Winner of the New Statesman SPERI Prize in Political Economy 2016

Saturday, 25 June 2016

Just how bad will Brexit be, and can it be undone?

Mediamacro love their focus on ‘the markets’, and this leads to talk that makes Brexit sound like a major financial crisis. It almost certainly is not that.

Impact on the UK economy

At the heart of Brexit is an act of self-harm to the UK’s trading industry (including, and perhaps especially, trade in services). But this is something that will evolve over the medium term as we gradually lose the benefits of the single market. It essentially means it will become more difficult for UK firms to sell stuff to the EU. Calculating the size of this effect is an exercise in trade economics not macroeconomics (see here for example). So it is not ‘intellectual arrogance’ to do this kind of analysis even if you think macro models have been a failure over the last 40 years.

This decline in trade leads to a loss in productivity which makes UK citizens poorer over the medium term. It also means that the real value of sterling has to fall to make up for the fall in net exports (any decline in imports that result from leaving the single market will be less than the fall in exports). Other things being equal, this fall in sterling will happen immediately, as indeed it already has. This will make people poorer immediately, because imported goods cost more. But here the macroeconomics gets complicated. The hit to trade from leaving the single market will evolve gradually, but the fall in sterling is immediate. (The reason is something economists call UIP.) That means that trading firms might get a short term competitiveness boost, even though this will evaporate in the medium term. This may or may not be enough to compensate for the short term impact of rising prices on consumption spending.

Unfortunately that is not all that happens in the short term. Uncertainty about future arrangements will hold back investment, and it may also add to the depreciation in sterling. For this and other reasons the short term impact on aggregate demand is likely to be negative, although measuring its size is difficult. We then need to think about whether the MPC will raise or cut interest rates. The National Institute’s analysis is very readable on all this.

Mediamacro will focus on the short term. But the short term involves complex macroeconomics, so the size of the hit from Brexit is as uncertain as macro always is. I have always thought the medium term hit to UK incomes was both more serious and less uncertain. 

Impact on the global economy

I was surprised at the extent of the negative global response to Brexit. After all, the direct impact of the UK’s misfortune on the world economy will be pretty small. I think it reflects something I wrote yesterday: Brexit is perhaps the first major casualty of the political populism that has followed the financial crisis and austerity. The worry is that it may not be the last.

Political impact on UK

That a country can shoot its own economic foot is surprising but, as I explained above, not catastrophic. What worries me far more is the politics of it all. 75% of 18-24 year old voters wanted to remain in the EU. They are justifiably angry that the opportunities that the EU offered them have been taken away by the same generation that has increased their tuition fees and made house ownership an impossible dream. They, like many others, see their identity as being at the centre of Europe, not part of its political periphery. Scotland will not want to be ruled by an even more right wing government and be outside the EU. On the other side a large section of those who voted Leave did so on the basis of simple lies, and promises on which the campaign’s leaders cannot deliver, like much reduced immigration and more money for the NHS. This group are going to get more angry when this becomes apparent, and UKIP will only get stronger as a result.

Can it be undone?

Although Boris Johnson might have initially wished that this referendum would secure him the Conservative Party leadership and negotiations leading to a second referendum, I cannot see the rest of the EU playing ball. It is also very difficult to see how the Conservative party and its MPs would allow him to do this without mass defections to UKIP.

But a second referendum would not be necessary if, as a result of Cameron’s resignation, the UK fought a general election where the winning side explicitly campaigned not to invoke Article 50. This general election would become the second referendum.

For this to happen three rather difficult but not impossible things have to happen. The first is that the Labour leadership need to stop talking about ‘respecting the will of the people’ and focus on how the Leave side are already owning up to their lies and false promises. The second, and perhaps most difficult, is that Labour need to form a united front on the basis of a Remain ticket, involving the LibDems, Greens and SNP. This is the only way the Conservatives and most of the tabloid press will be defeated. Third, the new Conservative leader has to be forced to hold a general election before Article 50 is invoked.

Difficult, but not impossible. What is impossible is to try and remove Corbyn on the basis that he helped lose the referendum, for reasons I have explained before. In terms of those who should be blamed for the referendum result (Cameron, Osborne, Johnson, the tabloids, the BBC ….), Corbyn’s role is marginal at best.

Could you persuade Corbyn, Farron and Sturgeon to form an anti-Tory, pro-Remain alliance? Right now, as the horror of the Leave vote and a Johnson led Tory government become apparent, I think many party members could be convinced to do so, and that might put enough pressure on their leaders. It is, as far as I can see at the moment, the only way that Brexit, a right wing government led by our own version of Donald Trump, and perhaps the break up of the UK can be avoided.

Postscript 26/06/16

On 'can it be undone', Jolyon Maugham has a good piece in the Independent. He suspects Corbyn will not go with the strategy I outline above, and unless the current coup is somehow successful that is hardly helpful in this respect. (Whatever the outcome, any Labour leadership would have to be convinced that it is not worth trying to appease the 'Labour heartlands' by accepting the referendum result.) 

My reading of his article is that he thinks a second referendum route has more chance. But that would seem to require new concessions from the EU, and my own judgement (for what it is worth) is that this will just not happen.

However the EU can still be helpful. The calls we saw from many (but notably not from Merkel) for a quick implementation of Article 50 are not. I also think they are misconceived from the EU's own perspective, which is to discourage calls for similar referenda in other countries. The best discouragement is to focus on the current chaos in the UK, and to hope that the UK eventually comes to its senses and overturns by some means the referendum result.

Whichever route is taken, a big problem is pretext. How do you justify asking the electorate to overturn their earlier verdict? It may be true that many now wish to change their mind, but no one likes the feeling that they are being told they made the wrong choice. A deteriorating economy will help, but I still think you need something more concrete. Suggestions welcome.      

