The weirdest thing about the political times we live in is that the government has pledged to make a revolutionary change at the end of this year and no one is really addressing what that might mean. Part of this is Brexit burnout; part of it is that we just had a general election in which “get Brexit done” was the winning slogan and so most people seem to really think this is the case, even though we’re still in the Single Market and Customs Union until the end of the year. A commenter on my blog unconsciously put it perfectly when he said I was being overly doom and gloomy about no deal possibilities at the end of the year given all predictions of doom and gloom haven’t come to pass thus far. That’s because we haven’t actually left anything of any economic consequence yet and when I say “anything” I do mean anything at all. It’s like saying scientist’s estimates of what damage a huge asteroid might do if it struck the Earth have all been proven wrong because no giant asteroid has hit the planet over the last few years. No one’s predictions of doom and gloom about Brexit have been proved or disproved because for all intents and purposes, we haven’t really left yet.
The relevant question concerning Brexit now is this: is the government’s no deal posturing just the shittiest bluff in world history or are they seriously going to go through with it? I’ve become convinced that what amounts to no deal with a few caveats is now the most likely thing to happen at the end of 2020, either by design or by accident. This means a large theory about how the world works in the 21st century is about to get tested on one of the largest economies in the world. All large economies have trade deals with other large economies, particularly those which are geographically close to them. No countries trade on WTO rules alone, but some have very few trade deals worth a lot. All of the countries in this latter category are poor; amongst the poorest in the world. However, we have no real idea how much those two things are connected – the poverty and lack of trade deals, I mean. Yes, there are theories galore on this subject, of course, but no one has ever tested it on a grand scale before. It is possible that a country with an economy the size and scale of Britain’s can operate without trade deals perfectly fine, I suppose. However, it is also very possible that it cannot. All current economic theory points to it not being able to do so very effectively at all, just to throw that in here. However, the Brexiteers do have a point when they say we don’t absolutely know for sure. That’s because no other country has been crazy enough to test this out previously. We’ll see in December whether or not our government is crazy enough to give it a go.
That’s what Brexit has come to: a huge experiment to test the value of trade agreements. I’ll give the Leavers this – if they turn out to be right on this one, it will turn a lot of assumptions about the way the world works upside down. Could be exciting? Aren’t you glad that they are gambling the livelihoods of millions to give this dry run a stab?
Succinct but accurate.
HUBRIS WILL MEET NEMESIS
The Tories will, unintentionally, succeed in reducing the UK’s greenhouse gas emissions by cutting the country’s GDP through a reduction in international trade.
No one’s predictions of doom and gloom about Brexit have been proved or disproved because for all intents and purposes, we haven’t really left yet.
True but not the whole story. Predictions were made not just about leaving the EU, but about other things too, things which have come to pass. For example, there was the prediction about the recession which would follow a vote to leave the EU. That was a real prediction, that was made, and it wasn’t a prediction about the effects of leaving the EU: it was a prediction about the effects of voting to leave the EU.
And unlike leaving the EU, which hasn’t yet happened, the vote to leave the EU did happen, and so we can see whether the prediction about what would follow such an event (ie, a recession) was correct. And it wasn’t. There was no recession.
Now, of course, that doesn’t prove the predictions of doom and gloom that the same people who got that wrong are now making are also wrong. They may be right. But it’s only fair to point out that their track record shows they might be susceptible to, shall we say, motivated reasoning, when it comes to this area?
(One point to bear in mind is that while those who predict doom and gloom make a lot of the trade gravity model, Britain nowadays is a heavily service-based economy and distance matters far less to trade in services than it does to trade in goods; things like a common language matter much more. But software companies, for example, already often do most of their trade with countries outside the EU. Therefore to them trade deals with countries like the USA and Australia would be more valuable than a deal with the EU. I think a lot will depend on whether, for example, the government can announce trade deals with such other anglophone countries in the summer.)
“ unlike leaving the EU, which hasn’t yet happened, the vote to leave the EU did happen, and so we can see whether the prediction about what would follow such an event (ie, a recession) was correct. And it wasn’t. There was no recession.”
No but the long term trend of the UK’s GDP growth did sharp correct downwards – and while the OBR’s prediction of a recession in the short term was incorrect their long prediction of the UK’s performance after the vote was largely correct while the predictions of ‘economists for Brexit’ were so far off as to be laughable.
Un other words: they may have been wrong about the exact degree of harm caused by the vote itself, they were right about the direction of travel.
https://fullfact.org/economy/how-accurate-have-brexit-forecasts-been-referendum/
may have been wrong about the exact degree of harm caused by the vote itself, they were right about the direction of travel.
