Should-Read: The swipe at Tony Blair is, I think, undeserved. If the Athenian demos can vote to reverse its previous-day’s massacre decree before upon being convinced by Diodotos son of Eukrates that that vote was a mistake, the sovereign Queen-in-Parliament of the United Kingdom can–and I believe should–reject the narrow majority for BREXIT produced by the advisory vote. And the swipe at the OBR for simply doing its job is definitely undeserved, and unfair. The possibility that BREXIT will in the end be seen as having accelerated British economic growth is definitely a possibility out in the tail of the probability distribution.

If I were Wolfgang, I would tear up this current column of his and write another one, starting from the end of the current column. Start by saying that the first and most important economic-policy job of the elected leaders of a democracy is to maintain a high-pressure low-unemployment economy. Continue by saying that the second but subsidiary task is then to manage finances so that that high-pressure low-unemployment economy does not produced either undue inflation or unmanageable structural imbalances. Then note that economists’ first job is to remind the elected leaders of what their tasks are. Then note that economists’ second job is to give the elected leaders policy options that will (a) maintain a high-pressure low-unemployment economy economy, and (b) manage finances to prevent either undue inflation or unmanageable structural imbalances.

Conclude by saying that the economics profession has failed to do its job–but be sure to include a coda listing honorable exceptions.

Wolfgang Munchau: The Elite’s Marie Antoinette Moment: “The Bourbons were hard to beat as the quintessential out-of-touch establishment. They have competition now…

…We–the gatekeepers of the global liberal order–keep on doubling down. The campaign by Tony Blair, former UK prime minister, to undo Brexit is probably the quaintest example of all…. The truth about the impact of Brexit is that it is uncertain, beyond the ability of any human being to forecast and almost entirely dependent on how the process will be managed. “Don’t know” is the technically correct answer….

The correct course of action would be to stop insulting voters and, more importantly, to solve the problems of an out-of-control financial sector, uncontrolled flows of people and capital, and unequal income distribution…. Imagine what would have been possible if Chancellor Angela Merkel had spent her even larger political capital on finding a solution to the eurozone’s multiple crises, or on reducing Germany’s excessive current account surpluses. If you want to fight extremism, solve the problem.

But it is not happening for the same reason it did not happen in revolutionary France. The gatekeepers of western capitalism, like the Bourbons before them, have learnt nothing and forgotten nothing.

Must-Read: Whether Britain’s BREXIT vote would bring on a more-or-less immediate recession depended on whether markets and the Bank of England could and would drop the value of the pound far enough to boost exports enough to offset the shock to investment in Britain. There was a risk that they would or could not–enough of a risk that I thought that avoiding a post-vote recession was a tail possibility. But a more than 20% fall in the value of the pound turns out to have been enough to do the job:

However, is there any other high card in the hole that can make use forecast that British economic growth in the five years post-vote will be as fast as or faster than in the counterfactual in which the BREXIT vote went the other way? Yes–if Britain reverses itself and abandons the BREXIT project. Otherwise? I cannot see any. Untangling value chains is expensive. And the untangling will end with less productive value chains than Britain has now. You can argue–and I do–for a less financialized Britain in which government does much more to nurture and support communities of engineering practice and excellence. But BREXIT looks to me like a uniquely stupid and destructive way to set about such a policy shift. And I cannot imagine the clowns who run Britain’s Conservative and Unionist Party today having any clue as to how to accomplish such.

So put me on record as strongly supporting Britain’s Office of Budgetary Responsibility against all of its enemies and critics–including the extremely sharp [William Munchau[]:

Simon Wren-Lewis: Hitting Back: “A reaction to reading this [by Wolfgang Munchau][]…

…A more serious incident was the forecast by the Office for Budget Responsibility in the UK, which said last week that Brexit would have severe economic consequences. Coming only a few months after the economics profession discredited itself with a doomy forecast about the consequences of Brexit, this is an astonishing reminder of the inadequacy of economic forecasting models. The truth about the impact of Brexit is that it is… beyond the ability of any human being to forecast and almost entirely dependent on how the process will be managed…

Shrug your shoulders and move on? If it had appeared in the partisan press that would be a sensible reaction, but this was written by a widely respected journalist in the UK’s internationally renown financial newspaper… written by someone whose knowledge on the Eurozone is beyond dispute and whose views I often agree with.