80 comments:

  1. "It essentially means it will become more difficult for UK firms to sell stuff to the EU, which will only be partly compensated for by any additional difficulty for the EU to sell stuff in the UK."

    Get domestic firms to produce stuff. Tariffs do nothing other than move things around internally. Is it so bad if we sell less BMWs and more Toyotas here?

    I don't understand the obsession with the Single Market.

    The idea is that the EU will deny the UK access to the precious “Single Market” and just won’t buy our stuff any more. Unfortunately that falls foul of the logic of the Single Market in the first place.

    The whole concept is based around the idea of Comparative Advantage — the neoliberal belief that each nation can ‘specialise’ in some set of goods or services and that somehow enhances the return to each nation.

    Of course if you specialise, then you don’t generalise, and that means that if the UK leaves the EU the only place to get the ‘secret sauce’ that they currently buy from the UK is … the UK. That is if you believe in Comparative Advantage.

    However if you say that you can get the UK’s ‘secret sauce’ from elsewhere in Europe then you are effectively saying Comparative Advantage is bunkum (which it is), and, therefore, there is no benefit at all to a Single Market and the free trade concept in general.

    So when the UK leaves the EU either the Single Market theory is true in which case the EU has to buy stuff from us, or it is false and we don’t need really need the Single Market at all. Instead we can shift to a domestic focus and implement a Job Guarantee and full output at home, which is much more important IMV.

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    1. You need to brush up on your economic theory as it's based on analysis based on pre 1980 logic. Comparative advantage is not the main source of trade between EU countries. Instead, trade is mainly the result of scale economies.

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    3. The Single Market is not just about tariffs. It's about certifications and the like that are needed for smooth operations. So even if tariffs are low, we could see EU companies being less inclined to partner with us.

      Moreover, Toyota and other Japanese companies that invested in the UK did so in large part because we could sell tariff free to Europe. They will need to shift more of their sales towards the rest of the world, which is possible especially given the weaker pound. I hope this gamble pays off if Brexit comes to pass.

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    4. Your example of BMW compared to Toyota may be correct, because it is about imports of a merchandise, that it technology has changed relatively very little in the last 50 years. Same function, same speed, same comfort, except of the GPS. As to their functionality there is very little diversity butween BMW and Toyota. More problematic are the same services or products with great diversity of quality. Take services provided by professionals, financial services. What if a tax will be imposed on these services. And what about the norms? Are the British going to be different? Would you say the British should be indifferent to all this? EU economy is more than five times bigger than the British.

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  2. "The first is that the Labour leadership need to stop talking about ‘respecting the will of the people’"

    Good luck with that. The Labour leadership should announce they will:

    * Reveal the Noble Lie (all government spending works by creating money creating an amount of tax and saving.)

    * Reform the banking system by giving banks a list of what they can do – what serves the public purpose – and ban them from doing anything else. Lending not conforming becomes a gift of shareholder's funds and is unenforceable in court.

    We should implement an unlimited cost free overdraft at the Bank of England. 0% funding costs. In return they must drop all the side businesses and just do capital development lending on an uncollateralised basis - probably in the form of simple overdrafts. In other words they become an agency businesses delivering state money to those that require it. Money is cheap for businesses.

    * Put in place an appropriate visa system - as used by every other advanced civilised nation outside the EU.

    * Initiate a Job Guarantee - More Money, Less Tax.

    * Take advantage of freedom of State Aid rules to nationalise the railways for a £1, nationalise some banks and cancel all the PFI contracts. No requirement to compensate capitalists.

    In addition nationalise the transaction system. You would have a Transaction Department at the Bank of England (alongside the Issue and Banking Departments) and current and savings account ultimately represent liabilities on that balance sheet. This is very important. The transaction system is clearly being used as a hostage by the banks to get whatever they want out of the government and the central bank. Do as we say or we shoot the transaction system!

    * Stop issuing Gilts and go back to the Ways and Means Account.

    * Use National Savings as the vehicle for delivering pensions.

    * Draw up the new management processes for floating rate exchange systems and realise that one of our main exports is Sterling Savings.

    * Change the political conversation so that £s are never mentioned. Healthcare outcomes, for example, should be discussed in terms of the people available to deliver those outcomes - where are they, what are they doing now, etc.

    * In the long term, look towards a policy of Zero Net Migration or close. Train people here rather than stealing skilled people from "third world" countries. Of course as retirees exit we can import young people.

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  3. Simon

    I don't often disagree with you, but you have called it totally wrong on Corbyn's role.

    Leaders have to lead. They have to take a position and give a clear, energetic, unambiguous message. Leaders don't give make speeches in campaigns that prevaricate and um-ah on issues as fundamental as this.

    Leaders don't, two days before the most important vote in two generations, waste their bloody time self-indulgently pontificating to an obscure left-wing American media station.
    http://m.democracynow.org/stories/16321

    They get the bloody message out! They inspire and enthuse people. They infuse them with a vision.

    Corbyn's role in this catastrophe is enormous. A Labour leader who genuinely wanted us to remain should have been giving a clear, unambiguous message for 6 months. Instead, he's left the Labour-supporters' vote defenceless against the siren call from the Right.

    He is not a leader. By nature or by action. He deserves the same fate as Cameron.

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    1. This is wrong. Over two thirds of recent Labour voters took the party's advice and voted Remain. The problem was with former Labour voters, particularly the five million lost during New Labour's years in power. Some went to UKIP, many gave up voting in elections but voted Leave in the referendum. Blame Blair not Corbyn.

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    2. Absolutely, my only addition is that I have come to the conclusion that Corbyn was really a leaver and should have been honest about that from the start.

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    3. Actually I think Corbyn was being honest in campaigning for Remain. Yes he dislikes parts of the EU but on balance came to the conclusion that we should Remain for workers' rights, not extending austerity, etc

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  4. Some things, when broken, cannot be fixed, or at least it becomes so difficult to do so that it is best to move on and create something new to replace them. Why on earth should the SNP now join an alliance dedicated to reversing Brexit and preserving the Union? I think Scottish Independence within the EU now has to be taken as a given in any future scenario.

