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After the Vote

When will Brexit actually start? No one quite knows. The new government under Prime Minister Theresa May insists that Brexit will proceed, but seems in no hurry to invoke the EU’s Article 50 and begin the process of negotiating the U.K.’s exit.

“Businesses could be forgiven for being fearful of protracted Article 50 negotiations, but the reality is, a longer wait to get things right will be very much in their best interests,” London lawyer Ros Kellaway told Bloomberg.

The FT talked with some small businesses about how they deal with the uncertainty. A toy company is thinking of moving part of its operation to Poland to be sure of access to EU markets, and a language school is seeing cancellations from Japanese students who don’t think they will be welcome in Britain. "The biggest problem is the image that this is giving of Britain abroad,” said Val Hennessy of International House Bristol.

Remaking markets?

Major financial markets have become increasingly automated over recent decades, leading to an arms race focused on shaving nanoseconds off trade executions. Now there are also signs of a pushback.

The newly-approved IEX stock exchange aims to encourage long-term liquidity in public markets by discouraging high-frequency trading strategies, in part, with a 350 millionth of a second “speed bump.”  

Another proposed exchange goes further. LTSE would only list companies that accept specified compensation and information-sharing standards aimed at encouraging long-term thinking.

Meanwhile traders that specialize in block trades—buying or selling big chunks of stock—are in demand because they appear to outperform computer programs.

Quantitative investing pioneer Robert Litterman highlighted the importance of judgment in shaping any strategy in a conversation with Yale Insights in 2014.

What Would Brexit Mean?

Brexit once seemed unlikely, but new polls indicate that Britain’s referendum on staying in the European Union on June 23 could go either way. The New York Times' assessment of the potential impact of a “Leave” vote: “It could batter global markets, weigh on economic growth, alter the balance of power in Europe, and affect the United States’ relations with the Continent.”

Looking beyond short-term impacts, the British Treasury estimated that upon leaving the EU, “Britain would be permanently poorer by the equivalent of £4,300 per household by 2030 and every year thereafter.”

Why risk such economic upheaval? Frustration with immigration, terrorism, the refugee crisis, and the cost of funding a union that is perceived as lurching from crisis to crisis. The Guardian sees many in Britain and around the EU wondering, “What if the European project is an edifice with fatally flawed foundations?”

What’s Driving Populist Flare-ups?

Why are populist candidates getting so much attention in the U.S. and Europe? A common explanation is that low-skill workers hurt by globalization are fed up. Daniel Gros questions that explanation in Project Syndicate, pointing out that, in Europe, the number of low-skill workers is shrinking as more people complete their education.  And in the U.S., Donald Trump’s success is widely attributed to struggling blue collar workers. But FiveThirtyEight finds that his supporters have a much higher median income than Clinton supporters.  

Jill Lepore, writing in the New Yorker, proposes an an alternate theory: that the new populism is a result of social media. Political parties’ ability to shape the vox populi has diminished with so many people broadcasting their opinions. 

The Free Trade Debate, 2016

Trade has become a weapon in the in the current U.S. election cycle, with both Donald Trump and Bernie Sanders decrying free-trade pacts. But Miriam Sapiro argues in a New York Times op-ed that with less than 5% of the world’s population, the U.S. needs trade for a healthy economy. She credits trade agreements with prying open foreign markets to allow a $200 billion trade surplus for U.S. services.

But the story is full of complexity. Manufacturing jobs have certainly been lost, and local economies can take a long time to rebound. According to a study by MIT economist David Autor and coauthors, “Adjustment in local labor markets is remarkably slow, with wages and local labor-force participation rates remaining depressed… for at least a full decade.”  

Global Network Perspectives talked with experts around the world for a view on trade agreements in other countries. 

Is Crisis Returning to Europe?

Does another financial crisis loom in the Eurozone? The Financial Times says that Europe’s banking system was never cleaned up after 2008.

Bloomberg Business says that a crop of new bank CEOs in Europe have a small window to resolve the challenges of slow growth, new regulations, and surging financial technology startups: “Since the fall of Lehman Brothers in September 2008, eight of Europe’s biggest banks have announced layoffs adding up to about 100,000 employees, paid $63 billion in legal penalties, and lost $420 billion in market value."

In Global Network Perspectives, HEC Paris’s Oliver Klein said that the structure of the Eurozone increases the risk of a crisis. But in a Yale Insights discussion, a panel of experts found some reasons for cautious optimism.

On the Other Hand

What’s happening to the global economy? Dozens of equity markets have fallen into bear territory. There’s solid job growth in the U.S., but China is struggling to avoid a hard landing. The Fed is confident enough to raise interest rates, but oil prices have crashed.

The atmosphere is one of profound uncertainty. “What makes these falling prices unnerving,” the New York Times says, “is that it’s hard to tell a simple story about what is driving them.”

What’s the worst-case scenario? “We might be at the edge of a global recession,” said Citibank’s Christian Schulz on Bloomberg. In the fourth quarter of 2015, global growth approached the 2% mark—and central banks have few options remaining. “It’s a vulnerable situation.”

The drop in equity markets may simply be a needed correction, the Economist noted. But, the magazine wrote elsewhere, “whether the market gyrations are rooted firmly in fundamentals or not, they could themselves be a source of economic instability…. A recession, after all, is nothing more than a rut of self-ratifying pessimism.”

Is There a Market Failure in the Prescription Drug Industry?

A Senate hearing on soaring drug prices heard testimony that “competition had dried up, resulting in a broken system that allowed some older drug prices to spiral out of control in ways that called for government to intervene,” according to the Washington Post.

However, some see government intervention as the source of the problem. In Wired, Princeton economics professor Uwe Reinhardt described drug companies as the antithesis of free-market actors; rather, he said, they are “fragile little birds that the protective hand of government carefully shields from the harsh vagaries of truly free, competitive markets.” Wired pointed to a number of tools that calculate prices for drugs based on the value they deliver.

Yale Insights talked with Clive Meanwell, CEO of The Medicines Company, about the challenges that pharma faces and Meanwell’s vision for a new economic model.

Is the World Ready to Confront Climate Change?

In advance of the UN climate talks in Paris, the World Bank called for rapid and inclusive development that will mitigate the impact of climate change on the planet’s poorest people.
A poll by Pew found that a majority of people in 39 of the 40 countries surveyed support placing limits on greenhouse gases (Pakistan was the sole exception). Africans and Latin Americans are the most concerned, according to a breakdown by the New York Times. Russia has shown little engagement with the issue; President Vladimir Putin is a skeptic and the state-controlled media’s coverage is described as “climate silence,” according to the Washington Post.

A new study, published in Nature, found that left unchecked, climate change will shrink the global economy 23% by 2100. At the same time, inequality will be exacerbated because warming will do the most harm to poorer countries, according to the Washington Post.

Are Patients Ready to Be Consumers?

Are patients ready to be consumers? Just one in seven people understand the basic parts of a health insurance plan. Providers rarely know the costs of the services they recommend. Insurers are uniquely positioned to educate and align incentives along the patient-insurer-provider triad, but Dr. Rena Xu, writing in the New Yorker, finds little evidence that that’s happening.

Using a behavioral economics lens, the New York Times ticks through the many hurdles consumers facing in choosing the best health plan for their circumstances.