Well, on this occasion, this particular member of a discredited profession who is no longer apparently considered an expert on macroeconomics is not prepared to take this kind of stuff anymore, whoever it may come from…. No journalist has any excuse nowadays for misunderstanding the probabilistic nature of forecasts (Bank of England fan charts)…. Macro forecasts… exist because it is worth being slightly better than guesswork when the stakes are so high….

In the Brexit campaign… our collective knowledge about the impact of trade restrictions was treated as just one more opinion, or described as Project Fear…. To have the nerve to blame economists for the Brexit result, to suggest that using their knowledge was a ‘tactical mistake’, to imply that the OBR should pretend they know nothing about Brexit, all that is itself amazing malevolent chutzpah. But it goes beyond audacity to criticise a profession and subject matter you appear not to understand when it is this lack of understanding that has contributed so much to the damage over the last few years.

Should-Read: Diego Daruich, William Easterly, Ariell Reshef: The Surprising Instability of Export Specializations: “Specializations are surprisingly unstable: Export ranks are not persistent, and new top products and destinations replace old ones…

…Source-country factors are not the main explanation of this instability: Only 20% of the variation in export growth can be explained by variation in comparative advantage (source-by-product factors), while another 20% of the variation in export growth can be explained by variation in bilateral (source-by-destination) factors. The high share of product, destination, and product-by-destination factors diminishes the emphasis on the nations where the exports originate. The high share of idiosyncratic variance (residual at the source-product-destination level of variation) of about 30%, also indicates the difficulty to predict export success using source country characteristics. These findings suggest that export performance depends, to a greater extent than previously appreciated, on forces that are outside the realm of national export promotion and industrial policies.

Must-Read: James Kwak: The Deduction Fairy: “Incoming Treasury Secretary Steven Mnuchin promised a big tax cut for corporations and the ‘middle class’, but not for the rich…

…“Any tax cuts for the upper class will be offset by less deductions that pay for it,” he said on CNBC. This is impossible. The tax cutting mantra comes in two forms… [1] reducing the overall tax burden on the rich will turbocharge the economy… doing all those other wonderful things that rich people do… [w2] we should lower tax rates to reduce distortions in the tax code, but we can maintain the current level of taxes paid by the rich by eliminating those famous “loopholes and deductions.” Donald Trump the candidate stuck with the former: his tax proposal, as scored by the Tax Policy Center, gave 47% of its total tax cuts to the top 1%, who also enjoyed by far the largest reduction in their average tax rate. Mnuchin’s comment implies that he favors the latter….

When it comes to the truly rich, however, there just aren’t enough deductions out there to eliminate. You can only deduct interest on a mortgage up to $1 million. The fanciest employer-provided family health plan isn’t worth more than $30,000 or so. The aggregate limit for employer retirement plan contributions is around $50,000. At the top end of the wealth hierarchy, where people make millions or tens of millions of dollars per year, these are rounding errors; eliminating these deductions wouldn’t even make up for a reduction in tax rates of a single percentage point…. The biggest tax breaks for the very rich… are the preferential tax rate for capital gains, the deferral of taxes on those gains until you sell the assets, and the step-up in basis at death…. The idea that you can reduce tax rates without reducing the tax burden at the top end of the income distribution is a fantasy on par with the idea that you can increase tax revenue by raising rates—plausible in theory but impossible given current reality. That Mnuchin is taking this line is simply evidence that the Trump administration will try to reconcile a massive tax cut for the rich with their fake-populist rhetoric for as long as possible.

In the end, we know which one will win out.