    Secondly, why would an England led by Johnson and Farage continue to pour more money down the drain of N. Ireland than they ever paid to the EU. Ireland will re-unify, not because Unionists want it, but because they will be dumped by England. Unionist emotional and family ties are more with Scotland in any case.

    Lastly, why would the EU - already in an existential crisis - act generously towards their tormentors and welcome the UK back. Frankfurt has the prize of taking over the City's role already in it's sights. The German car industry will just have to find other markets - politically discredited as it already is.

    So we are left with a rump England and Wales, angry and embittered, the outcasts of Europe, who have made life difficult for their friend in Gibraltar, Scotland, and Ireland. They will have to face their own demons without external bogeymen to blame - the internal English class structure, north and south, young and old. When those issues are resolved, perhaps England/Wales will once again be ready to join the nations of the earth and make a constructive contribution to international relations and the comity of nations. Before then, not so much...

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  5. http://www.bostonglobe.com/opinion/2016/06/24/brexit-victory-true-populist-revolt/InkcbFey9EgDyFYgcGdiHL/story.html?event=event25
    You need to try and digest this and get your mind to understand what is going on.

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  6. Interesting post, but why would Sturgeon support a pro-remain coalition? Leaving is her golden ticket to independence.

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    1. At the moment she seems to be trying to keep the UK together in Europe. She is saying that Scotland may veto a UK call to leave the EU. The Labour party may get her support, by giving its support to her on this issue

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    2. Reason is that Brexit doesn't guarantee Scottish independence. Also, it would be strange for her to not support Remain when not a single Scottish local authority reported Leave. She would not be doing her job in representing Scottish people's voices.

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  7. England Leave 53.4%, Northern Ireland Leave 44.2%, Scotland Leave 38.0%, Wales Leave 52.5%.

    Ages 18-24 Leave 27%, 25-34 38% Leave, 35-44 48% Leave.

    The only precedent of election-as-referendum (but without the prior referendum complicating things) was the 1909 and 1911 UK elections to get rid of the House of Lords veto.

    As Human Rights philosophy is the origin of representative democracy, I don't think it is inconsistent for politicians to assert that principle against the dictator's favourite tool of mass manipulation, the plebiscite.

    If nothing else, the younger men are not going to be cowed by the fist-shaking of fifty and sixty year old smokers, drinkers, and obesers(sic)!



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    1. These kinds of prejudiced insults go a long way to explaining why we lost on the Remain side.

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  8. Robert Eastwood25 June 2016 at 06:23

    In most legislatures, supermajorities are required for constitutional change (2/3 in the US Congress, for instance). Yet here there seems to be unanimity among politicians and the commentariat that a simple majority was enough? On what basis? That the PM said so?! This must be challenged.

    Ken Rogoff has written on this point. See: https://www.project-syndicate.org/commentary/brexit-democratic-failure-for-uk-by-kenneth-rogoff-2016-06?utm_source=mail2friend&utm_medium=email&utm_campaign=mail2friend

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    1. The US requires more than just a 2/3 supermajority to amend the Constitution. The 2/3 supermajority is required in both houses of Congress just to propose the amendment and send it to the states. Then 3/4 of the states have to ratify the amendment. (There are a couple other procedures, but they are similarly onerous.)

      It is amazing to me that the government of the UK allowed the protections granted to its populace under its agreements with the EU to be gutted by a simple majority.

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    2. I agree. I wish all the politicians would stop saying the 'people have spoken' and it was a 'decisive result'. A change of this magnitude that risks the UK breaking apart really ought to need a much bigger victory.

      S

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    3. Absolutely. 52% of the voting public have spoken for Leave, 48% for Remain and 30% of the electorate don't care or couldn't be bothered.

      The result should influence, but definitely not determine, the approach MPs take in the coming months.

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  9. According to the Electoral Commission the overall turnout was about 42%. So it looks like once again in a UK vote a vocal minority has won in the face of overwhelming indifference from the general population.

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    1. "The turnout was high at 72%, with more people turning out to vote than in last year's general election. "
      source: http://www.bbc.com/news/uk-politics-36616028

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  10. > The first is that the Labour leadership need to stop
    > talking about ‘respecting the will of the people’.

    Clearly 'respecting the will of the people' cannot mean changing one's own beliefs. For the right, this is never the case. For years, the "neoliberal ideology" or "free market ideology" was a fringe ideology before it became the dominant ideology with Reagan or Thatcher. Obviously, this does not mean that beliefs should not evolve as a result of circumstances but the results of a vote is not a sufficient reason to change the core beliefs of a party.

    Today more than ever, it is fundamental to be both pro-European and critical of the EU. Corbyn is reportedly both an internationalist and critical of EU but I could not find much information about what Labour wanted to change and how.

    The left-wing parties of Europe must propose a more inspiring vision of the EU (more transparent and democratic functioning of the institution, aperture toward revising some of the existing rules, etc.). Crucially, this vision should be concrete, address the concerns of people, and part of the government program at the national level of these parties. It would be immensely helpful if a common platform could be found between left-wing parties of the core and periphery of the EU (German social democrats, Italian and French socialists). If Labour clearly states that its goal is to keep or bring back UK within EU, I would hope that other European parties would let Labour play a role in this process even after Brexit. This might not be immediately popular but the sight of a program that address current (and future) problems and is shared by parties across countries in Europe might attract more voters than an half-hearted defense of the status-quo.

