We all need to chill

UK parliamentary proceedings yesterday produced yet another night of high drama with MPs delivering a bloody nose to Boris Johnson who has learned a harsh lesson in the Realpolitik of Brexit. However, it only succeeded in raising as many questions as answers. Will there be a general election? If so, what would it resolve? Will the UK really leave the EU on 31 October, and if so, with or without a deal? What is the future of the Conservative Party following the expulsion of 21 MPs? All of these are interesting questions and will undoubtedly be looked at the weeks and months to come.

But what perhaps concerns me most of all is the increasingly short-term nature of the way the UK has handled the Brexit problem. Although we went through many nights of high drama under Theresa May’s premiership, her main objective was to buy the UK some time in order to minimise the economic risks. Johnson’s government has shown no interest in such a strategy. He is focused purely on the politics of delivering Brexit without a second thought for what will follow. Dragging the UK out of the EU at any price will have economic consequences which will be reflected at the ballot box. That said, I am not sure that Remain supporters have given much thought to the future either. Their objective is simply to prevent a no-deal Brexit, which is laudable, but what happens thereafter? They presumably cannot ignore the referendum result forever. And what happens if the 21 Tory MPs expelled from the party are replaced with fellow-travellers who ultimately allow Johnson’s government to pursue its goal of a clean Brexit?

One of the key lessons we have learned over the past three years is that the British political system is incapable of dealing with the Brexit question. As I have pointed out on numerous occasions, the fact that the Conservatives have “owned” Brexit means (a) failure to deliver reflects badly on them and (b) the divide between parties, which was already considerable, has widened further which makes cross-party cooperation difficult. Watching politicians from both sides of the political divide engaging in the adversarial process which passes for debate, it is evident that oratorical skills and points scoring are more highly valued than rational consideration. Only this afternoon, Chancellor Sajid Javid’s speech delivering the government’s spending review was twice brought to a halt by the Speaker who admonished the Chancellor for being overtly partisan in what was supposed to be a dry speech about public spending. I do not recall that happening during any parliamentary speech by any Chancellor.

The theatrical nature of parliament further encourages adversarial behaviour. As the blogger Chris Dillow highlighted in a post recently, presenting politics as theatre is dangerous because it allows journalists to focus on style rather than substance. As a number of other commentators have pointed out, this focus on style over substance has produced an environment in which the media seems less interested in the facts of the matter than whether it generates an engaging debate. In a fascinating article on pro-Brexit bias at the BBC, Chris Grey argues that the BBC has inadvertently stoked the partiality of the debate by giving equal air time to both sides. 

As Grey put it, “the overwhelming balance of opinion amongst economists, including those employed by the Government, is very clear: Brexit will be economically damaging and the main debate is the extent of the damage. Yet ‘balance’ suggests that the pro-Brexit minority of economists be given equal billing with the anti-Brexit majority.” The consequence of this is that people believed that the economic merits of leaving were as strong as those of remain. Worse still, “almost all of the factual arguments made by the Leave campaign were untrue (£350M a week for NHS, Turkey is joining the EU etc.), but ‘balance’ required the BBC to treat them as being as valid as the opposing arguments.”

Imagine a debate between pro- and anti-climate change supporters. The pro lobby is backed up by a scientific body of evidence compiled by highly qualified people who do not say that human activity is causing climate change but that it is highly probable. The antis do not have anything like the same degree of scientific credibility but shout louder. Should their arguments receive the same prominence? Most rational people would argue not since it is better to believe the experts and be proved wrong than listen to the deniers if they are wrong. But with Brexit it seems we are quite content to ignore the economics.

A number of factors have thus come together to create a climate in which it is no longer possible to have a rational debate about Brexit: Political miscalculation; an adversarial political system and misguided media attempts to ensure an unbiased debate are but three factors. So poisoned has the political climate become that amongst the 21 Tory MPs stripped of their party membership after their vote against the government’s Brexit policy are two former Chancellors of the Exchequer (Ken Clarke and Philip Hammond). But the greatest irony is that the grandson of Winston Churchill, Boris Johnson’s great political hero, is another of the victims. In his speech to parliament this afternoon, Sir Nicholas Soames sarcastically thanked the prime minister, whose “serial disloyalty has been such an inspiration to so many of us.” He ended by saying that “it is my most fervent hope that this House will rediscover the spirit of compromise, humility and understanding that will enable us to push ahead with vital work in the interests of the whole country.”