Must-Read: As I wrote in reply to Neville Morley, in the twentieth century the pace of explosion in humanity’s technological capabilities and material wealth has been so great that the economic-technological strand of history is profoundly and substantially determinative of all other aspects of human history. Before 1700, however, the economic is the largely-static background against which history takes place: only in the [longue duree][] does economic history become a character in any narrative. And from 1700 to 1870? Let me turn the mic over to John Stuart Mill (1871):

Hitherto it is questionable if all the mechanical inventions yet made have lightened the day’s toil of any human being. They have enabled a greater population to live the same life of drudgery and imprisonment, and an increased number of manufacturers and others to make fortunes. [And] they have increased the comforts of the middle classes. But…

Then Mill goes off into the necessity for conscious and artificial–and mandatory–fertility control to dismiss the Malthusian Devil. But the point–that up until 1870 the world was still profoundly pre-industrial in its bulk–is inescapable.

Neville Morley: When It Changed: “Eric Hobsbawm[‘s]… short twentieth century… [an] idea… found in Stefan Zweig’s Die Welt von Gestern…

…and the 21st Century began in 1989 with the collapse of Soviet communism…. DeLong starts with the question of whether the economic history of the 20th century is better organised around the ‘short’ (1914-1989) or ‘long’ (1870-2012) version, arguing for the latter on the basis of jumps in Total Factor Productivity and on the demographic transition; as he notes, the case for the short C20 is founded on (a) the idea that the crucial part of the Industrial Revolution had long since taken place and (b) the dominance of Marxism-Leninism and ideological struggle (which is of course Hobsbawm’s main focus). Milanovic’s response is essentially to re-assert the characterisation of the twentieth century in terms of the struggle between capitalism and an alternative political-economic philosophy, which naturally leads him back to Hobsbawm.

As both note, what’s really driving this difference of opinion is a different choice of subject matter… with a certain hint that some approaches are more significant than others, at least when it comes to characterising the Twentieth Century as a period…. Periodisation… is always silly. But it also seems to be inevitable. As DeLong noted on Twitter, we’re story-telling apes, making sense of the world through a [rocess of selection, simplification, juxtaposition and connection…. Why centuries? I would speculate that part of the reason is the shift from understanding the past in terms of the regnal periods of monarchs or dynasties (‘the Elizabethan Age’; ‘the Victorian Era’), as a move to a… less overtly Great Man orientated view…. Gibbon’s… (allegedly) most fortunate period in history, “the period which elapsed from the death of Domitian to the accession of Commodus”, has changed its label from ‘the Age of the Antonines’ to the Second Century… plac[ing] increasing emphasis on systematic explanations–with the stability of the Second Century doomed to be shattered not by the moral failings of Caracalla but by the Antonine Plague and the Third Century Crisis….

A century is longer than a normal lifespan, but a short enough period of time to be humanly comprehensible…. Where this becomes trickier… is the subtle shift from centuries as a framework within which we locate events and developments… to centuries as a means of conceptualising and even explaining…. Defining the 20th Century… in terms of, say, the struggle between capitalism and communism, privileges certain sorts of historical development… implies that they are the driving force behind events more generally, smuggling in interpretation in the guise of chronological arrangement…. Unless you do assume that one strand of historical development–changes in productivity, or technology, or ideology–is determinative of all the others, then there’s no particular reason to assume that everything will change according to the same chronological pattern…. Our desire for narrative coherence wants moments… to offer a definitive ending, or at least a new chapter; history goes on resisting such simplification.

Should-Read: The Republicans think they can take a vote to dismantle ObamaCare in January without passing a replacement–and then postpone the dismantling until after the 2018 midterm. But in most states insurers are only participating in the exchanges–and incurring current losses from adverse selection–in order to build market position for a future in which the system is stabilized. The most likely outcome is exchange collapse unless states commit to stabilizing their own exchanges. That will happen on the west coast. That will happen in most of New England and New York. Elsewhere? We are in all likelihood facing yet another Trump-Republican policy disaster come next January:

Nicholas Bagley: Health Insurance Market Implosion: “The big risk of [ObamaCare] repeal-and-delay (well, one big risk) is that the individual insurance market will unravel before repeal takes effect. As Robert Laszewski tartly noted…

…Republicans are being awfully naïve. They seem to be ignoring the risks in the transition period, particularly because they need insurance companies to provide insurance during the transition…