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  11. I'm hoping (I hope not too naively) that we could Brexit constructively and have excellent trading relationships with the EU and with the rest of the world. The EU has put up trade barriers with the rest of the world that we could now take down ( eg as in http://capx.co/how-the-eu-starves-africa-into-submission/ ). To me Brexit makes sense because I think it is vital that different countries are free to do things their own way to make the most of their different capabilities. Humanity needs to avoid having all of our eggs in one basket. Resilience comes from diversification. Just look back through ancient history and see how at different times, human progress has sprung from very very different cultures. If we had all been globalized, the whole of humanity might have got stuck in a disfunctional system and the people been fobbed off with "there is no alternative".

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  12. I don't know what the chances of such a pro Eu alliance are. Sad thing is I'm actually a Natural Brit who grew up in the US. Being born in Britain never had any impact on my life until now. I have a savings account in the UK that was to be disbursed within the next month or two.

    Seemed like good news until now with the sudden hit to the pound. Talk about timing.

    Ok, enough personal digression.

    Apparently, only the Liberal Democrats are so far putting themselves forward as an unambiguously pro EU party.

    Lib Dems positioning themselves as the only overtly pro-EU "party of the 48%"

    https://twitter.com/jimwaterson/status/746711119079817216

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  13. On the other hand, I was thinking just today in looking at past UK elections, that the obvious thing for a long time has been that Labour and the Lib Dems should have merged.

    Not doing so has enabled the Tories to often dominate with just 40 percent or even just a third of popular support

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  14. I hope those 18-24 year-olds don't follow your completely bass-ackwards , but thoroughly establishment , advice. They've been given an opportunity , and they should take advantage of it by taking the political reins from the elite technocrats who ripped off the workers of older generations over the last few decades , so that it doesn't happen to them.

    Young voters are idealistic , which is nice and all that , but they're also undamaged goods , relatively speaking. This explains their "Remain" poll numbers ,and similarly their strong support for TPP and other free trade agreements compared to older cohorts. As they age , they get burned (or rather , slow-boiled) and they learn.

    Mark Blyth cuts thru the crap in 4 minutes :

    https://www.youtube.com/watch?v=nwK0jeJ8wxg

    Marko

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    1. Strong support for TPP among the young?

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  15. Hi Simon,
    What you write is doable; after all, Brexit happened... I am seriously thinking of applying to Scottish Universities on the expectation/hope Scotland will become independent and rejoin the EU. Despite the fact that I was against SCEXIT in 2014....
    Costas Milas

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  16. This will never happen. Boris will be leader and we will see more austerity. The Eu and Euro will break apart causing a global depression and then finally we will get a radical left-wing govt. The centrist political mainstream is dying quickly - people are demanding radical solutions now. Scary stuff!!

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  17. I think this is one of the best of your non-technical posts. You point out what could happen and suggest a way to get there.

    In the last few hours (literally) I've started to see some recognition that since referendums have no place in our unwritten constitution they have precisely the status MPs choose to give them. It's different when, as with devolution, the basic legislation was passed to be endorsed, or not, by a referendum. But in this case, to the best of my knowledge, the Referendum Act did NOT specify a course of action if the Leave camp won. Hence the uncertainty about when/whether Article 50 will be invoked.

    The implication of this is that MPs are still sovereign - surely what many of the Leavers were voting to assert - so it is for them to decide how to take account of the 52-48 split that the vote revealed. Obviously, to go against the vote would be a risk, especially for MPs representing strongly Leave areas and so especially for Northern Labour MPs who otherwise expect (not unreasonably on past evidence) to have a job for life. But it is a risk some may think worth taking.

    Could this be why Cameron has decided to fall on his (rather blunt) sword rather than invoke Article 50 immediately? If - and it's a big if - the delayed resignation is intended to give Parliament a chance to reconsider then it really would be his last service to the country.

    A final thought. If Cameron and Osborne, by some miracle, decide that a UK (or RUK) outside the EU is a worse option than a post-Brexit Tory Party, then a way to go would be to introduce Osborne's proposed Brexit Budget, lose the inevitable vote of confidence and call a General Election (I presume the Fixed Term Parliament Act allows this) to give the nation a second chance to decide if it really, really wants to leave.

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    1. All the arguments for a second referendum or for over-riding the first with a Parliamentary vote should have been pursued before the vote. Now it's just a back door attempt to deny the electorate their say. I don't like the result either but now we have to move on.

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    2. 1) Farage was ready to come up with precisely these arguments - and the Re-Referendum petition was originally launched by a Leave supporter in anticipation of a narrow defeat.
      2) There is nothing - literally nothing - in law, constitution or practice to suggest that a popular vote can or should decide the way MPs - our chosen representatives - should vote on a specific issue. You say these options should have been pursued before the vote. Apart from the political implications of such an approach - the danger of appearing to expect to lose - the issue would not have applied in the other direction because (a) little direct action would have been demanded from MPs and (b) the great - GREAT - majority of them are in favour of remaining in the EU anyway.

      I see no moral or legal obstacle to provoking a general election in which all serious canditates will inevitably be forced to reveal their view on 'in or out'. Voters can then, as usual, take this into account when casting their votes.

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  18. Some things, when broken, cannot be fixed, or at least it becomes so difficult to do so that it is best to move on and create something new to replace them. Why on earth should the SNP now join an alliance dedicated to reversing Brexit and preserving the Union? I think Scottish Independence within the EU now has to be taken as a given in any future scenario.

    Secondly, why would an England beset by financial woes and led by Johnson and Farage continue to pour more money down the drain of N. Ireland than they ever paid to the EU? Ireland will re-unify, not because Unionists (or even some non-aligned and nationalist voters) want it, but because Northern Ireland will be dumped by England. Unionist emotional and family ties are more with Scotland in any case; their economic interests increasing aligned with the Republic of Ireland and the EU.

    Lastly, why would the EU - already in an existential crisis - act generously towards their tormentors and welcome the UK back? Frankfurt has the prize of taking over the City's role already in it's sights. The German car industry will just have to find other markets elsewhere - politically discredited as it is.

