Universities challenged

Concerns over ‘fat cat’ salaries have been a recurrent feature in the UK over the years and the issue has been raised again in the context of the earnings of university vice-chancellors. Although it has been going for a long time, my first recollection of the popular outrage associated with excessive pay was in the mid-1990s when Cedric Brown, chief executive of the formerly state-owned British Gas, was criticised for his £500k annual pay packet (equivalent to £900k today). The outrage was not so much the amount he was paid – after all, he was ranked in the middle of the range for FTSE 100 CEOs of the time – as the fact that senior managers in formerly state-owned utilities enjoyed massive increases in pay following privatisation. 

Nonetheless, it struck at the heart of the debate over the nature of market economics. The Conservative government of 1979-1997 turned state monopolies over to the market and a lot of UK households, which bought British Gas shares following its 1986 privatisation, benefited handsomely from the surge in share prices that followed. Yet still there was outrage (manufactured or otherwise) over the fact that world class companies competing in a tough global market should have the temerity to pay their management salaries commensurate with that position.

Fast forward more than 20 years and elements of the same debate are evident in the current furore regarding the salaries paid to vice-chancellors at British universities. These are very senior management positions, equivalent to the post of chief executive who essentially oversee the management of the institution. According to a survey by the University and College Union published in February, university bosses received an average salary package of £278k in the academic year 2015/16 which is “an increase of 2% on the previous year and 6.5 times the average pay of their staff.” Whilst a 2% rise sounds modest, it is double the rate of the average university employee and comes after several years of faster increases: In 2014-15, for instance, average remuneration including pensions jumped by 5.4%.

Some universities rewarded their chief executives exceptionally well: The best paid vice-chancellor was at the University of Bath who received a compensation package of £451k (an 11% increase on the previous year). Even more rapid rates of increase were reported elsewhere, with the vice-chancellor at Bournemouth University getting a 19.6% pay rise whilst Ulster University raised the value of total compensation by 16.6%. Pay increases of this magnitude have raised a lot of political eyebrows. But as has been pointed out in a number of quarters, the current government has gone a long way towards creating a market for education so should they be surprised when market forces operate in the market for talent capable of managing in the cut-throat university sector?

What has changed in UK universities in recent years is that the state provides far less direct funding than previously, with only around a quarter coming from the public purse. University managers have to rely far more heavily on private sector sources to drum up business – in other words, they have to be far more commercially minded than previously. But the main source of funds comes from tuition fees which account for around 45% of university income. UK students now have to pay up to £9,000 per year for tuition, which for most is funded via a student loan. Once we add living costs such as food and accommodation, many students can expect to graduate with up to £50,000 of debt. As monopoly suppliers of higher education, there are those who argue that universities are exploiting their clients and paying their senior management handsomely into the bargain. It certainly is not a satisfactory situation when viewed from the position of a young student who will struggle to get a well-paid job on graduation which comfortably covers their living costs and repayment of student debt (let alone some form of long-term savings plan).

Another often overlooked fact is that UK universities enjoy charitable status. Indeed, English institutions are even exempt from registration with the Charity Commission because “they were considered to be adequately supervised by, or accountable to, some other body or authority, such as Parliament.” Scottish and Welsh universities are required to register for some reason. Nonetheless, all of them are designated as non-profit organisations whose primary purpose is to promote social well-being and serve the common good. This means that the vast majority of university income is exempt from corporation tax though they do pay VAT on certain items and are liable for payroll taxes. To give some perspective, Cambridge University paid £3 million of tax in fiscal 2015-16 on profits of £287 million (including investments) and the University of Manchester paid £2 million on earnings of £61 million, both of which are lower tax rates than paid by the much-maligned Google (20%) and Amazon (41%).

The vice-chancellor of Oxford University recently expressed the view that university managers deserve their pay packages because they operate in the “global marketplace” for talent. I have no doubt that they are good at their job, but given the tax status under which universities operate and the fact that in effect these big packages are being funded by students, this came across as a very self-serving statement (and was indeed disowned by many of her Oxford colleagues).