Robert Laszewski: Interviewed by Sarah Kliff: “The Republicans are being awfully naive. They seem to be ignoring the risks in the transition period…

…particularly because they need insurance companies to provide insurance during the transition. Unless we have some miracle, and the exchanges become profitable, why would they stay around for two years? I think Republicans are overlooking this. Medicaid would be fine in the transition; states will continue taking that funding. But for the exchanges, having the subsidies in place isn’t enough. It helps the customer, but why should the insurance company stick around?…

You’ve got an exchange where insurers have been losing money already. Why should insurance companies continue to subsidize Obamacare for Republicans? And we’re not talking $2 million in losses, we’re talking hundreds of millions. I’ve got these small state plans I advise, and they’re losing more than $100 million this year. They don’t have the money to stay in. One plan’s board director told me recently that under heavy political pressure, they decided to stay in at 2017. And this is a nonprofit plan…. They stayed in… under the presumption that Clinton would come and fix the things…. I think you’ll have a lot of plans decide not to participate or participate with extraordinary high rates….

North Carolina Blue Cross Blue Shield… decided to stay in 2017, and the CEO admitted openly it was a very hard decision. They’ve lost $400 million so far. That’s what he said before Trump won. That plan can’t continue to lose that kind of money in a market that is closing. My guess… when it comes to contract signing in September, if Congress is deadlocked and hasn’t come up with the replacement yet, many will have no choice but to say, “I’m not participating,” or ram through extraordinarily high rates so they can guarantee they won’t lose money. This doesn’t necessarily hurt low-income people because they’re subsidized, and only have to pay a certain percent of their income….

The things… Republicans have hated… call an insurance company bailout… keeping them around is the only way to maintain a viable market. The problem is when you have an insurance market and the new administration declares it DOA, it will go into death throes. It will be a death spiral. The Trump administration will have put it in a death spiral. The only way to fix that is if you subsidize the market. If you just subsidize the consumers, that doesn’t do any good….

What they have to do, and I don’t think they’ll do, is take the defunding bill they use to repeal Obamacare and reestablish the risk corridors and reinsurance fund. They have to do it inside the budget bill; otherwise they’ll need 60 votes…. They have do is reestablish… the so-called insurance company bailout, because if they don’t, they’re going to have a catastrophic result come 2018…. I think Republicans need to reimplement the risk corridors by February or March. That is the only chance they have. I don’t think there is a single Republican member of Congress who has thought about this. I’m reading all these quotes and they’re completely blind to the fiasco on the individual market that they’re about to create.

Should-Read: One should seek truths from facts rather than from theories. Karl Marx, Friedrich Engels, and the Marxists, for example, decided for theoretical reasons that countries would follow, in their economic development, the track of England and, in their political development, the track of France. Not only is such a trajectory not typical: such a trajectory has never been seen anywhere, anywhen…

Friedrich Engels (1888): Notes to the “Communist Manifesto”: “(4)…. Generally speaking, for the economical development…

…of the bourgeoisie, England is here taken as the typical country, for its political development, France.

The paragraph in the 1848 Manifesto to which this note (4) is attached:

Each step in the development of the bourgeoisie was accompanied by a corresponding political advance of that class. An oppressed class under the sway of the feudal nobility, an armed and self-governing association in the medieval commune(4): here independent urban republic (as in Italy and Germany); there taxable “third estate” of the monarchy (as in France); afterwards, in the period of manufacturing proper, serving either the semi-feudal or the absolute monarchy as a counterpoise against the nobility, and, in fact, cornerstone of the great monarchies in general, the bourgeoisie has at last, since the establishment of Modern Industry and of the world market, conquered for itself, in the modern representative State, exclusive political sway. The executive of the modern state is but a committee for managing the common affairs of the whole bourgeoisie…

Note, with respect to the paragraph’s last sentence, that it is not “the modern state is but an executive committee for managing the common affairs of the whole bourgeoisie.” It is, rather: “The executive of the modern state is but a committee for managing the common affairs of the whole bourgeoisie.” The implication is that the legislature and the judiciary–and perhaps even the civil service of the modern state may be something very different.