He speaks for many of us, lamenting the inability to engage in rational political discourse on matters of national importance. By continuing to reduce the space for evidence based policy, we run the risk of making bad political and economic decisions. As Soames’ grandfather said in 1938, “The stations of uncensored expression are closing down; the lights are going out; but there is still time for those to whom freedom and parliamentary government mean something, to consult together. Let me, then, speak in truth and earnestness while time remains.”

No good options (only bad ones)

Regular readers will know that I am no fan of Boris Johnson, having been critical of his actions over the past three years. Johnson has a long history of lying when it suits his interests (here for a list of issues which renders him sufficiently untrustworthy to take his public pronouncements at face value). Brexit has brought out the worst in him: Remember the weekly savings of £350 million splashed all over the side of that bus? Or what about the fact that he constantly undermined his prime minister whilst sitting in her cabinet?

Despite all of this – or perhaps because of it – I have been of the view that Johnson does not want a no-deal Brexit. Even last week’s execrable decision to prorogue parliament could be justified as an attempt to put pressure on MPs to sign up to the much derided Withdrawal Agreement. As I pointed out in my last post, one interpretation of the strategy was to ensure that it was impossible to reach a deal with the EU so as to put pressure on MPs to ratify the Withdrawal Agreement and dare Labour to block it, knowing that they could be blamed for a no-deal Brexit in any subsequent election. I still think that is a plausible strategy.

But over the weekend, it has become evident that the government is prepared to trample over democratic norms to an extent that was previously unthinkable. We had the unedifying spectacle of Michael Gove refusing to commit the government to complying with any laws passed by parliament. This was followed up by the threat to deselect any Conservative MP who votes against the government in order to block a no-deal Brexit. I do not want to describe what is happening as a coup – a word which has been bandied around a lot recently – but there is a new strain of authoritarianism in British politics, the likes of which we have not seen before (at least in peacetime). This is not the Conservative Party of Margaret Thatcher or Winston Churchill (Johnson’s political hero). 

The sheer hypocrisy of the deselection policy beggars belief. As Tory MP Alistair Burt pointed out in response to the government’s call for MPs to support its Brexit policy, “I did. I voted for the conclusions of the negotiations brought to Parliament in the WA [Withdrawal Agreement]. JRM [Jacob Rees-Mogg], his friends and current Cabinet members did not. Why am I, having loyally supported, now being threatened and not them?” It is hard to dispute the logic of this claim. On 15 January, 118 Conservative MPs voted against the government’s stated policy of ratifying the Withdrawal Agreement. On 12 March this number was reduced to 75 and by the time of the final vote on 29 March there were still 34 recidivists. The 196 Tory MPs who voted with the government on three occasions will not be inclined to be threatened by those who have consistently showed a lack of loyalty to the former prime minister. What comes around goes around, and Johnson’s lack of loyalty in the past means he cannot count on the support of those who he has previously let down. 

Nor does the deselection tactic make a lot of immediate sense. The government has a majority of one: withdrawing the whip from Conservative MPs means that they are effectively excommunicated from the party, increasing the likelihood that they will vote against the government on a range of other issues. But if the ultimate objective is to hold an election sooner rather than later, there may be some method to the madness – why else would a government want to operate without a working majority? As David Gauke MP said in a radio interview this morning, “I think their strategy, to be honest, is to lose [an attempt to rule out a no-deal Brexit] this week and seek a general election having removed those of us who are not against Brexit or leaving the EU but believe we should do so with a deal.” Indeed, newspapers this afternoon were full of headlines suggesting that Johnson would be prepared to trigger an election if he lost a vote ruling out a no-deal Brexit. However, an election can only occur if the government loses a vote of no confidence in parliament or if two-thirds of MPs vote for it. Either way, it will require the consent of Labour MPs.

Former PM Tony Blair has warned Labour leader Jeremy Corbyn against falling into the “elephant trap” of calling for an election. Blair’s words should be heeded. As much as people are opposed to Brexit and the way in which Johnson has ridden roughshod over the British constitution, there is no guarantee that voters will flock to Corbyn as an alternative. In fact, I am pretty sure they won’t. Obviously Corbyn does not see it that way but I would be prepared to bet that he will not improve on the relative success of the 2017 election result.