Nobody denies that the challenges of running a university are far greater today than even ten years ago. But academic institutions are not private sector profit maximising organisations – they are non-profit organisations which still rely on the state for part of their revenue – and to argue that university bosses are poorly paid compared with footballers may be true, but the only way to earn a footballer’s obscenely high salary is to be good at football. Indeed, perhaps universities are just the latest in a line of businesses to demonstrate that the pure application of market forces can result in perverse outcomes which benefit managers at the expense of customers.

If it's broke, fix it!

To say that Britain is a country ill at ease with itself would be an understatement. Almost every day new information comes to light which highlights that the divisions fostered by the EU referendum are not healing. Maybe my sensitivity to the issue is heightened by the fact I live in a region which voted overwhelmingly to remain in the EU and I work in an industry that depends very heavily on open borders, and now has to make preparations for the possibility that in 18 months’ time those conditions will no longer be in place. But as evidence mounts that Brexit will not be the costless process that the electorate was promised, there is some evidence of buyer's remorse. As the chart below suggests, there has been a modest, but distinct shift since May in the proportion of those believing that leaving the EU is the wrong decision. The government, however, seems intent on ploughing along its pre-defined course.

The leaked document earlier this week highlighting that the UK plans to impose tougher immigration curbs on EU citizens as soon as Brexit is implemented made for profoundly depressing reading. It certainly did not play well in Brussels and was sufficiently inflammatory that it could scupper attempts to start trade talks next month. Aside from the economic damage that migration curbs will cause, particularly in the short run, a related concern is how this changes the perception of the UK in the rest of the world. The British like to portray themselves as welcoming hosts to immigrants fleeing repression at home. It is hard to square that with the government's current policy which looks increasingly illiberal on a number of social issues.

Not for nothing did the Archbishop of Canterbury describe the current British model as "broken." I take this man's view on economics and finance more seriously than most other men of the cloth, since the Archbishop was formerly a senior executive in the oil industry and knows a thing or two about business. His comments came in the context of a report published by the Institute for Public Policy Research whose Commission on Economic Justice features senior business and public figures alongside the Archbishop. The report argues very strongly that “the British economy today is not generating rising prosperity for a majority of the population. Economic growth no longer leads to higher pay: the period from 2008 to 2021 will be the longest period of earnings stagnation for around 150 years.” The report further argues that workers are not sharing in the recovery in corporate profitability, which is furthering inequality.

Whilst this is all true, in some ways this is to miss the point. As the Chancellor of the Exchequer pointed out the Gini co-efficient measure of income inequality is at a 30-year low. There does appear, however, to be a deep-seated sense that something is wrong. For one thing, it is not income inequality per se that is the problem – everyone is being squeezed by the downward pressure on incomes as the UK economy struggles to recover from the fallout of the financial crisis at the same time as global competition is intensifying. As the IPPR points out, the UK is one of only six OECD countries where real earnings are still below their 2007 level. There is also a sense that wealth inequality is rising as younger people find themselves increasingly priced out of the housing market. In 1991, two-thirds of those aged 25-34 were homeowners: today that figure is around 36%, with the result that people of any given age cohort own less wealth today than in previous decades. But more than monetary equality measures, one of the biggest unspoken concerns is the apparent lack of equality in opportunity.

Younger generations who have entered the workforce in the last 10-15 years certainly do not have the same opportunities that their parents had. Education is a case in point. University students in the UK finish their studies with debts averaging £50,000 according to the IFS, whereas their parents educations was funded by the state. Even in the 1990s when charges were initially levied, they were relatively small and students graduated with relatively low levels of debt. Worse still, the relatively high paying jobs required to fund student loans (which, it should be noted, are subject to an almost usurious interest rate of 6.1%) are far harder to come by. This in part is the result of financial crisis of 2008-09 which has made the country poorer than it would otherwise have been. It is also the reflection of intensified global competition, which means that many skilled jobs (e.g. in manufacturing or finance) are relocating elsewhere. Automation and digitisation increasingly mean that many students emerge from education without the requisite skills. A generalist degree might have sufficed in the past as young people learned on the job, but that is increasingly no longer the case. A university degree no longer appears to be the passport to riches.

