and then you’ve got France. Then another publication, Bloomberg, from the Finance Minister of Germany, if you’re in, you’re in. If you’re out, you’re out. How do you think those two themes play out, pragmatism Merkel versus vindication?

I think what it’s going to play out as in the short-term is a mess, because the European Union is divided about how it wants to respond to the U.K. On the one hand you have people like Juncker who came out initially and indicated he was in quite a vindictive mood, and then you have people like Angela Merkel who have been much more conciliatory. There are a body of people in the European Union who recognize that.

In a sense, it’s not this case that the U.K. has traditionally needed Europe. The European Union has traditionally needed the U.K., partly because of the financial market, and probably London’s role as a financial center, but also because the U.K. has been one of the main promoters of free market ideals within the European Union, and the countries that like to think they’re on the free market side are dismayed by the fact that that won’t be there anymore.

My best guess is that some form of muddle-through strategy prevails, and that I don’t think the U.K. will sign up to the Norway option. I’m not convinced that the rest of the European Union might now offer the Norway option, because a sticking point is the free movement of people. My best guess is probably some form of Swiss plus option is what actually prevails, which essentially allows the U.K. access to part of the single market without having to fully sign up to the free movement of people. The great marriage of the Swiss plus option is that it will be so darn complicated that almost nobody who actually votes in any party has a clue of what’s actually in it, so the politicians can pretend that it is whatever they want. None of that is good for business and the business culture, but that’s my best guess.

There is profound concern right now inside the European Union about what on earth is going to happen in terms of European Union solidarity, because some of the things that one shouldn’t forget amongst all this is that there’s also this separate thing called the Greek crisis happening, the everlasting Greek crisis.

Germany these days is essentially cropping up much of the southern belt through backdoor means. That crisis has not gone away. It’s entirely possible that the refugee crisis, the separate refugee crisis, will end up being the fig leaf that allows the German government to keep subsidizing Greece, as long as Greece keeps taking refugees and keeps them in Greece rather than Germany.

There’s a fundamental problem. It really comes down to this core, core question of does the European Union want to be the United States of Europe, or not? One slight example to show this is that a couple of years ago when the Germans were having this never-ending debate about how on earth they could deal with Greece, should they cut Greece in the throat, should they let it go, should they subsidize it? What could they do? I quite agree. Germany is one of the senior European policy makers but the single best option for Europe, back then and in fact today, was to go out and create the equivalent of a whole series of German Club Med holiday resorts in Greece and to use all the money that German taxpayers were funneling into the banks, and instead use that to give vouchers to all the German pensioners which would only be spent in those German Club Med resorts in Greece.

There would be so much shiploads of German pensioners going on holidays, forced holidays in Greece, it made happy German pensioners because they would be getting free-ish holidays instead of putting their money into the banks, and you get happy Greek waiters and happy Greek builders. More importantly, you’d get the kind of transfer, economic transfer you need to make a European Union work. It’s no different from having retreats and going down to Florida en masse. Essentially you get each part of the European Union playing to it natural advantages, and so you’d actually probably get a much happier outcome for all the voters concerned.

Of course the problem is that that kind of solution can’t work at the moment because of all the impediments to the single market actually operating with free movement of people and stuff, also because of political animosity. If you look at what’s actually happened in terms of German tourism numbers going down to Greece in the last two or three years, they’re declined, partly because there’s so much anti-German feeling today in Greece. The question about how you create a functioning economic union without a political union in Europe is completely unresolved.

Question: Since the very beginning you were talking about the polarization not only here in the United States but all over the place. If you were the advisor to the next president of the United States, what policies could be put into place to lessen some of that polarization?

Gosh. Can I tell you guys, by the way? I’m this media journalist in here. I can tell you how to be a journalist. You don’t have to vote. It would be lovely if you would. How many of you expect the next president of the United States to be Hillary Clinton? Okay. How many of you expect it to be Trump? Okay. If I would dare ask you, how many of you will be voting for Clinton in the election]? How many of you for Trump? Okay. How many of you are undecided? Okay.

Interestingly enough, that’s about the same proportion as Brexit polls in February, just to let you know. No actually, truthfully people think Brexit was wrapped up. Actually if you go back to the February-March time in the U.K., back then about 35 percent of the population said they would remain no matter what, about 20 percent said they would leave no matter what, and the rest were undecided. Pointing back to the issue of political volatility, that’s roughly the same proportion who just voted for Clinton, Trump and undecided in this room. That’s one point.

Okay, let’s assume the next president of the United States on this basis is Clinton. What can you do to lessen income inequality? The most obvious is to try and start to spark the growth big time. It’s a fundamental question right now, which is that if we are going to a phase when robots and digitization are knocking out a large swath of jobs, and where essentially an economy can grow fast but with fewer and fewer people actually employed, what do you do about that?

Do you embrace that word that most Americans hate to embrace, which is redistribution? Do you just cross your fingers and hope somehow it all works out in the end and there’s a trickle-down effect? Do you look at education and things like that for the next generation? What do you do?