    So we are left with a rump England and Wales, angry and embittered, the outcasts of Europe, who have made life difficult for their friends in Gibraltar, Scotland, and Ireland. They will have to face their own demons without external bogeymen to blame:- the internal English class divisions, north and south, young and old. When those issues are resolved, perhaps England/Wales will once again be ready to join the nations of the earth and make a constructive contribution to the comity of nations and international relations in general. Before then, not so much...

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  19. "The hit to trade from leaving the single market will evolve gradually, but the fall in sterling is immediate. (The reason is something economists call UIP.) "

    You know a lot of the real reasons for this tragic vote related to issues of identity. In a delicious irony your above statement also reflects identity - an economist who wants to see Dear Model because Dear Model defines what he is and how he is unique from others - and superior to others, including the concoction "media macro".

    The reasons for the sterling fall - and especially the extent of it - are actually quite irrational - little of it can be explained by rational expectations or UIP. (If it can be pinned down to one factor - which it can't - it would be very simple old (JM) Keynesian economics of fear and entering the unknown.

    This was a vote against bankers, the elite, the establishment, which includes the 'experts' and that includes rational expecations (which includes New 'Keynesian') economists. And as Milliband yesterday pointed out, it includes New Labour - which predates the Financial Crisis and Austerity - although in the sense that New Labour (and the experts) had their eyes off the ball, that is not unrelated to the financial crisis.

    Basically people don't like the arrogance and hubris of the elite. Although Scotland had its own reasons to vote Remain, this result could have been replicated as a vote against the elite across Europe, Japan, and the US. It was just a pity that Europe was on the receiving end - but I do not think people were fundamentally anti-European.

    A very poignant essay was in the Guardian (if only more economists could write like this) with if nothing else a message which could apply to representative agent economics:

    "A universal truth: nobody knows what is going to happen but everyone can explain it afterwards. If just 3% of the more than 33 million Brits who voted in this referendum had gone the other way, you would now be reading endless articles explaining how it was, after all, “the economy, stupid”, how British pragmatism finally won through, etc. So beware the illusions of retrospective determinism. There is always a mystery in how millions of individual voters make up their minds. It is the mystery of democracy."

    http://www.theguardian.com/politics/commentisfree/2016/jun/24/lifelong-english-european-the-biggest-defeat-of-my-political-life-timothy-garton-ash-brexit

    Try and have a little hubris - be different to the likes of Sargent, Krugman and Tony Yates and be wary of 'retrospective determinism'.

    NK.

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  20. Is a second referendum not justifiable on the grounds that Brexit would almost certainly cause the UK to disintegrate? A few days ago it was merely a possibility that Scotland could leave the UK but the result patterns mean it is now extremely likely. Given the Leave victory was a narrow one and frankly many people are expressing voting remorse, I think the option of a second referendum should not be quickly dismissed. Moreover, my preference would be to set some minimum requirements requiring a decisive result to change our destiny, although I can already hear the howls from Vote Leave.

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  21. Out of curiosity, on the question of whether this can be undone why do you think the EU won't play ball?

    From my perspective, the EU leaders know actual Brexit will risk contagion to the Netherlands, France and elsewhere. Better to negotiate a backroom deal, then await a moment of market panic and ride to the rescue by announcing a revised and final offer that involves some form of EU migration cap (e.g. limit to 90k per year on a first come first served basis). The EU heads would then be seen as listening and acting on citizens' concerns, which would do their batttered image a world of good.

    That said, I agree this is predicated on Boris risking UKIP defections, so he may not be so inclined anyway.

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  22. I think that to undo the referendum and not to leave the EU would cast in stone the idea that Europe is quite willing to ignore the expressed will of its people. They have done so before, of course, but not in so big a member, and not a member that has such a commitment to democracy.

    They may choose to do this, of course, but if they do, I think they are just storing up an even more violent explosion for the future.

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    1. Except this time it might just happen because of UK politics, not the EU (which made quite clear already that they accepted the result of the referendum and were ready to start negotiations).

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  23. There is that pesky matter of over 17 million people having voted in a referendum to leave. I sense you are not that sold on democracy, but you a showing total contempt for the majority who voted out.

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  24. I am not British, so maybe this is ignorance, but why can't the government reduce immigration (having departed the EU) or increase spending on health care?

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    1. Because they could have done both of those things without leaving the EU, but didn't. Meanwhile leaving the EU will place greater financial pressure on the UK government due to the recession we'll likely be seeing, thus making it harder to do those things.

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  25. This is the first piece I have read that gives me any grounds for optimism that there could be a way out of the current mess, which is saying something, as your post is hardly optimistic. I had been thinking about other ways forward, starting from what Caroline Lucas proposed, but had not got beyond ideas that were wishful thinking.

    But would a Labour-LibDem-Green-SNP majority after an election be seen as legitimate by those who voted exit? Or do we need the promise of some more radical domestic reforms, including some that have pretty quick and visible effects, so that those who feel alienated from politics can see that something fundamental has changed and they are not being misled again?

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  26. More old people than young people voted Remain: http://posnetres.blogspot.co.uk/2016/06/did-more-old-people-than-young-people.html

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  27. As regards the economic impact I think you are right; the short and medium term impacts are likely to be negative.

    However, this is a decision for the long term and how this plays out remains to be seen. With the right policies I believe we will be better off but whether we will get those remains to be seen.

    What you don't say but imply is that the EU will sail on and our performance will be poor relative to them but that is questionable. In my view the EU is manifestly dysfunctional and this is not going to reverse any time soon. In some ways the structural problems they face, especially in the EZ are much worse. They have worse demographics and, in some cases at least, higher debt levels and both of these bode ill for the future.