None of these problems are easy to resolve. However, the policy of successive governments to rely on markets rather than the state to improve the UK’s economic prosperity is being challenged as never before. Perhaps we have to accept that given the scale of globalisation, digitisation and environmental challenges, incomes in the UK (and indeed many other western economies) simply will not be able to grow as rapidly as in the past. That makes it all the more important that we get the policy mix right. A little less reliance on monetary policy in favour of more joined-up fiscal thinking would be a start. After all, monetary policy only brings forward consumption by enabling households to borrow more cheaply today but they have to repay those loans in the longer term. Fiscal policy will not resolve all the problems though we can be pretty certain that Brexit will exacerbate the scale of the challenges. It is thus imperative to get the Brexit strategy right – and I am not hearing any indications from either the British or EU side that this is likely to happen.

When boring is good

The weekend’s big TV debate between the two main candidates in the German election highlighted both the good and bad sides of German politics. It was a pretty tame affair. Even the German press called it the duel that never was, with both Angela Merkel and the challenger Martin Schulz trading pleasantries rather than political blows. In fairness, neither Merkel nor Schulz are particularly charismatic and the format was not conducive to a lively debate. For one thing there were four interviewers from rival channels, all keen to get their questions across. Moreover the interviewers were perhaps rather more respectful towards the candidates than was warranted by an occasion as important as this. The absence of a studio audience was another buzz-killer and as a result there was no interaction with the general public, which is guaranteed to keep politicians on their toes. That said, German voters like their politicians serious and sober (ironically Schulz is a reformed alcoholic) and do not expect to see their representatives treat the political stage as another branch of showbusiness, as happens elsewhere.

Merkel was deemed to have won on points with Schulz unable to land any decisive blows, and as a result she looks a shoo-in to be re-elected as Chancellor on 24 September. As might be expected, the debate was focused on those issues important to German voters so no surprise that Brexit never got a mention. Immigration topped the bill with a large slice of the available time devoted to this hot topic. But according to Thorsten Benner, Director of the Global Public Policy Institute, immigration is not the biggest problem facing Germany (see box below). Whilst acknowledging his superior knowledge of the German political scene, I am not sure I would totally agree. It is not the biggest economic issue but it remains a huge political problem. After all it has helped fuel the surge in support for AfD, and although they may struggle to pass the 5% threshold required for Bundestag representation, the fact the party has any support at all worries mainstream politicians.

Like most political debates of recent years, the economy did not figure highly. Why should it? After all, Germany is growing relatively rapidly, inflation and unemployment are low and it is an export powerhouse producing some of the highest quality manufactured goods in the world. In short, everything looks to be running smoothly. But as Benner pointed out, the car industry also enjoyed a good run, but it has recently been undone by the problems of dieselgate.

Criticism has come from many other quarters too: The newspaper Die Welt has been particularly critical of the Merkel government of late and following the debate, it pointed out that although Germany is one of the most interesting countries in Europe with the world looking to Berlin, its domestic politics is curiously austere and provincial. In an article last weekend, the newspaper highlighted that Germany has under-invested in infrastructure and education. There is some truth in this: After all, the huge current account surplus represents an excess of domestic saving over investment. But as Wolfgang Schäuble has suggested, it makes sense for an ageing society to save for a rainy day. The problem is that Germany has been running a big surplus for the past 10 years with no sign of a reduction. The fact that what are increasingly seen across Europe as excessively large surpluses are rarely spoken about at home is a sign that the savings investment problem is unlikely to be addressed any time soon.

