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Forecasting the Vote

The media has traditionally avoided releasing voting results for battleground states until polls close. That will change on November 8 when a startup, VoteCastr, partners with Slate to publish real-time projections, based on turnout, like those in presidential campaign war rooms.

While instantaneous data gratification is increasingly the norm, one of the most respected polling organization, the Pew Research Center, is slowing things down. Noting the effective coverage of the pre-election “horse race” by poll aggregators, Pew wants to focus on “questions that others are not asking, at a depth that others may not have the resources to investigate.”

There is no shortage of polls, but they may be getting less reliable. The Harvard Business Review examines the technological and cultural shifts that make polling more challenging than even a few years ago.

What Counts as Good News?

The Census Bureau reported that median household income jumped 5.2% in 2015, and 3.5 million people rose out of poverty. The Washington Post called it “a spike that broke a years-long streak of disappointment for American workers.”

Bloomberg columnist Barry Ritholtz said that the numbers showed that the recovery from the Great Recession is finally taking hold. “Unlike in recent years, when much of the gains went to an increasingly narrow group at the top of the economic strata, last year’s improvements were broad and deep.”

The New York Times noted the “eye-popping improvement in economic fortunes” but put it in context: “real incomes of most American households still are smaller than in the late 1990s. And large swaths of the country—rural America, industrial centers in the Rust Belt and Appalachia—are lagging behind.” A few days later, though, the Times said that a reported finding that incomes had actually fallen in rural areas was wrong, a result of a definitional change; incomes rose 3.4% in rural areas in 2015.

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.