You are browsing the archive for 2018 February 06.

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Leaving the Customs Union Must Be a Red Line for Theresa May

February 6, 2018 in Economics

By Ryan Bourne

Ryan Bourne

A power vacuum breeds uncertainty.

With the Prime Minister lacking authority and in China last
week, it should not surprise us to see reports of Britain seeking
EU Customs Union membership.

Theresa May has since denied it. Her Lancaster House speech,
after all, said Britain wanted to exit the EU’s common external
tariff, and to be able to negotiate its own third-party trade
deals. It cannot achieve either within the Customs Union.

But fears linger that the government is set to give up the part
of leaving the EU that could bring the largest long-term gains.
This would be an economic and political disaster for the Prime
Minister, who would be forced out by Brexiteers if indeed it
manifested itself as her government’s ambition.

Fears linger that the
government is set to give up the part of leaving the EU that could
bring the largest long-term gains.

Where exactly has this prevaricating on the Customs Union come
from? Not one Brexit group or faction advocated remaining within

It is true that a small band of Brexiteers, variously
self-described as “Flexiteers” or “Liberal
Leavers,” wanted Single Market membership for a lengthy
transition. But that was primarily about regulatory issues. They
were naive about Britain’s ability to strike extensive
service-sector trade deals without directly controlling
regulations, but even they thought that exiting the Customs Union
for goods brought net benefits.

Indeed, the success of Iceland in signing a trade deal with
China was regularly heralded as an example of the future
flexibility Britain could enjoy.

The basic trade-off with the Customs Union has always been this:
membership allows tariff-free and relatively frictionless trade in
goods between member countries, without the need for complex
administrative checks. But what you give up for this is an
independent trade policy with third parties and the ability to set
your own tariffs on goods imported from outside the union.

It should not surprise us then that vested interests in the form
of the CBI want us to remain. By definition, large profitable
companies are doing well out of the status quo.

Carmakers would be particularly disrupted by leaving. Even if
the UK and EU agreed the free trade deal that May desires, if
Britain were to export cars to the EU containing parts made in
China, they would face the 10 per cent tariff unless they passed
complex “rules of origin” tests.

Yet governments should not set policy according to narrow
industrial interests.

The downsides to Customs Union membership are large. The common
external tariff currently imposes over 12,500 tariffs on the
UK’s behalf.

The process by which these are decided is shrouded in mystery.
Some are downright bizarre. But …read more

Source: OP-EDS

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How the Nunes Memo Harms Intelligence Oversight

February 6, 2018 in Economics

By Julian Sanchez

Julian Sanchez

The infamous #memo has finally been #released—and landed
with a flop and a fizzle. Far from the “worse than
Watergate” scandal we were promised, the overwhelming consensus of informed commentators has been that the document
prepared by staff for Representative Devin Nunes, chair of the
House Intelligence Committee, not only failed to unearth any real
impropriety in the investigation of former Trump adviser Carter
Page, but may have accidentally bolstered its legitimacy.

Sold as explosive documentation of a “worse than
Watergate” scandal, the Nunes memo’s chief contention
was that the FBI’s application to the Foreign Intelligence
Surveillance Court for a wiretap order targeting Page
after he left the Trump campaign relied on a now-infamous
“dossier,” funded by the Democratic National Committee,
by way of the firm Fusion GPS, and that the application failed to
disclose the dossier’s origin to the surveillance court. But
the warrant had been renewed three times—once by
Trump’s own Justice Department appointees—and law-enforcement sources claim that the judge
had been, contra the memo, informed of the dossier author’s
political slant. Even the memo itself acknowledged the Russia
investigation had begun with a different Trump adviser, George
Papadopoulos—not the dossier.

Yet even as the memo fades from the front pages, it is likely to
have a lasting impact—and not merely because Trump-friendly
cable hosts will continue to pretend it contains proof of some
“Deep State” conspiracy against the Trump

The document’s lasting
effect will be undermining the ability of Congress to prevent
political abuses of surveillance powers.

The political abuse of the American intelligence
community’s ever-expanding surveillance powers is a serious
threat—one that history provides ample
to believe will naturally occur in the absence of
rigorous oversight. The memo’s lasting effect will be to
cripple the already feeble House Permanent Select Committee on
Intelligence, at precisely the time when America most needs it to
be robust and credible because of that threat.

Indeed, it was only after the Church Committee of the mid-1970s
disclosed decades of endemic abuse, under administrations of both
parties, that congressional oversight of
intelligence—formerly informal and fitful at best—was
formalized with the creation of the House and Senate select
committees on intelligence. While a number of other oversight
bodies, most notably the Foreign Intelligence Surveillance Court,
which must approve warrants sought under FISA, may have mitigated
somewhat the risks of such abuse, the spying powers of the
intelligence agencies—and thus the potential consequences of
their misuse—have also grown enormously.

One reason for this is political: Since 9/11, legal restrictions
on intelligence surveillance have been consistently whittled away,
and broader authorities granted. The USA …read more

Source: OP-EDS

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Why Good Economics Requires Good Theory

February 6, 2018 in Economics

By Frank Shostak


By: Frank Shostak

It is generally held that by means of statistical and mathematical methods one can organize historical data into a useful body of information, which in turn can serve as the basis for the assessments of the state of the economy. It is also held that the knowledge secured from the assessment of the data is likely to be of a tentative nature since it is not possible to know the true nature of the facts of reality.

Some economists such as Milton Friedman held that since it is not possible to establish “how things really work,” then it does not really matter what the underlying assumptions of a theory are. On this way of thinking, what matters is that the theory can yield good predictions.

According to Friedman,

The ultimate goal of a positive science is the development of a theory or hypothesis that yields valid and meaningful (i.e., not truistic) predictions about phenomena not yet observed…. The relevant question to ask about the assumptions of a theory is not whether they are descriptively realistic, for they never are, but whether they are sufficiently good approximation for the purpose in hand. And this question can be answered only by seeing whether the theory works, which means whether it yields sufficiently accurate predictions.1

For instance, an economist forms a view that consumer outlays on goods and services are determined by disposable income. Based on this view he forms a model, which is then validated by means of statistical methods. The model is then employed in the assessments of the future direction of consumer spending.

If the model fails to produce accurate forecasts, it is either replaced, or modified by adding some other explanatory variables. What matters here is how well consumer outlays are correlated with various variables in order to secure a good predictive model. In this sense, all that an economist requires is to establish a good fit between dependent variable and various other variables.

On this way of thinking, we form our view regarding the real world based on how well the various pieces of information are correlated with each other.

Observe however, that by establishing a good fit between personal consumer outlays and the various other pieces of information, one does not really explain the nature of consumer outlays, one just describes things.

By establishing that changes in …read more