If Corbyn really wants to put pressure on Johnson, his strategy should be to get as many Tory rebels as possible to sign up to a motion which commits parliament to ruling out a no-deal Brexit, whilst refusing to rise to the bait of any vote which would trigger a general election. This has the disadvantage that if Brexit can be delivered without collapsing the economy it will hand Johnson an electoral boost. But a more likely outcome is that since the EU will not cave in on the Irish backstop, which the hardliners in the Conservative Party will not be able to accept, a disciplined Labour Party can hold the Tories’ feet to the flames for a much longer period and possibly even force the party to split which would be to Labour’s electoral advantage.

Unfortunately, this would mean a continuation of the political wrangling that has characterised the last twelve months – and that is definitely not in the electorate’s interest. But an election is not in the country’s interest either. The Fixed-term Parliaments Act of 2011 was designed to prevent governments controlling the timing of elections for their own purposes (which it spectacularly failed to do in 2017). If the terms of the Act had been adhered to, we would not have had an election since 2015 and would not have to face the prospect of another one until summer 2020. The 2017 election was a device to suit the government’s convenience – as will any plebiscite in 2019. If there is another election this year, it will further undermine the claim that a second EU referendum would be to disrespect the “will of the people.” 

Is there a way out of this political nightmare? It is hard to see one. We are paying the price for a litany of past mistakes – from the decision to hold a referendum at all; to drawing red lines around membership of the single market and customs union, to Johnson’s plan to resolve the issue by 31 October.  Whatever happens now, half the electorate will be left disaffected and angry. There are no good options – only bad ones.

Prorogation over negotiation

Like many people, I was initially horrified by the news that Boris Johnson is prepared to suspend parliament in order to deliver Brexit by 31 October. It certainly put a damper on the last day of my summer holiday and the Douaumont Ossuary near Verdun was a good place to ponder the stupidity of politicians and the consequences of their actions which impact on the ordinary citizen. But on reflection, I do not buy the kneejerk reaction of those who believe Boris Johnson’s government is intent on driving the UK to a no-deal Brexit. Instead I view it as a gambit to try and force a break in the impasse that has characterised the last two years. This is not to say that the actions of the government should be condoned. It is taking a major risk and those who play with fire run the risk of getting badly burned.

The constitutional aspects

Obviously, I am not a constitutional lawyer but the general consensus of opinion from the experts appears to be that the Johnson government is taking a major risk that could have profound consequences. The UK's constitutional system is based on a democratically elected parliament whose primary role is to hold government to account. Moreover, the British constitution is uncodified and many of the rules which guide it are based on tradition rather than a fixed legal process. Governments have traditionally always played by the unwritten set of rules but a departure from this principle threatens the basis of the current system. As a number of constitutional experts have pointed out, if norms and traditions are not respected they cease to exist and will lead to calls for constitutional change. I would thus not be at all surprised if at some point there are calls to codify a written constitution to prevent this kind of abuse from occurring in future.

Of course the biggest irony is that Brexit was all about taking back control. Whatever happened to that?  In one fell swoop, the Brexiteers have undermined their case, with the scrupulously fair David Allen Green (no Remainer, he) accusing the government of “constitutional cheating”. He goes on to argue that “It is beginning to look as if there will be a constitutional crisis. So far we have not had one about Brexit. There has been a political crisis, and much constitutional drama, but each tension so far has been resolved between the elements of the British state. This prorogation, however, is a direct attack by the executive on parliamentary democracy. It is a cynical device for the government to escape parliamentary scrutiny in the crucial few weeks before a no-deal Brexit is likely to take place. Nothing good can come of this. It is a divisive act when consensus is needed. It is a gross abuse of the constitutional powers of the prime minister. And it breaches a principle far deeper than any constitutional norm — that of fair play.”

Green also makes the point in another Tweet that whilst the government has generated a lot of fake outrage over the reaction to its prorogation decision, there is a whole host of other “constitutional outrages” that have been perpetrated in the name of democracy which have been ignored by politicians and the press.  It has indeed been evident since 2016 that the government is determined to deliver a Brexit at any cost and has ridden roughshod over the UK’s democratic norms in order to deliver it. But this is the only way that it can take a near 50-50 vote split in June 2016 and turn it into something realisable. The damage will only become evident in the longer term. One of the underlying forces driving the Brexit vote was the belief amongst a large section of the population that they had been ignored by politicians. Although the government was never likely to win over hard-core Remainers, its recent actions are likely to alienate reluctant leavers – those who don’t like the idea of Brexit but can live with it if the pain can be minimised. There will be a reckoning from the newly ignored.