When you look at what’s happening with the U.S. economy today, it’s very clear that to blame the job losses on China or Mexico is simply not particularly accurate these days. Yes, some businesses have moved to China and Mexico in the last few decades but these days it’s really about digitization. Many of you would have seen the study that’s come out from Oxford University and McKinsey that suggests that over the next two to three decades, almost half of U.S. jobs will be replaced by machines, by robots or by computers. A controversial study.

If you’re being optimistic, you’ll say actually those jobs will be replaced by something else. Just look at the agricultural revolution and the fact that nobody works near farms anymore and we’re still employed, many of us. If you’re being pessimistic you say actually the speed of transfer that’s happening right now is faster than ever before, and the idea that somehow a new job is springing up quickly to replace the old job is simply unrealistic. Either way, you have this big issue right now of income inequality as is middle jobs all around.

I’ve been in the camp saying if you’re going to take one policy measure that is serious, or two policy measures, and seriously try to address this right now, one is infrastructure spending. It’s very striking that both sides of the aisle right now are officially embracing it. A big question about who pays for what kind of infrastructure, but I would say infrastructure spending is more a way to try and create more of those military jobs and bring more people into the world economy.

Secondly, education. One of the great things that created so much social mobility and reduced income extremes in post-World War II in America was the GI Bill, and the fact that an entire generation of people were suddenly educated and given a chance to rise up. I think looking at the education structure today it’s critical, not just looking at things like student learners, which clearly need to be addressed, but also if I have one policy I’m passionate about in America is about creating mid-career courses that are much more flexible and getting the over-weaning educational bureaucracy, which tries to control these forces in such rigid ways, out of the way and allow companies to work much more flexibly with community colleges and just creating much more flexible nimble ways for educating people mid-career.

Question: I want to change the topic to one of your recent articles in the Financial Times, that the plumbing system of the international finance system is broken. I think we can thank all of our central banks around the world for that. I want to go over a particular European part of that, and that is buying up corporate bonds via the EU and now the U.K. is buying corporate bonds. We have even gotten to the point that corporate bonds are being issued specifically to be bought by central banks. This is happening in markets that are not particularly wide and particularly deep.

 Would you comment about that? Would you comment what the future is with that, and what that all means for finance worldwide?

I spent many years of my life writing the financial markets section of the FT. I’m basically an uber-geek so I could happily stand here and talk to you about tri-party repo for hours, but I won’t.

The key point is this, that the financial pipes in the global financial system appear, if you glance at them casually from a distance, which is what most politicians do, to be working just fine. Everything seems very calm and quite functional. It all seems a bit unchanged from how it was 10, 15 years ago. In fact, some very radical changes are taking place inside the pipes of the system.

The analogy I use which works very well in America was that they are throwing up. If you measure the pipes and the amount of plumbing system, they’re getting blockages in all kinds of ways, partly because of regulation and the fact that banks don’t want to act as market leaders anymore, understandably, but also because of QE and the flooding of money liquidity into the system by central banks.

I’m with the kind of people who think right now that QE is completely bad. I think that simply cutting interest rates further is pretty much negative territory, having central banks buy up everything that moves. In Japan it’s even worse. In Japan the central bank is not just buying the bonds it can get ahold of. In fact it’s soon going to run out of bonds to buy. It’s buying up equities as well. Now it owns about 5 percent of the Nikkei 225 which is completely mad. I really have people that said actually these policies have reached the point of exhaustion and they’re probably doing more harm than good.

Having said that though, I think the chances of them changing anytime soon are pretty low. At the Aspen event I was at and I’ve just come back from, there were a number of Central Bank governors there, all of them were preparing for Jackson Hole. None of them are about to say, “Yes, we want to boost rates quickly,” partly because of the potential political repercussions and partly because they know that the financial system now has become so addicted to Central Bank easing that if it were to end it’s going to be very nasty, but also because they don’t have a lot of faith that the central bank. The rest of the governments, the treasuries, the finance ministers are willing to take the obvious step, which is start using fiscal policy and de-regulation instead.

I think right now the world’s caught in a very nasty trap, and I’m worried. I don’t see that changing anytime soon. It reminds me a lot of the situation in 2006, when I was working for the FT and writing about the credit level, which on the surface looks extremely normal. If anyone is looking at the economy from a narrow macroeconomic lens that just looked at real economy indicators, it all looked fine, but when you looked through the weeds you realize just how distorted and vast it was. The problem was that the weeds were so complex and so hidden and so geeky, they are completely invisible to anybody else who is outside the system. The people who were inside the system dealing with stuff had no incentive to blow the whistle or talk more loudly about it.

Question: My question is what does Brexit mean for the future of the U.K.? By that I mean Scotland and Northern Ireland. Are we going to see another independent referendum in Scotland? Also, what does it mean for the young Britons who wanted to remain and may have the opportunity to leave. Roger Cohen had an interesting piece in The New York Times the other day about his daughter, who is eligible for Polish nationality—the granddaughter of a Holocaust survivor from Poland—and is considering that.