For all that the debate was a bit dull and skirted around many of the issues which economists might wish to have seen tackled, it was also devoid of the bombast that accompanied the US election and the emotionally-charged atmosphere of the Brexit referendum. For that we should be thankful, since at least one significant western power offers political stability. From an international perspective, four more years of Merkel at the helm would not be the worst outcome in these turbulent times. Those of us dealing with dysfunctional governments in the UK, let alone the US, look to German political stability with a degree of envy.

Dawning realisation

The third round of Brexit negotiations, which started this week, has not gone well. Michel Barnier has called on the UK to start "negotiating seriously” as the mood across the continent hardens against the British government's policy of constructive ambiguity. There are, of course, two sides to this story. One is the domestic shenanigans which increasingly dominate the UK debate as the government slowly gets to grips with the enormity of the task at hand (shamefully slowly, many would say). The view from continental Europe is far less strident, almost bordering on indifference. Brexit is seen as a problem for Britain to sort out and come to terms with.

The domestic narrative is viewed from two sides. The Remainers have little confidence in politicians to deliver a deal, with chief negotiator David Davis known for his breezy confidence rather than his ability to knuckle down and deliver. Meanwhile, Leavers such as international trade secretary, Liam Fox, have hit back by suggesting that the EU’s position on the exit bill amounts to blackmail. Whilst I share the Remainers’ lack of confidence in the UK government’s position, the EU's approach should not be accepted uncritically as the application of fair-minded logic.

When Barnier talks about serious negotiations he really means the UK should fall into line with the EU's payment demands and only then might it be willing to talk about a trade deal. In doing so, the EU is behaving in the time-honoured fashion of a big economic block using its position to try and intimidate a smaller one, as the Greek government found to its cost, and as the UK will discover further when (or if) Fox is allowed to complete the many trade deals he claims are possible. But as I have noted before, the UK cannot realistically commit to paying a sum, the magnitude of which will likely only be revealed in 2018, without getting something concrete in return. None of this should come as a surprise, of course: We all knew that the EU would play hardball and that the UK is negotiating from a position of weakness.

There are ways out of this impasse. One possible solution floated earlier this week was that the UK pays a sum of around €10bn per year into the EU budget for the next three years in return for a transitional arrangement. This effectively means continuing to accept EU laws (freedom of movement and ECJ oversight) in return for single market access whilst losing voting rights. Indeed this is similar to the idea I floated in March except for the fact that the annual cost is too high, as it is broadly what the UK pays now in net terms. The government would have to be desperate to maintain the status quo without any voting rights. Yet according to today's Sunday Times, “Theresa May is set to approve a politically explosive Brexit bill of up to £50bn after the Conservative Party conference in October in an effort to kickstart trade talks with the European Union. Under plans being drawn up in Whitehall, Britain would pay between £7bn and £17bn a year to Brussels for three years after Brexit before ending sizeable direct payments into EU coffers in time for the 2022 general election.” So much for saving £350m per week (£18.2bn per year) to spend on the NHS.

Meanwhile, the public appear to be getting a little restless. There is concern that negotiations are not proceeding as rapidly as anticipated and that the UK will be forced to accept a deal on terms which they were promised would not happen. Indeed, the DailyTelegraph recently carried an article by the European Parliament's chief Brexit negotiator, Guy Verhofstadt, who responded to claims that the EU was being inflexible in its negotiating tactics by pointing out that the EU had actually been very flexible in offering membership on terms which suited Britain. "An opt-out from the euro, but banker to the Eurozone. An opt-out from Schengen, but access to the security databases linked to it. A blanket opt-out from Justice and Home Affairs, with the possibility to opt back into the most effective crime-fighting measures. The list goes on." All true, of course, and exactly what I pointed out in the wake of the referendum. What was notable was that the Telegraph offered Verhofstadt such a platform in the first place. This was after all the newspaper which in August 2016 blamed the economic problems facing the UK on "the pessimism of the previous government, the Labour Party, Barack Obama, global institutions, sections of the media and, of course, the Bank [of England]". The gung-ho confidence of the Brexiteers which characterised parts of the media a year ago has dissipated.