History teaches us that it could be profound, albeit a long time coming. One of the most famous prorogations in English history was that by King Charles I in 1629 who ruled for 11 years without a parliament. This was a major contributory factor to the triggering of the English Civil War in 1642 which ultimately resulted in the execution of King Charles and placed significant limits on the power of the Monarchy following its restoration in 1660. It was a long time ago and so what? It is, however, a demonstration that constitutional decisions taken in haste can have huge unintended consequences.

Has no-deal become more likely?

Yes and no. I maintain that Johnson does not want a no-deal Brexit. If even half the concerns pointed out by the leaked Operation Yellowhammer documents are realised, the economic consequences of Brexit could be profound. This is not a good platform for a general election, which I still believe is a likely prospect before year-end. So why is Johnson prepared to take such a gamble?

I may be guilty of applying logic to an illogical situation, but here goes. Johnson was elected as Tory leader on a platform to deliver Brexit. If he fails, his credibility is shot but if he delivers without a deal, his chances of winning an election are also shot. So he either has to get the EU to change its mind on amending the Irish backstop or persuade MPs to vote for the Withdrawal Agreement that has already been rejected by parliament on three occasions. His strategy of apparently excluding parliament from Brexit discussions may partly be designed to send a message to Brussels that he is serious about leaving without a deal. In my opinion this is unlikely to be sufficient to persuade EU leaders to change their mind at the summit starting on 17 October. It is likely they will take the view that a no-deal Brexit is a bigger problem for the UK than for the EU27, so if Johnson wants to plunge the UK over the cliff edge, that is his problem.

Parliament will of course be in session again by this time (it is scheduled to reconvene on 14 October). At this point, Johnson says that the only way the UK can avoid a hard Brexit is if MPs agree to ratify the deal negotiated by Theresa May (perhaps made more palatable by some tweaks at the summit). Unless MPs can somehow force the government to take a no-deal Brexit off the table, they may have little choice but to comply. Cue the triumph of Johnson diplomacy which he celebrates by calling an election, campaigning on the basis of the PM who delivered Brexit. We thus should view the prorogation as a signalling device to terrify MPs as much as sending a signal to Brussels.

This is a high stakes poker game and the higher the stakes the bigger the chance of losses. It is thus possible that it could backfire if the EU refuses to bend, or an insufficient number of MPs are prepared to play along. After all, why should Labour MPs want to give Johnson his triumph? There again if they don’t support the Withdrawal Agreement, Johnson holds an election anyway and blames Labour for failing to support the plan. 

Viewed in these terms, the prorogation device is very neat and it has the fingerprints of Johnson’s special adviser, Dominic Cummings, all over it. He has outmanoeuvred the opposition very cleverly. However, Cummings does not have to face the electorate. Johnson does, and when push comes to shove he may be forced to blink to prevent the worst case outcome. Cummings is unconventional and politically fearless. But by dragging the unwritten constitution into the spotlight, he is undermining the UK’s reputation for political pragmatism and tolerance, built up over centuries. This vandalous act is the work of a zealot and the world will not forget. Nor will the British electorate.

From the sublime to the ridiculous and beyond

Just when you thought that we have reached bottom in the Brexit debate, reality has a habit of showing us that things can always be worse than we thought. The Tory Party anointment of Boris Johnson as Prime Minister a month ago was already a step beyond the surreal, given his past record, but his rhetoric regarding a no-deal Brexit is taking the UK down a dark road from which recovery may be very difficult.

This was highlighted at the weekend by the leaked details of the government’s Operation Yellowhammer (chart – zoom in to see the details) which highlights the extent of the planning required to combat “a catastrophic collapse in the nation’s infrastructure.” Amongst the contingencies for which the government may be forced to prepare are the imposition of hard borders with the Republic of Ireland and at Channel ports, which will lead to significant disruptions in trade flows and which could severely disrupt the imports of food and medicine. None of this should come as a surprise. The government and Bank of England produced analysis last November which looked at the impact of a no-deal Brexit on GDP, and my own contribution was to sketch out some back-of-the-envelope calculations for the impact on cross-channel traffic which look close to those outlined in the Yellowhammer documents.

Whilst the true believers in Brexit dismiss this as Project Fear, an inside source with knowledge of the planning categorically stated, “this is not Project Fear – this is the most realistic assessment of what the public will face with no deal. These are likely, basic, reasonable scenarios – not the worst case.” Indeed, this is coming from inside government: from a civil service which is charged with implementing the policies of the government it serves, not from those who are diametrically opposed to Brexit and have an incentive to derail it. If a modern day Rip Van Winkle were to awaken after a four year nap and see the extent of the government’s preparations, he could be forgiven for thinking that the UK was preparing for war. 