Let me take the big point about the young people in Europe today. You make a great point, which is that everyone I know in London, who I have to stress are the international cosmopolitan, well-educated elite, those are my friends. I have my social bubble. I have got a family who come from a rural area elsewhere and have very different views but my friendship group, the people younger than me, anybody who has an Irish grandparent, a French grandparent, a Polish grandparent, are looking at getting a British passport.

That simple, because if you are young, my generation, and I’m 49, grew up assuming the European Union will always be there. It was completely inconceivable that it wouldn’t be there. We also grew up assuming that we get to have the right to go and work anywhere. It’s been actually baked into my whole life experience. I have friends who have worked all over the European Union, and London is full of people from all over the European Union. That was inconceivable to us that we would have left, as it would be for Charlotte to break away from the rest of the United States, and for your case they suddenly wake up tomorrow and realize they can’t just go to Washington as they wanted to. It’s a very drastic shock.

What I must say, and again I will infuriate the Brexit camp by saying this, but on the night of the Brexit vote—we now run rather a rolling news operation, and I run the Americas for the FT, so basically I’m editing the paper—we take it to the papers from about 3:00 until about 1:00 in the morning. We were in charge the last few hours of the Brexit vote in our New York newsroom. I had assumed that we were going to vote Remain, so much so that I had half a mind about what time I would even have to leave to go to the office. Of course when I saw the vote, they all rushed in.

The moment which was actually crystallizing the whole thing for us, as a British people this is seared into our memory as 9/11 is, to be honest. A shock element. As we watched the screens unfold and the results come in, we all sat there going, “Oh well, okay so Brexit is winning but don’t worry. When it gets south it will then swing again.” We all assumed it was going to swing. The moment that Birmingham came out for Brexit, you could have heard a pin drop in the FT newsroom. Everybody was so completely shocked. We couldn’t believe it.

My first reaction and those of my other English national colleagues was, “Oh my God, we’re applying for a Green Card immediately,” because most of us feel we don’t want to go back to a little England vote. That was a nerve reaction. As I said, Brexit could have well surprised all of us who have been so wrong-footed. There was reason to think that actually it could end up being a great thing for the U.K. economy over the long-term to overrun the short-term costs, but the notion, the idea of somehow being adrift from Europe is such a profound and psychological blow that Roger Cohen’s daughter is entirely difficult.

On the issue of what it means for the U.K. well yes, Scotland voted in one referendum and narrowly said no to independence. Most Scottish, as you probably know, were strongly in favor of Remain, even that Donald Trump didn’t agree to notice that when he went to Turnberry immediately after the vote and it was going to be, “But we didn’t want this.” However, it passed.

Scotland would like to stay a part of the European Union. The key problem though, and this comes back to the issue of the bank notes, is that although initially people like Juncko were quite keen to actually embrace Scotland if it voted to leave the U.K. and come into the European Union, since then people like the Spanish have said, “Over our dead bodies do we let in a breakaway region into the European Union because guess what? We have this thing called Catalan and Basque country which are also trying to break away, and we don’t want to give them any ideas.”

It’s unclear what’s going to happen now. My guess is that Nicola Sturgeon is going to play for time and try to avoid having a vote for quite a long time, unless or until she gets clear assurance that she could join the European Union and I’m not sure that’s going to come. If Scotland does break away it can’t join the European Union, and it ends up looking like Iceland.

Question: I’m very intrigued after the Brexit with the idea of changes in currency. The British pound has dropped significantly against the U.S. dollar and possibly Europe as well. I wonder if you could make some comments about this. Specifically, could you ever foresee a time the Germans might find themselves driving British cars?

Driving British cars yeah, because of cost. I think the big question right now is are we going to have cars, period. Given the rise of driverless cars no one’s going to be driving a car at all. The reality is that the hopes of Brexit working out are partly pinned on the idea that the U.K. will become a very flexible, low-cost, low-tax regime in manufacturing and other kinds of services. Currency is obviously devalued already. That will provide a great entrepreneurial free-market energy where you go to flourish compared to the Socialist background decaying the European Union countries.

Will the U.K. become a big manufacturing hub? One of the problems is from what I’ve gathered talking to all the companies that have come into the U.K. and done all this FDI and built car parks in places like Sunderland is that much of that has been predicated on the assumption of free-market access to the rest of the European Union. The real question right now is if you’re going to have a country that’s outside the European Union, do you really want to have it in the U.K. or do you want to go to East Europe where the costs are even cheaper, where you’ve got lots of bright workers there, probably much brighter workers and much better trained these days?

To my mind, it’s very unclear how the U.K. really regains energy focused on Europe as an export destination. Some people I have spoken to have said the only solution is for the U.K. to basically say “Forget Europe,” and turn—go full-on for trading ties with China or India. Certainly the financial market has a strategy that people are looking at, but I think it’s going to take a lot of political courage to implement the scale of reforms that would be needed to make the U.K. a truly vibrant, entrepreneurial, innovative, low-regulation place. That may happen. Theresa May is nothing but pragmatic, but it’s going to be quite narrow.

 

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