But that’s exactly the point. The predictions of the ‘Boris is doomed if he can’t do a deal’ lot rely on the consequences of no deal being anywhere from painful to catastrophic. They rely on leaving the EU without a deal making us poorer, in other words.
If instead the consequences are just that growth is lower than it would have been — if we keep getting richer, just maybe not quite as much richer as we would have been —well, I can’t see anybody having much problem with than.
It’s like the difference between asking for flexible working and then being told that that means instead of getting a pay rise you’ll be getting a pay cut —which would have people up in arms — and asking for flexible working and then being told that it means you’ll still get a pay rise, but the rise will be a bit smaller than it would have been, which most people would probably be okay with.
The considerations above naturally lead to the question: Why is this happening? Why is the party that used to support the practical needs of the business community, now pursuing the cause of deregulation at all costs? On the basis of reading innumerable articles about Brexit and other political, social and economic developments of recent years, I have developed the theory that it is a result of a deep split in the rich business community between those who organize the production of real goods and services on one side, and those who simply move huge amounts of money around on the other. The practical business people understand the importance of regulations, trade deals, the EU Single Market and Customs Union. On the other hand, the financiers have become cut off from the real world. They live in a world of numbers, mathematical formulae, computer programmes and abstract ideas, which place deregulation above all else and claim that the invisible hand of the market is the only control mechanism we need. In recent decades, their wealth and therefore their influence has great increased. I think that they, or at least, a significant, well organized and very rich group among them are behind the push towards deregulation at all costs. They have got as far as they have by cleverly linking the cause of deregulation with the cause of taking back control from foreigners. But in the end, the two are entirely different, as will become clear if their ideas are put into practice.
I would like to know Nick Tyrone’s thoughts on this. I think he may know some of the relevant people personally. I only know about them from articles on the Internet.
The practical business people understand the importance of regulations
Is this another way of saying, ‘those who are currently successful understand the value of regulations in protecting them from competition by new entrants by raising the cost of entry’?
The practical business of producing real goods and services inevitably means long term effort and commitment to obtaining the right premises and equipment, and employees with the right training and skills. The owner of such a business cannot easily move to some very different field of business if market conditions suddenly change. Therefore he will value stability, predictability and a level playing field – in other words the EU system or similar arrangements.
A financier, who simply has a huge amount of money and can do whatever he likes with it, is in a very different position. He can move his money very quickly and easily when conditions change. He will, therefore, favour a more deregulated free market system.
In other words, ‘Yes, this is about enabling those who have achieved market dominance to protect their investment from competition by new entrants who might be able to undercut them.’
Well that’s all very cosy for the incumbents, but such regulatory capture is very bad news for customers who would benefit from such competition, even if it involves those who currently dominate the market losing their shirts.
I support the market principle and competition, but like many other principles, they have to be balanced against other considerations. If businesses are given too much stability and security, they will become inefficient and their products too expensive. If they are not given enough stability, they will be swept away, and their products replaced by imports, probably from countries that operate a more rather than a less protectionist system.
This is particularly problematic in agriculture where Brexit threatens to bring a serious decline in British production and an increased reliance on cheap imports from far away. Then what will happen if climate change suddenly reduces the supply of cheap imports?
The practical business of producing real goods and services inevitably means long term effort and commitment to obtaining the right premises and equipment, and employees with the right training and skills. The owner of such a business cannot easily move to some very different field of business if market conditions suddenly change. Therefore he will value stability, predictability and a level playing field – in other words the EU system or similar arrangements.
A financier, who simply has a huge amount of money and can do whatever he likes with it, is in a very different position.
In reply to M’s reply to my previous comment
The practical business of producing real goods and services inevitably means long term effort and commitment to obtaining the right premises and equipment, and employees with the right training and skills. The owner of such a business cannot easily move to some very different field of business if market conditions suddenly change. Therefore he will value stability, predictability and a level playing field – in other words the EU system or similar arrangements.
A financier, who simply has a huge amount of money and can do whatever he likes with it, is in a very different position. He can move his money very quickly and easily when conditions change. He will, therefore, favour a more deregulated free market system.
In reply to M’s reply to my previous comment.
The practical business of producing real goods and services inevitably means long term effort and commitment to obtaining the right premises and equipment, and employees with the right training and skills. The owner of such a business cannot easily move to some very different field of business if market conditions suddenly change. Therefore he will value stability, predictability and a level playing field – in other words the EU system or similar arrangements.
A financier, who simply has a huge amount of money and can do whatever he likes with it, is in a very different position. He can move his money very quickly and easily when conditions change. He will, therefore, favour a more deregulated free market system.
I am sorry about the repeated comments. When my comment did not appear immediately, I thought something was wrong so I tried again. I did not intend to enter the same comment repeatedly.