In a way, it is – it’s just not clear who the enemy is. Half the population seems to believe that the plucky UK is facing off against the bullying EU whilst the other half believe the government is visiting a catastrophe on its own people. The United Kingdom has never been more disunited and its own government is stirring the pot. Irrespective of how people voted in June 2016 they certainly did not vote for this. They were sold a vista of sunny uplands in which the UK would benefit from tapping into the more rapidly growing regions of the world rather than being shackled to the moribund EU. Gerard Lyons, who has reportedly been interviewed for the post of Bank of England Governor, is one of the few respectable economists who believes that breaking trade relations with the UK’s most important trading partner will improve its prosperity.

But the view is total and utter rubbish and is based on the sort of analysis which gives economics a bad name. It is founded on a textbook idea of how free marketeers believe international trade is conducted, rather than the realpolitik on which it is actually based. The majority of the economics profession understands that the bigger partner in trade negotiations holds the balance of power. The only way that the UK will be able to close trade deals that the EU has somehow failed to achieve is to roll over and sell out its interests in favour of the more powerful partner – something the EU has refused to do. Anyone who believes differently is urged to sign up today as a trade negotiator – your country needs you! 

A bigger obstacle to the Brexiteers dream of a Britain driven by fantastic new trade deals is that the world has changed significantly in the past three years. Globalisation is in retreat as economic nationalism moves to centre stage, thus removing the central plank upon which their model depends. Donald Trump has torn up NAFTA and is engaged in a trade war with China from which nobody will emerge unscathed, as the basis of the global trading system over the last seven decades is slowly pulled apart. This is the very worst time in the post-1945 period for a country to throw itself on the mercy of the international trading rules. 

Brexiteers believe that the UK can perform well under WTO arrangements. But this is not a strategy – it is a default. So good are these arrangements that the only country in the world that trades solely on WTO rules is Mauritania – everyone else has made supplementary trade deals. Nor is it clear that the WTO will be in any position to enforce its own rules in future. The WTO’s Appellate Body is composed of seven members who serve for four-year terms. But as the terms of serving judges have expired, new appointments have been blocked by the Trump administration and it is currently down to three – the minimum required for a quorum. With two of them set to leave at end-2019, further blocking by the US means the WTO will be in no position to hear any disputes brought before the court. That is not a basis for the new trading relationships that the UK hopes to forge in a post-Brexit world.

Doubtless, those who continue to believe in the purity of Brexit will accept nothing less than departure at any cost. Unfortunately, those who continue to point out the pitfalls in the argument are labelled Remoaners (or worse). But this is not just about Leave or Remain – delivering a Brexit which does great economic harm will permanently damage the credibility of the Brexit case. If influential Leave politicians have any interest in remaining relevant beyond Brexit, they need a plan of how to deliver without crashing the car and the vexed issue of the Irish backstop is not the ditch they should be prepared to die in. I believe they know this, which is why I don’t take their rhetoric at face value. But if I am wrong, and the government really is intent on jumping over the cliff on 31 October, they will almost certainly be pursued by a vengeful electorate armed with ballot papers.

Buying Greenland - a valuation perspective

A history of US territorial purchases

Recent indications that Donald Trump is mulling the prospect of the US buying Greenland are not quite as ridiculous as many people seem to think. Indeed, the US has a long history of buying territory. Back in 1803, the newly formed United States bought the territory of Louisiana from France for $15 million ($341 billion in current prices). Large chunks of what are now Arizona and New Mexico were bought from Mexico in 1854 for $10 million ($305 billion in current prices), whilst in 1867 it bought the territory which now comprises the state of Alaska from the Russian Empire for a total of $7.2 million ($124 billion in current prices).

Moreover, the US has previously tried twice (and failed) to buy Greenland. In 1867 it looked into the possibility of acquiring Iceland and Greenland, and in 1946 President Truman offered Denmark $100 million of gold in exchange for Greenland. Based on the standard purchasing power measure, used in the calculations above, this is equivalent to $1.3 billion in current prices but based on gold price movements over the last 73 years this rises to the equivalent of $4 billion.