    What most astounds me however is your apparent refusal to accept the result of the referendum and openly canvas to frustrate the result. The complete disdain for anything that smacks of democracy is precisely why many wanted to leave the EU in the first place and you have exemplified that in your piece. What you seem quite incapable of seeing is that it is this unwillingness to respond to widespread disquiet is just the sort of thing which will guarantee the demise of the structure that you are so anxious to preserve.

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  28. Attempts to reverse the Leave decision are foolish and dangerous. I trudged the streets and had the arguments for Remain but a decision has been taken, democratically on a high turnout, and that’s it. We lost and we now have to deal with the consequences, not try to snatch back the decision through some manoeuvre, whether a second referendum or a general election. Forget the lies and the tabloids. It is the sheer arrogance of too many on the Remain side that goes a long way to explaining why we lost. No wonder people decided to say no, self-harm or not.

    There is now a real risk of a surge in right-wing populism, here and throughout Europe. That’s why I fought to Remain. But challenging the Leave decision plays right into that. If you do not want riots in the streets and a mass fascist party, then drop this. Respecting the decision is the only basis on which a progressive alternative can be built. Fortunately, I think the Labour leadership understands this.

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    1. Sorry, we already have some nasty right-wing populism in UKIP and right wing Brexit Tories. They just voted for Brexit and to take back control. Now in the last couple of days it has transpired what we knew all along, they have no plan. They have been invisable for the last couple of days.

      The people who have responded to the media like Duncan Smith and Hannan have admitted lying to the electorate.

      That is fraud. If any business acted like that, the police gets involved.

      Now you call that democracy?

      The Labour leadership (Corbyn) also thinks we have to adhere to a vote based on lies and perceptions which were (unlike normal elections) discovered as soon as polling stopped. I think that is a grave misjudgement as this vote cannot be over-turned, once enacted.

      These decision should be overturned, by MPs who with a 3/4 majority were for Remain in the first place. If they have any back-bone and any sense.

      If that does not work, SWL is right to call for a Progressive Alliance.

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    2. Why do 16 million voters plus about 10 million non-voters have to give up their beliefs and views because there were 17 million other voters with other beliefs? If there had been a package to accept or reject then the argument can be made. But there wasn't: what we have had is an expression of opinion which has to be taken seriously but which is not the Word of God, or even the Law.

      Delete
    3. I agree Matt. Mind you I really do think complacency by the elite and London was ultimately behind this result.

      One thing not talked about, and it was mentioned by Sikorsky last night but the interviewer did not pick up on it. And that is the effect on the balance of power in the EU of Brexit - I would have liked him to expand more on this. THis was of course the main concern of the US of Brexit - Britain was a major counterweight to French led machinations. Of course the main worry now is not having the EU fall apart, but still it is an important point, and there will be now strong pressure for political union to save the Euro, which France would like to shape.

      Delete
  29. Are there enough remain MPs, and are the Tory remainers more committed to staying in the EU than government, to win a vote of no confidence & force an election? I'm not convince the SNP would play along, it's against their long-term aims, and after Brexit I can see the EU being very pleased to welcome an independent Scotland for the symbolic value alone. 

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  30. It seems this catastrophic decision to invoke Article 50 is to be taken on the basis of an advisory referendum where only 37.4% of the electorate voted for it after, it seems, being deceived, confused and possibly lied to outright. (That percentage becomes more ludicrous if you take the proportion relative to the whole population including the under 18s who will suffer the consequences of this insanity the longest). I know a smaller minority could be bothered to try and save the situation by voting, but the fact remains, it is a minority less than 40% which voted for this.

    How can Parliament take this as justification to take a course of action that will result in the relative impoverishment of the British people, a significant decrease in their security and quite possibly the destruction of the United Kingdom itself? And this is before we consider the possible consequences for the rest of the EU. If the UK is ended by this, I expect future historians will marvel that a once great country could decide to end itself on the basis of a flawed minority decision.

    Parliament is not an assembly of delegates - it is elected to represent the interests, security and well-being of the British people as a whole, not the confused will of a deceived and deluded minority.

    If Parliament won't step up, does the deception involved form the basis of a legal challenge in the courts?

    As you have said in other related posts "We cannot let this pass." But what can we do? Can the sentiment reflected by the record breaking (if belated) response to a UK Parliament petition to call a second referendum be somehow marshalled to form a popular movement to reintroduce evidence-based reason to the debate and persuade our so-called leaders to act to mitigate this disaster? If so, how?

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    Replies
    1. What "authority" will state that people was deceived? You?
      I'm not Briton, quite "Mediterranean" instead. Brexit nor Bremain are not up to me, of course, are up to Britons.
      I can nevertheless judge the arguments put forward by both opinions. And from my point of view, is it more likely that were the Bremain supporter who were deceived than Brexit ones. Using erroneous argumentation, as I'm very very sorry to say, used by honorable persons like Simon Wren Lewis or Paul Krugman. This makes me very very sad.
      What is crispy clear from outside is that the Bremain position was the City position. And this is the more likely explanation for the social composition of the positions.
      I nevertheless believe that people should not be made blind by his social position.

      Delete
    2. The leaders of the Remain side promised to accept the result. Arrogance and complacency might explain that but it's too late now. Anyone who wants to understand the rise of populism should step back and think about the arguments being raised to fix the vote retrospectively.

      I voted Remain but we now have to handle the Brexit transition. For that to be successful we have to heal some of the wounds that have been revealed or opened by the referendum campaign, not encourage hate and resentment by trying to reverse the decision.

