From Greg Ip: In Davos, Nobody Knows Anything, and That’s the Problem

The raison d’être of Davos is intelligence gathering. Hedge funds go to chat up CEOs, CEOs go to chat up politicians, politicians go to chat up donors, and journalists go to chat up everyone.

This year, all that chatting is yielding distressingly little intelligence, and that helps to explain why the mood here, and indeed over the world economy, seems so dark.

Here are the questions people here most want answered: How will Brexit be resolved? No one knows, certainly not British parliamentarians or cabinet ministers. When will the federal government shutdown ends? Nobody knows. Will the U.S. and China reach a deal to avoid all-out trade war by March 2? Nobody knows. This isn’t because no one from the Trump administration is here; if they were, they wouldn’t know, either (or so the people here who have dealt with Trump have concluded).

In the economy uncertainty is, of course, a constant. Businesses, markets and investors are used to working with probabilities rather than certainties, whether it’s the outlook for profits or interest rates. But with today’s problems you can’t even assign probabilities. Since Mr. Trump himself does not seem to know what he wants out of the China trade talks, how can you judge the odds and provisions of a deal?

How do you assign a probability to Mr. Trump or Democrats breaking a promise to their bases, as would be necessary to end the partial federal shutdown? Shutdowns used to treated as localized natural disasters, Harvard economist Ken Rogoff noted on a panel moderated by Journal editor Matt Murray: painful for those involved but without national repercussions. This shutdown, he said, is like one local disaster after another, each worse than the one before. In such a situation, “We don’t know what happens.”

As for Brexit, French finance minister Bruno Le Maire, asked about reopening the European Union’s deal with Britain, shrugged: “It’s up to the British people and British politicians to decide what they want.”

“Nobody knows anything,” screenwriter William Goldman once said of making hit movies. Too bad he died last year; he could have taught Davos a thing or two.

The ‘Rotten Equilibrium’ of Republican Politics

the 20 most prosperous districts are now held by Democrats, while Republicans represent 16 of the 20 least prosperous, measured by share of G.D.P. The accompanying chart illustrates their analysis.

.. The authors’ calculation of the contribution to the G.D.P. of every congressional district showed that Democratic districts produce $10.2 trillion of the nation’s goods and services and Republican districts $6.2 trillion.

This trend creates a significant dilemma for Trump and the Republican Party. Candidates on the right do best during hard times and in recent elections, they have gained the most politically in regions experiencing the sharpest downturn. Electorally speaking, in other words, Republicans profit from economic stagnation and decline.

Let’s return to John Austin of the Michigan Economic Center. In an email he describes this unusual situation succinctly: “A rising economic tide tends to sink the Trump tugboat,” adding

“Certainly more people and communities that are feeling abandoned, not part of a vibrant economy means more fertile ground for the resentment politics and ‘blaming others’ for people’s woes (like immigrants and people of color) that fuel Trump’s supporters.”

The small- and medium-sized factory towns that dot the highways and byways of Michigan, Indiana, Ohio and Wisconsin have lost their anchor employers and are struggling to fill the void. Many of these communities, including once solidly Democratic-voting, union-heavy, blue collar strongholds, flipped to Trump in 2016.

This pattern is not limited to the United States. There are numerous studies demonstrating that European and British voters who are falling behind in the global economy, and who were hurt by the 2008 recession and the subsequent cuts to the welfare state, drove Brexit as well as the rise of right-wing populist parties.

..In a July 2018 paper, “Did Austerity Cause Brexit?” Thiemo Fetzer, an economist at the University of Warwick in Coventry, England, argues that austerity policies adopted in the wake of the 2008 financial collapse were crucial both to voter support for the right-wing populist party UKIP in Britain and to voter approval of Brexit.

the EU referendum (Brexit) could have resulted in a Remain victory had it not been for a range of austerity-induced welfare reforms. These reforms activated existing economic grievances. Further, auxiliary results suggest that the underlying economic grievances have broader origins than what the current literature on Brexit suggests. Up until 2010, the UK’s welfare state evened out growing income differences across the skill divide through transfer payments. This pattern markedly stops from 2010 onward as austerity started to bite

.. The results here and in England reinforce the conclusion that the worse things get, the better the right does.

As a rule, as economic conditions improve and voters begin to feel more secure, they become more generous and more liberal. In the United States, this means that voters move to the left; in Britain, it means voters are stronger in their support for staying in the European Union.

A Populist Surge Is Pulling Three U.S. Allies Into Political Crises

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Leaders in America’s top 3 European Allies face Crisis

  1. Britain: Teresa May tries to manage a Brexit vote motivated by anti-immigration
  2. France: Emmanuel Macron faces rioting in the streets over a carbon tax
  3. Germany: Angela Merkel has to step down as leader amid backlash over middle east immigration

In Dissing Angela Merkel and NATO, What Was Trump Telling Putin?

Even more than with most subjects, when Trump brings up Russia he seems to be speaking of something that is defined less by reality than by what he needs it to be.

.. “We’re the schmucks paying for the whole thing.”) On Thursday, Trump proclaimed,

“I believe in nato,” then immediately undermined the sentiment by complaining that Europe was unfair to American farmers.

.. Another likely explanation for this performance is that the nato members were simply being subjected to the phenomenon of one bully showing off to another. “He’s a competitor,” Trump said of Putin. “Somebody was saying, Is he an enemy? Mmm, no, he’s not my enemy. Is he a friend? No, I don’t know him well enough.” Trump, by that measure, isn’t interested in anyone’s relationship with Putin except his—not Europe’s, not America’s. The policy contents of his demands were hardly relevant; his message to Putin was that he had yelled at nato.

.. Trump’s European tantrum was also, no doubt, intended for the home audience.

.. Russia, in this sense, becomes shorthand for all “those things”—the fakery and dodgy promises and money—that are just a part of the daily life of an American political candidate.

.. he said that May had “wrecked” Brexit, because “she didn’t listen to me.” He then proceeded to endorse, as a future Prime Minister, Boris Johnson, May’s freshly departed, self-indulgently destructive Foreign Secretary, largely on the ground that “he obviously likes me.” With that, and a swipe at immigration in Europe (“You are losing your culture”)