From a historical perspective, this is all both fascinating and ironic. It is ironic given the hostility of the United States to imperialism in the first half of the twentieth century that its history is so littered with examples of territorial acquisition. It is also fascinating because it demonstrates the international trade in territory that has taken place in the relatively recent past. However, it is a practice that has died out largely because the expansion of global trade means that countries are able to acquire what they need from elsewhere at a much lower cost. Moreover the issue of inhabitants’ rights mitigates against the practice. It is much more difficult to sell people’s rights to the highest bidder these days following the advent of pesky irritants such as the Universal Declaration of Human Rights, adopted by the United Nations in 1948. Of course, you don’t actually have to buy the outright ownership of territory: You can lease it, as Britain did with large parts of Hong Kong between 1898 and 1997 and as the US still does with the infamous Guantanamo Bay in Cuba. 

Applying corporate valuation methods 

Although Denmark has rejected the idea of selling Greenland, there is nonetheless an interesting debate to be had about how to value the sale of territory. It is thus illustrative to think about how companies are valued. There are essentially three main methods: (i) asset valuation; (ii) the value of revenue streams and (iii) a discounted cash flow approach. We can apply all of these methods in assessing the value of territory. 

(i) Valuing the assets 

One of the standard measures of corporate valuation is the ratio of the market price to the book value of assets. If we assume that this is unity, we can use international data on national balance sheets as a measure of the market value of all financial and non-financial assets. The latter comprises items such as the value of buildings and other fixed assets such as machinery; the value of inventories and natural resources such as land. Financial assets are the net value of all currency holdings, gold, financial instruments and net loans outstanding. In the UK last year, the value of net financial assets was near zero and the total net worth of £9.75 trillion was comprised of net non-financial assets. The US has the world’s highest net worth (chart), measured at $98.2 trillion in 2018 (31% of the world total), followed by China at $51.9 trillion (16.4% of the total). 

 

For the record, Denmark’s net worth was $1.3 trillion (0.4% of the world total). If we allocate Greenland’s share on a pro rata population basis relative to the whole of Denmark, its net worth drops out at $12.5 billion – around what the US Federal government spends on the Disaster Relief Fund, or 1.8% of the defence budget. This is, of course, a rough and ready calculation which takes no account of the expected future value of Greenland’s natural resources but it is a good starting point. 

(ii) Valuing the revenue stream 

What about valuations on a revenue basis? The obvious metric to use is GDP where the US is again ahead of the pack with total output last year recorded at $20.5 trillion. Being generous, Greenland’s GDP last year was around $3 billion. If we are applying corporate valuation methods, the standard measure is to value the company at a multiple of expected earnings. Applying a P/E multiple of 15x, which is in line with most major equity markets, this implies a market valuation for Greenland of $45 billion – slightly short of Montana’s GDP ($49.2 bn last year) but higher than that of Wyoming ($39.8 bn). If the US were engaged in a corporate transaction it would have no real difficulty in finding the funds out of its cash flow. 

(iii) The discounted cash flow 

The discounted cash flow issue is more tricky. Climate change is having a big impact on Greenland’s geography and according to the Brookings Institution in 2014, “due to global warming, Greenland’s mineral and energy resources … are becoming more accessible.” According to one report, oil could contribute around $78 bn to the national coffers over the next 40 years and after accounting for development costs, “a discounted price for future energy and other resources suggests a price in the $30 billion range could be fair value. Even adding the 10X current GDP and the energy resource value together would be a value of about $57 billion.” 

How to fund the acquisition 

So there you have it. On the basis of the estimates produced here, the US would have to stump up somewhere around $50 billion to purchase the territory of Greenland – or about 0.25% of annual GDP. This is rather less than the present value amount of nineteenth century territory purchases. How might it be funded? A straight cash swap, in which the Fed prints the requisite dollars, would require an increase in the value of notes in circulation of 3%. A debt for equity swap, in which the US Treasury issues notes, would require an increase of just 0.3% in the amount of debt held by the public. In financial terms, the US would clearly not have a problem funding the acquisition. 

The resistance of reluctant sellers 

The only trouble is, Denmark is unlikely to sell at any price. Soren Espersen, foreign affairs spokesman for the populist Danish People's Party, said of Trump in a broadcast interview, "if he is truly contemplating this, then this is final proof, that he has gone mad.” But we should not be overly dismissive – like many old ideas coming back into fashion, the notion of selling territory to earn a bit of extra cash could appeal to governments in these straitened economic times.