      Delete
  31. A very intelligent and rational article. Well, since when rational argumentation helped to change political decisions?
    I would try an alternative prediction. EU, leaded by rather energetic Hollander will boot Brittany out from the EU within few month. The economic catastrophe will appear immediately in the UK and will touch very marginally the EU. After all UK long time ago stopped to produce merchandise and all it produced are services, mainly financial and houses for supper rich from all over the world. And still the British will need to import merchandise, and will pretty soon discover that the prices of merchandise jumped by 30-50%. On the other hand the financial services will be damaged immediately. Banks are already considering to allocate thousands of their employees to Dublin and Amsterdam. I would predict that in the medium term some of them will be allocated to Edinburgh, the capital of independent Scotland. The Scottish give up their independence for money, and will regain their independence for the same reason. If in the short and medium term the British economy will fall to insignificance, in the long term the other important service industry, the real estate market in London will become even more attractive to the outsiders, and even less reachable for the British, holding mainly assets in British pound. So after 12 centuries of British independence, (since Alfred the Great), "Great Brittany" will finally become just an another marginalized Muslim country, with English speaking Pakistani majority.

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  32. It is interesting that the horror of Brexit has rationalized By economic effects. But many studies(and common sense) say that the GDP growth has not increased happiness of people in the western countries in many decades i.e. we are already so rich that more goods does not increase quality of life anymore.

    If the GDP growth doesnt benefit us anymore that much why sacrifice greater things to it? Studies say that people have highest community when surrounded by "own kind of people". People are lonelier in multicultural areas. Why sacrifice this community for EU to get higher GDP if GDP growth doesnt mean happiness? Leading reason for deaths among middle aged white men in USA is suicide which has been contributed to this lost of community and discrimination against them. Why replace your own culture by other just to get higher GDP? Why increase sucides just to get higher GDP? If welfare state needs population growth, isnt welfare state a bit sick system given the states of affair in the environment and overpopulation?
    s
    It is interesting that some people think that the "the greatest good" in human life is to accelerate growth of GDP. Citizens among EU countires dont share this idea and they feel betrayed by the politicians.

    Sorry, if doudle post. Dont knwo if I screwed the older post

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    1. Actually i agree with you about the irrelevance of GDP. Viz my short essais about the subject:
      https://wordpress.com/stats/day/rodeneugen.wordpress.com
      https://wordpress.com/stats/day/rodeneugen.wordpress.com

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    2. Higher GDP growth is very strongly correlated with a healthier population (including longer lived) and lower unemployment and typically, better quality employment. Healthy working people are happier people.

      Delete
    3. It used to be truth but not anymore. It is like with the private cars. At first their ownership increases your standard of living and mobility, but then with the traffic jams and the environmental problems it brings, its effect on the standard of living becomes negative.

      Delete
  33. Pleeeeeeease stick to informative macroeconomic topics. Please. You have so much to offer there. Not so much elsewhere. Opinions are free ..... and normally poor value at that price.

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  34. “...it will become more difficult for UK firms to sell stuff to the EU, which will only be partly compensated for by any additional difficulty for the EU to sell stuff in the UK.”
    UK trade balance (export-import) against EU is NEGATIVE. So, how “partly compensated”?
    Ok, I understand that it's trade economics, not macroeconomics. And I understand too that Simon Wren Lewis is a macroeconomist.
    As you can listen and see (just see, no need of any “understanding”) all around EU, the majority of future trade problem - in the unlike case of exclusion, reduction, etc. in the single market access for UK – will have a dramatic impact on the remaining part of UE, because of the aforementioned reasons.
    And – I repeat to Simon Wren Lewis and also to Paul Krugman – EU is not the European “single market”, is an intergovernmental institution. Leaving EU doesn't automatically mean leaving single market. It depends on the political agreements to be stated during the leaving PROCESS.
    And Norway, Iceland and Switzerland are not in the EU, but nevertheless are basically in the single market. Neglecting Serbia, Montenegro, Macedonia, Moldova, Lichtenstein (the last one, a very powerful country, as is widely known).
    I understand for sure that is not macroeconomics. It's merely common sense.

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  35. Well-written thinking without the hyperboole. Thanks.

    Remember the film "Network"? "Iam mad as hell and I'm not going to to take it anymore!" What the Leavers are seeing and feeling is true. They have been treated like mushrooms from the privledged elite and poor implementation of international economics. Maybe their response has been wrong, but did anyone give them any other choice? Did anyone pay attention to them?

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  36. ...however, Martin Schultz and Juncker have already said: out, England, out, ASAP" Of course they spoke German and as true Anglomaniacs you'all do not speak anything else than that....

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  37. I like the way, I read your post.
    To forge a deal, there must be a walk to Canossa, in the holiday season, and a give & take.
    Consider most of West Minster becoming the administration of England & Wales, but Foreign Affairs and Defense serving a loose union, then SNP might take that for independence. (The Lordship of Man and/or the Duchy of Normandy can be expanded; read on Baarle-Nassau/Baarle-Duc.) Belgium is on the track of having an in-house problem which should not bother others.
    The Six have a longer history, but it takes some marketing elsewhere to explain why there has been more patience with the UK than with any other, and it should not lead to the conclusion that those cocky bastards better be out of the EU than in; as the handicap is known, it better be used in explanation. The impression that one of the high nobles in the EU can violate all rules, that London can outsmarten the club better can be avoided. Try the recognition that like in summer 1914 Europe has got itself into a position from which it can't get out without loss of face, and this time: too bad for face. (We have to try each option one time, don't we?)
    Maybe, I should not be the broker, but I like the ingenuity to meet challenges.

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  38. A second referendum will be a disaster for Labour however with Corbyn as leader and neglecting their anti-EU voters in the North yet again...

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  39. *POTENTIAL WAY TO STOP BREXIT*

    Do you regret voting Leave or know someone who does? If so, please start a petition saying so or add your name to one if already started:

    1) CHECK EXISTING PETITIONS: https://petition.parliament.uk/petitions?state=open

    Search "We regret voting Leave".

    2) START A PETITION: https://petition.parliament.uk/petitions/check

    Start a petition called "We regret voting Leave and urge the government to hold a second EU referendum". (It's important to use the exact text!)