For that, much of the blame should be directed at those prominent campaigners who argued that the EU would be begging to do a deal and "they need us more than we need them". Moreover, those naive campaigners who suggested that "absolutely nobody is talking about threatening our place in the single market" clearly miscalculated the EU's position. Unfortunately, this problem has been exacerbated by the UK government's own decision to leave the single market and customs union (even if the letter to Donald Tusk triggering Article 50 did not explicitly suggest the latter).

In a way, this goes to the heart of the domestic Brexit contradiction. The electorate apparently voted to regain sovereignty, which for many meant controlling borders (i.e. immigration). But many of the leading campaigners are free marketeers who simply want to trade more freely. The fact that they are fantasists with an old-fashioned liberal view of the world (some call themselves Whigs) is where the trouble starts. They have the influence and political clout but no practical idea of how to achieve what they want. More importantly they have totally failed to understand the EU and what it stands for. For many Brits EU membership is a transactional arrangement, but for the original six members there is a much deeper political commitment. The hero of many free-traders is Adam Smith, who pointed out the benefits of comparative advantage – specialising in what you are good at. But that only works if the trading arrangements under which we operate allow everyone to benefit. The ideological thrust at the heart of the free-traders’ campaign is not consistent with the realities of modern day trading arrangements in which the UK is not a major exporter of goods and relies heavily on a services industry which sells to the rest of the EU. Faced with the evidence, maybe even a rationalist like Smith would be forced to agree that the free-trade case for Brexit is weak.

As a final thought, it is worth pointing out that Brexit is not the issue in other EU countries that it is in Britain. The EU has moved on, with France dealing with its own issues and Germany preparing for an election. Ultimately, Brexit boils down to a domestic debate about what role Britain wants to play on the world stage. It can either choose to be outward looking and deal with rising economic powers as an equal, or it can leave the EU and suffer the increasing economic irrelevance that goes with it. Boris Johnson is about to be proved wrong: you can't have your cake and eat it.

How to spot a fake

They say that if you can fake sincerity you've got it made. These days it's fake news we worry about. But it is rare that anyone goes to such great lengths to highlight it as this fascinating Twitter thread I found the other day (also picked up by The Times). A data scientist with the Twitter handle Conspirador Norteño (CN) observed that bot and troll accounts on Twitter often have names that end with 8 random digits. He then took the time to trawl through a series of Twitter accounts, searching for those that referenced #unitetheright and #firemcmaster, both of which are trends followed by those on the Alt-right end of the political spectrum, and found 824 accounts with an 8 digit handle at the end of their user name. Searching their followers for similarly named accounts, and subsequently their followers' followers yielded 63099 accounts. It was (for CN) a simple task to trawl through the followers of these accounts in order to plot the node network. This research yielded the nugget that the largest node in the network belongs to a David Jones based in Southampton.

It then starts to get a little murky thereafter. CN observed that said account posted only between 8am to 8pm Moscow time "almost like it's his job or something". Breaking down the subject matter of the account reveals that this account posted a lot about Ukraine in 2014, then in 2016 moved on to the issues of Brexit and Trump (see chart). Some of the material on the Brexit topic was very inflammatory, particularly with regard to immigration. When it came to the US election, CN pointed out that the language was very similar to that used by adherents of the Alt-right, despite the fact the poster was supposed to be British. CN concludes that this account was "one of the more interesting troll accounts I've seen (and almost certainly human operated and not a bot)". Furthermore, the variety of topics was "aligned with the interests of the Kremlin at the time."

Now we may be maligning David Jones of Southampton unfairly and perhaps he really feels very strongly about the issues at stake. But as one commentator pointed out, if it were a UK based Tweeter their times would vary with the switch to daylight saving in the UK, which would change the time vis-a-vis Russia which has no DST. But they do not, hence accentuating CN's suspicions. This clearly highlights the ease with which it is possible to influence issues of the day by disseminating a particular view and creating a fake network of followers to provide "likes" and recommendations.