Indeed, rather than going to war with Iran, the US could attempt a hostile financial takeover by forgoing the annual GDP of a state such as Connecticut to buy it (this would cost around $272 bn on an asset valuation basis). It would come more expensive if we used the 15x P/E multiple, where the GDP of California, Texas and New York would be required to meet the asking price of $6.8 trillion. But let’s face it, we have heard a lot worse ideas from Trump!

Burning down the house

In newsrooms, this time of year is known as the silly season for the fact that there is little of note to report and as a consequence the media is often dominated by trivial news items. As the Brexit debacle continues to unfold, the news is far from trivial but the adjective silly continues to apply.

This week has seen the Labour Party put forward plans to form a temporary government if the current government loses a vote of no confidence, which Labour has promised for September. To that end, Labour leader Jeremy Corbyn sent a letter to the leaders of all the other opposition parties and senior backbench MPs calling on them to support his attempt to bring down the Johnson government and delay Brexit. This raises two questions: (i) is it right that MPs should try to prevent the government from delivering a no-deal Brexit and (ii) what is the best way to ensure that?

With regard to (i) it is highly likely that the government will face a no-confidence motion in September. If it wins, we carry on down the current path to destruction. If it loses, the Fixed-terms Parliament Act of 2011 allows a grace period of 14 days to allow the current administration to form a government which is acceptable to parliament. If after this time no such government can be formed, a general election must be called. If Tory MPs were to vote against their own government, it is constitutionally possible to put a firebreak in the process. Quite how this will play with the electorate is another matter. Brexit supporters will be up in arms, accusing MPs of thwarting the will of the people, and such a course of action will do nothing to heal the divisions that have widened over the course of recent years.

Clearly this process will have to be handled very carefully. Unless instructed to do so by the electorate, a new government would not have a mandate to stop Brexit altogether so those hoping that a new administration will turn back the clock to 22 June 2016 will be disappointed. At best, a new government would only have a temporary mandate to prevent a no-deal Brexit on 31 October. Anything else would open it to the same accusation that has been made of Boris Johnson’s government that it has no authority to pursue its stated course of action.

With regard to (ii), historical convention dictates that the prime minister resigns in the event they lose a no-confidence vote. But the sample size is small: the government has been defeated on such a vote only once in the last 95 years (1979). Indeed, the law is vague as to whether the prime minister will be forced to resign. Moreover, the government has control over the timing of the election date. Thus, if it were to lose a no-confidence vote in early September it would not have to think about calling an election until mid-month. If it were to set the date for early November (a seven week campaign as in 2017), parliament would be dissolved and would not be able to prevent a no-deal Brexit on 31 October. Consequently, the no-confidence motion could backfire on those trying to prevent a no-deal Brexit.

Even if a new government were to be formed, it appears that Jeremy Corbyn would not be the best option to lead it. Jo Swinson, the new leader of the Liberal Democrats, rejected his plan by suggesting, “Jeremy Corbyn is not the person who is going to be able to build an even temporary majority in the House of Commons for this task – I would expect there are people in his own party and indeed the necessary Conservative backbenchers who would be unwilling to support him.”

She is certainly right about that. In the summer of 2016, his own MPs tried to remove him and although Labour did better than expected in the 2017 election, this was as much about rejection of the Tories as about support for Labour and there is a sense that Corbyn’s time has passed. It is not as though Corbyn is a noted Europhile: The 2017 Labour manifesto indeed pledged to implement Brexit, which seemed to have bypassed many younger Labour voters who looked to Labour to reverse the June 2016 decision, and in the three years since the referendum, Corbyn has failed to take a stance on Brexit that Remainers can get behind. From a political standpoint, moderate anti-Brexit Tories have nothing to gain by supporting Corbyn for they will be vilified by party members, even those in constituencies which voted Remain.

Whilst it is positive that at least efforts have been made to come to a cross-party agreement on how to stop a no-deal Brexit, Corbyn is the wrong man for the job. There have been some suggestions that the likes of Ken Clarke could command sufficient support to lead a government of national unity. I have my doubts. But what the events of the last few weeks have shown is that the Remainers do not have a plan to stop a no-deal Brexit and appear to be unwilling to stand up and take the drastic action which would be required to necessitate this. As one Twitter user pointed out, a lot of what has been discussed “seems to be unconditional predictions about what will happen, rather than setting out what the possible permutations of events are.”