    Given Leave won by less than 1.3m votes, even 650k signatures should give the government pause for thought.

    Please only start/sign if you genuinely voted Leave and have come to regret it.

    You may also wish to sign the 'EU Referendum Rules' petition, which has several million signatures: https://petition.parliament.uk/petitions/131215

    *PLEASE SHARE WITH OTHERS*: even if they voted Remain, they may know remorseful Leavers.

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  40. I've been an immigrant most of my life, and for years have enjoyed your thoughtful and responsible comments. As you say, the situation is a mess, but talk about pretexts for over-riding democratic choices is dangerous. I understand the grief as some noble plans have come undone, but please please be careful what you say.

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  41. Good grief. No one is regretting their decision, it's a media created fiction. Lots of insightful information on Twitter regarding motives and post referendum feelings.

    I would like to say that I am shocked that so many of the centre left are adopting this profoundly anti-democratic position but well, I'm not.

    And that kind of sums up the British left.

    We deserve much better than this. And so do the 17 million who had the guts to tell Washington, the IMF, big business and the political establishment to go to hell.

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  42. I am curious to know if you think there is any mileage in the idea that a Scottish (and NI) legislative consent is needed from those devolved Parliaments, and may not be given, producing an effective veto? see http://www.publications.parliament.uk/pa/ld201516/ldselect/ldeucom/138/13809.htm especially 70.

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  43. Kenneth Rogoff offers a useful critique - the hurdle for constitutional change of the nature of a Brexit should be much higher.

    See https://www.project-syndicate.org/commentary/brexit-democratic-failure-for-uk-by-kenneth-rogoff-2016-06?referrer=/IWqT24P7A6

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  44. "How do you justify asking the electorate to overturn their earlier verdict?"

    You point out that there were two entirely contradictory leave campaigns, and that the country is ungovernable without knowing which of the two has just won. Is it to be
    a) free trade and free movement inside the EU, or
    b) free trade and free movement outside the EU (Norway), or
    c) no free movement and economic suicide

    This is the only possible choice where each vote would be for a positive plan. Otherwise "leave" is *essentially* a protest vote, because it is clear what is against and not clear what it is for.

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  45. The referendum makes the legitimation crisis in UK politics obvious. Telling the exit voting majority, at this stage, that their vote will not be acted on is an act of obvious bad faith that can only further poison the UK's political culture.

    If we try and imagine now Brexit can still be prevented and respect the principle of popular sovereignty, the best option seems to me to be a second referendum AFTER the proposed terms of separation have been confirmed. If the EU adopts a hard stance against the wish list of the Brexiteers, particularly regarding freedom of movement within the single market, such a referendum could be a salutary wake up call, with every chance of this week's decision being reversed.

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  46. One thing I do wonder about is how much of an impact inaccurate polling had. It seems a lot of those who wished to remain did not turn out, thinking remain would win anyway. Look at the amazingly low turnout of the young. In addition, many of those who really wanted to stay, but were displeased with the recent conduct of the EU, may have voted leave to voice their displeasure, thinking it was safe, as the polls showed remain was going to win anyway.

    Given this, a new vote might result in a win for remain even if the vote were based on not much of an external pretext. And, in fact, given the polling, and all of the rest of the dishonesty, a new vote is, in fact, very well justified just based on this unfair misleading, and now there should be a more informed and fair vote where people are really aware of the stakes.

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  47. Quotations from “The consequences of Brexit”, By J.M.Keynes, p. 47, Ch. II:
    “...in UK, Pound slumped by 5%. As a consequence, export slumped while import suddenly boosted instead, because the gentlemen of the London City together with the petty bourgeoisie (whose habit has always been the imitation of the upper class) started ordering huge quantities of oysters and champagne from France, in order to console themselves for the crushing defeat and to get over the nasty behavior of the working class. In Germany, the river Rhein started flowing from the mouth to the source. Paris was struck by a huge frogs shower. The Seven Plagues went up, Physics was replaced by Metaphysics, and Economics by Metaeconomics”.

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  48. Here's a post-referendum poll. It doesn't bode well for a new democratic mandate

    http://www.comres.co.uk/polls/sunday-mirror-post-referendum-poll/

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  49. "However the EU can still be helpful. The calls we saw from many (but notably not from Merkel) for a quick implementation of Article 50 are not. I also think they are misconceived from the EU's own perspective, which is to discourage calls for similar referenda in other countries. The best discouragement is to focus on the current chaos in the UK, and to hope that the UK eventually comes to its senses and overturns by some means the referendum result."

    I guess they're desperate to avoid the impression any new negotiations are possible, for electoral reasons. Also they could desire to use Brexit as an unusual experiment to show what happens when leaving the EU, which would discourage fence sitters from zealous Euroskepticism and make doubtful pro-Europeans more committed.

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  50. Why should there be trade barriers between the UK and EU countries?
    They don't exists now, why should they appear in the future?

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  51. Allan W you don't think that Brexit is a major topic right now with the state of the world economy after Brexit?

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  52. How do you justify asking the electorate to overturn their earlier verdict? It may be true that many now wish to change their mind, but no one likes the feeling that they are being told they made the wrong choice. A deteriorating economy will help, but I still think you need something more concrete. Suggestions welcome.

    My suggestion:

    1. Obtain deal with EU allowing access to Single Market, inc. freedom of movement
    2. Present new referendum on Remain vs New Deal
    3. New deal cannot help but be worse value than being an EU member

    Choices between the two can then be precisely measured (which was impossible in last week's Referendum)

    Those that voted for 'hard Brexit' (no immigrants) are then essentially faced with Hobson's Choice. They will either grudgingly choose better terms or abstain out of disgust - our only challenge then is to make sure we pick up the pieces in the aftermath.

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    Replies
    1. If people want controlled immigration, then they will vote for a government that controls immigration, and you really really don't want that (hint: UKIP.)

      Delete

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