This is not to say that the likes of Russia are unduly influencing the democratic process in western economies – at least no more so than usual. Foreign powers have always used propaganda to influence beliefs in other countries. There is evidence to suggest its use as far back as the sixth century BC and it reached new heights during the Second World War, and the Cold War that followed. Even today, the TV channel RT and the BBC World Service provide a view of the world as seen from Moscow and London respectively.  Fake news is not new either: One of the more historically notable events was the publication by the Daily Mail of the infamous Zinoviev Letter in 1924 which purported to be a directive from the head of the international Communist movement, based in Moscow, to the British Communist Party encouraging it to engage in seditious activities. What appeared to be a direct attempt to influence British domestic policy turned out to be a forgery, but it cast a shadow over the Labour Party for decades thereafter, which (unfairly) blamed its heavy election defeat on the letter.

However, the rise of social media has changed the way in which propaganda can be disseminated. For one thing, it is easy to maintain online anonymity which means we can never be 100% sure of the source of the material. Moreover, social media operates on a decentralised basis so that it is straightforward to set up a series of apparently independent channels all feeding the same message. In this way, the message can be drip-fed rather than blasted out.

The impact of fake news on voting patterns is believed to be very small. In one study (Spenkuch and Toniatti 2016[1]) the authors suggest that exposing voters to one additional television campaign ad changes vote shares by approximately 0.02 percentage points. If exposure to one TV ad is as persuasive as one fake news article, each fake tweet influences voting patterns by mere hundredths of a percent. Preaching to the converted will not win more votes, so it does not matter how many times those convinced of a particular view are exposed to fake news because they only have one vote. But the cumulative effect of many thousands of such fake messages will start to mount up if they then influence other voters who otherwise might not be susceptible to such tactics. According to one source (Gottfried and Shearer 2016[2]), 62 percent of US adults get their news from social media and 18 percent do so often, with Facebook the most popular medium. Not everyone will believe the fake news of course, but the dissemination of fake news may have more of an effect than we often credit.

This appears to be a serious problem but I will leave it for others to debate the impact on voting patterns. As an economist, my concern is how such tactics could change the way politicians react to the groundswell of apparent public opinion. If social media is abuzz with reports of how health spending, for example, is scandalously low, do governments react by changing their priorities in order to win votes at the next election? And how would they do so: Do they change their defence budget? Given the low costs associated with fake news dissemination, it is easy to understand why foreign powers with a different world view might try to influence the policies of other governments. But the same applies to domestic interest groups which want to prioritize spending on one area over another. Companies might also apply the same tactics to make the case for a change in the law. If anything this highlights the extent to which all members with a vested interest in our society have a duty to do a little bit of due diligence rather than simply accepting the newsfeeds put before us.

Otherwise, as the often prescient and always quotable HL Mencken put it, "As democracy is perfected, the office of president represents, more and more closely, the inner soul of the people. On some great and glorious day the plain folks of the land will reach their heart's desire at last and the White House will be adorned by a downright moron."

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[1] Spenkuch, Jörg L., and David Toniatti. 2016 “Political Advertising and Election Outcomes.” CESifo Working Paper Series 5780 
[2] Gottfried, Jeffrey, and Elisa Shearer. 2016. “News Use across Social Media Platforms 2016.” Pew Research Center, May 26. http://www.journalism.org/2016/05/26/news-use-across-social-media-platforms-2016

Their generation

It is now 10 years since the first indications of the looming financial crisis began appearing on our radar screens and its aftermath was the main thrust of Janet Yellen’s speech at Jackson Hole last Friday. Some people saw the crisis coming, having warned about problems in the US housing market since at least 2005, but most of us did not. Looking back at some of the material I produced in summer 2007, I did point out the risks which were emerging in the financial sector, but that is all they were – factors that could potentially disrupt the outlook. They were treated as the equivalent of an event on the outer reaches of a fan chart: a theoretical possibility but one we did not set much store by. By the end of the year, I was paying far more attention, pointing out that risk assessments were too low and that investors were too optimistic about earnings prospects, with the result that I expected a sharp market correction. This did happen, but not for the reasons I anticipated.