I continue to believe that Boris Johnson wants to avoid a no-deal Brexit and is looking for something to thwart his plans so that he can shift the blame elsewhere for not delivering on 31 October. I don’t want a no-deal Brexit either. But sometimes it seems as though the only way Brexiteers can be made to own the consequences of their actions is that they feel the pain of failure and endure the wrath of the electorate. It’s a bit like burning down the house to deal with a vermin infestation: You can get rid of the rats but have nowhere to live. And as I have consistently maintained since I was first questioned on the subject in late-2012, “the EU is far from perfect, but life on the outside may be even harder.”

Fast and loose

According to the new Foreign Secretary Dominic Raab, he made it clear during the 2016 referendum campaign “that we should strive for a good deal, but if that wasn’t available, that we should go on and make a success of Brexit … I was questioned on it by the BBC almost every time I appeared and so was Michael Gove… There’s all sorts of interviews which said that of course we’d prefer a deal, but that there would be a risk.” In Raab’s telling of events, people knew what they were voting for three years ago and as a result the government now has a mandate for a no-deal Brexit.

When challenged in a BBC interview as to the veracity of this statement, Raab responded by suggesting that “the institutional memory of the BBC is a bit sketchy on this as a whole.” Fortunately, those who appear prominently in the media leave a digital trail that can be mined to check whether their claims stand up to scrutiny. Both the BBC and Channel 4 have fact-checked Raab’s media interviews, social media posts, newspaper articles, speeches and Vote Leave campaign material only to conclude that there are no clear examples of Raab’s stated position. His consistent position was that the EU would be likely to offer the UK a trade deal because “it’s certainly not in the Europeans’ interest to erect trade barriers.” Indeed, in February 2016 he wrote a newspaper article suggesting that “The Remain campaign assert the EU would cut off its nose to spite its face, vindictively defying its own interests by shutting Britain out of its markets altogether. That’s not remotely credible.”

There are those who accuse Raab of being a “morally vacuous liar” who shamelessly holds to the view that his government has a mandate for a no-deal Brexit, despite the fact that the evidence points to the contrary. Others have pointed out that those who lie in the course of their job get fired but Raab has been rewarded with a promotion. I couldn’t possibly comment! But in all likelihood, Raab will get away with such falsehoods because the political dynamic has changed. We live in an era of political beliefs, not facts, which makes life difficult for those of us who seek at least some fig-leaf of empirical cover for the positions we hold.

All this is very dangerous because it erodes the lingering basis of trust between politicians and the electorate. It is one thing for politicians to be perceived to be lying; it is quite another to actually do so, particularly when the consequences of politicians’ actions have profound economic consequences. Dominic Raab’s rewriting of history means that voters did not have a chance to inform themselves of the consequences of a no-deal Brexit. Indeed, the evidence suggests that this issue did not impinge on voters’ consciousness until well after the referendum.

In order to look more closely at this issue, I took a look at Google search terms in the UK for Brexit-related keywords, starting with “no-deal Brexit.” The data do not give the exact number of searches but is reported as an index based at 100 for the maximum number of weekly searches. The latest data suggest that the highest value occurs for the week of 10 March 2019. More revealing, however, is that the index registers its first non-zero value only in March 2017 – 9 months after the referendum – and does not start to become a more prominent issue until the latter months of 2017. That is not exactly what you would call an informed electorate. Similarly, Google searches for phrase “hard Brexit” do not start to become more widespread until September 2016 (chart).

In my view, the government will be taking a huge risk in triggering a no-deal Brexit given the extent to which many people seemed unaware of such an outcome at the time they cast their vote. This may not be a problem if there are no adverse economic consequences, but if there are I would not like to be the one explaining why the government has taken such a course of action. As it happens, I maintain that Boris Johnson’s government does not really want to leave the UK without a  deal and that its tactic is designed to appeal to the party faithful in a bid to dissuade voters from defecting to Nigel Farage’s Brexit Party. Indeed, I suspect that Johnson hopes parliament will block his no-deal Brexit plan which in turn will allow him to call a general election.

It is, however, an extremely risky strategy. A no-deal Brexit could be triggered by accident if parliament does not play ball. And it might even be the case that Johnson means what he says. But a look at the evidence makes it clear that voters did not consider the prospect of a no-deal Brexit in 2016 and they may be reluctant to support a government that mismanages the UK’s exit from the EU. If Johnson wants to remain in office for any length of time, which surely is his aim, he either has to tone down the rhetoric or ensure that a no-deal Brexit does not result in the disruption that many fear. Unfortunately, he cannot guarantee the latter.