Looking back at what I wrote in late-2007/early-2008, I had almost forgotten how concerned I was about the state of the economic and financial environment. But however concerned I might have been, I never saw the Lehman's bankruptcy coming. When the Queen asked academics at the LSE why nobody saw the financial crisis coming, their answer was they trusted that risk management tools were adequate. My response would have been that nobody expected the Fed to pull the plug on a major financial institution, having always ridden to the rescue hitherto (my assessment of the Lehman problem one week before the final collapse was not one of my better forecasts). More than any single financial event in the previous 80 years, this was the one with the most far-reaching consequences. It was a signal to the markets that financial institutions could no longer rely on central banks to bail them out and that they had better start getting their houses in order.

Fast forward to 2017, and many of the problems which emerged then continue to echo. Admittedly, banks have deleveraged and have been wrapped up in red tape to the point that they pose far less of a risk than a decade ago.  But they are less profitable and employ fewer people (no great loss there, say the general public). Not surprisingly, Yellen’s main thrust was the changed landscape in the financial world. She did touch on the question of whether the new regulatory environment has adversely affected growth and concluded that although “material adverse effects of capital regulation on broad measures of lending are not readily apparent, credit may be less available to some borrowers, especially homebuyers with less-than-perfect credit histories.” But her main conclusion was “our more resilient financial system is better prepared to absorb, rather than amplify, adverse shocks … Enhanced resilience supports the ability of banks and other financial institutions to lend, thereby supporting economic growth through good times and bad.”

But the macro environment has changed in other ways. Interest rates in Europe remain at immediate post-crisis levels, the full consequences of which we will only find out when we retire and cash in our pensions. There has also been a permanent loss of income in the sense that it remains below where it would have been had the pre-2008 trend continued i.e. we are less well off than we would otherwise have been. Unemployment in many parts of Europe is still too high and dissatisfaction with the status quo has mounted, culminating in the Brexit vote and the election of Trump. In some ways, this is an echo of the first half of the twentieth century, with electorates seeking populist solutions to complex and deep-seated economic problems. It is almost miraculous that we did not see more of this in continental Europe given the magnitude of the euro zone crisis. But the election of Emmanuel Macron as French president is a sign that European electorates have not given up on 70 years of integration and that the high water mark of populism may (I say that very cautiously) have passed.

But what have we learned? Most obviously, perhaps, self-regulation is an inadequate defence mechanism. Banks cannot be relied upon to police themselves (nor can politicians for that matter). More generally, the policy of laissez-faire which has dominated the Anglo Saxon world for the past 35 years, may have reached its limit. A policy of creating incentives to encourage people to take risk has arguably been carried too far. It surely is no coincidence that younger voters, who have been severely disadvantaged by current economic circumstances, have flocked to politicians such as Macron and Jeremy Corbyn who offer a message of hope and inclusivity.

This may be viewed by many as hopelessly naive but we should not dismiss this groundswell of support. Just as people of my generation were fed up with the limits of the post-1945 settlement, so a new generation is finding that the system of which they are now part does not necessarily work for them, and they want change. It will take time to work its way through, but we are going through a period of change every bit as radical as the early 1980s – if not more so. Ours will be a world shaped by different economic forces to those which have operated over the last three decades.

Plenty to (re)moan about

Events of recent days have confirmed what many of us thought all along: the UK government's original position on Brexit is untenable. And as we watch one red line after another being crossed, the credibility of its position is weakened further. This matters because in a negotiating environment, you only have a chance of achieving your goals if the other side believes in the strength of your position. Those of us derided as Remoaners have consistently highlighted that the idea of the UK threatening to walk away from negotiations was nonsense. The European Commission knows it too, so either we are headed for a car crash, or an exit on the EC's terms as I have long suspected. Of course, another alternative may be – and whisper it quietly – that the government realises the folly of the whole charade and is seeking to ensure that Brexit means "as little as possible, as slowly as possible" to quote Dan Roberts in The Guardian.

Where to start? I have already dealt with the Economists for Free Trade paper, which has been widely criticised for being at best a piece of wishful thinking (here). But for anyone interested in an alternative take, the view by Flipchart Rick is worth a read as he also lays into the latest piece by the Institute of Economic Affairs.

Another key event this week was the release of the government's position paper conceding that the European Court of Justice in Luxembourg could still play a key role in Britain after Brexit. This comes after Theresa May promised last year that “we are not leaving only to return to the jurisdiction of the European Court of Justice. That’s not going to happen.” But the government now recognises that some form of oversight body will be required to manage relations between the EU and UK and concedes that it will have to abide by many of the regulations passed down from the ECJ. Indeed, justice minister Dominic Raab noted that the UK would have to keep “half an eye” on ECJ rulings in future simply because it controls many of the non-tariff barriers which will be so crucial to any trade agreement between the UK and EU.

As the commentator Ian Dunt argued in a recent article, “the government's new Brexit position paper is actually pretty good” which as he acknowledges “isn't something I usually say.” He also makes the valid point that rather than criticise the government for adopting a course they have advocated all along, pro-Remain MPs should be “welcoming it and encouraging them to go further.” Indeed, as many people increasingly believe, there is an argument in favour of both sides engaging in more constructive dialogue rather than sniping at each other. I agree, but this is easier said than done given the blatant lies told by both sides during the referendum campaign, and the hardening of the rhetoric from the prime minister during last autumn’s party conference season.

Personally I have never understood the Brexiteers’ pathological hatred of the ECJ. I always thought they had bigger issues with the European Court of Human Rights, which did so much to block the extradition of convicted terrorists from the UK to the US. The ECJ has actually come down in the UK's favour in the recent past on the vexed issue of whether euro clearing could take place in London. I suspect that the two courts have simply become interlinked during the whole Brexit debate without anyone bothering to differentiate between the two.

The other issue which has enraged the Twittersphere this week is immigration. I will look more closely at the figures another time, but suffice to say that net migration to the UK was down to 246,000 in the year to March, from 327,000 12 months earlier, with most of the slowdown driven by a reduction in numbers from the EU (primarily the new accession countries). Those concerned about skill shortages in an economy running close to full employment – at least as measured by the unemployment rate – will take no comfort from that. Worse still, official figures revealed that fewer than 5,000 students a year stay on after their visa expires whereas the government repeatedly claimed the figure was around 100,000. As one wag put it on Twitter, it's a good thing we have not based a huge change in economic policy on figures which are so evidently flawed.

Just to round things off, 100 EU citizens this week received letters notifying them that “a decision has now been taken to remove you from the United Kingdom.” Clearly they were sent in error but as one of the recipients, a Finnish academic Eva Johanna Holmberg, noted "it shows the Home Office currently cannot function. It does not know how to obey the law or even its own rules. It is probably not able to deal with all the paperwork.” She added that this has made her "even less likely to trust anything Amber Rudd, Theresa May, or David Davis says to calm us EU nationals down". It certainly does nothing to promote the case of a Britain which is open to the world and in the long run could do a lot of reputational damage if these cases continue to arise.

Trust is indeed the key word here. Dysfunction seems to be endemic at the heart of government and it is hard to trust the current administration to manage Brexit properly. I have been accused of being a Remoaner but I prefer to think of myself as a realist. The complexity of Brexit was always far greater than either its proponents or the government acknowledged, and to waste part of the post Article 50 period with an unnecessary election campaign looks more ill-judged as time passes. I still find it hard to understand how the government can square the circle between what it promised and what it can deliver without doing great economic harm. The only way, surely, is to row back on some of the more unrealistic promises. That will undoubtedly enrage those elements of the Conservative Party that wish to see Brexit at any price. But it is time to make a stand based on economic rationality rather than ideology. And that is something else to which I will return in future posts.