In my opinion Brexit is a kind of arrogancy of the majority of the Britain population. They think that they're better than the rest of the European Union population (talking in economic therms). Their assumption is that they will have more economic growth without being part of the European Union. But this is the only fact that they consider? In reality they like some of the "advantatges" but they dislike other things that are implicit if you are a member. One of this things is the free movement of the population between frontiers.
Let's talk about things related with the economy, I'm closer to the Paul Krugman opinion more than the worst scenarios shown by the Boe. The principal problem will not be the real impact of the Brexit, the real problem is the fear that people and companies have about this. The expectations of people will cause this decrease of the England PIB. In real facts the only problem that I can see is the problem with the tariffs and customs, but if a new department would have to be created, that's not a big deal because it will create more jobs and this people will increase the PIB so the principal direct problem of Brexit will be tarrifs. But, I also think that in an ideal world tariffs should be canceled because the only thing that they cause is less competitiveness, and more expensive prices.
To sum up my opinion I would say that it's a foolishness what England have decided but they wouldn't have as bad results as the majority of people think.
From our point of view, we will place ourselves at an intermediate point, we’re agree with Krugman in the sense that the figure shown by BoE suggests that Britain's ability to react is virtually nil in front of border issues, and although at the beginning it could be, we doubt that 6 years later they will haven’t been able to improve their customs system as shown in the graph. However we think that Krugman is based a lot on history and we don’t believe that concentrating on the internal market England can offer economic stability, and less in a world as globalized as the current one. In what we agree, it’s that Brexit can cause is a great unknown.
Krugman may have suggested the solution with his comment about 'lowering the standards' of customs enforcement. That would certainly help, especially if the government owned up to a very gradual increase in customs checks so that manufacturers could plan in a rational way. If the government just ignored the flow of goods and focussed on the flow of people, they might manage to avoid a substantial economic hit, and at the same time satisfy a major part of the Brexit supporters' concerns/demands.
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Nowadays the Brexit is being a trouble for both European and English inhabitants due to the negotiations. They are taking place at the same time as others important issues such as the climate change. We know that Brexit is important for our near future but if we do not pay attention in the environmental and climate change in some years, we will have nothing to take care about.
We are living in a non-human world; we do not care about nature, famine nor wars. Everything is moved because of money and its influence; citizens of the world are being dehumanized. We do not realize the importance of this issue and in some years ahead, our descendants and us we will pay for the consequences.
Talking about climate change is alarming the situation we are arriving to: governors making outrageous remarks about it and some people still believing that climate change is not a scientific evidence.
Concerning about economy the future must be aim to a circular model; the culture of use and throw a way has to arrive to the end.
Economic history tells us that protectionism reduces economic growth. Brexit will have some similarities to a protection policy. An economy can’t stay close. International trade increases the competitiveness among companies and increases consumer surplus. How will Brexit end? Nobody knows. What is clear is that a more protective business attitude does not maximize the growth of a country.
@apaGirona Nonsense. It is the very system we are trying to get out of that is protectionist - The EU.
It seems that nationalism is gaining ground around the world, starting with USA with Trump. The egocentrism of believing that you do it better than others, basically summed up in a strong nationalism. The case of the Brexit is summarized in not trusting at all in the advantages that supposes the EU, in the study of BoE they center the worse scene in the echo that would be difficult the commercial part given the poor present customs infrastructure, problem that aggravates with the fact that UK is an island. In the end, all are assumptions, we will see how it progresses.
@KHJC Island country? We have always been an Island country. Singapore and Hongkong do not suffer from being Islands. Spain cannot comment on economy as you are on the brink of bankruptcy and high unemployment. EU has not been a friend to Spain, Portugal or Greece. The Lisbon treaty horrendous powers are to kick in in a couple of years and no country will be sovereign inside the undemocratic EU run by un-elected bureaucrats. Brits will not be the last to leave the EU. Forget the study of the BoE that was planned scaremongering and Mr Carney has now backtracked and is now saying the UK will do very well outside of the EU. The former Bank of England chief (now lecturing economics at a US University also criticised Mr Carney's fake figures. The UK citizens only have problems with the institution of the EU and not the individual countries. We entered the EU as a trading relationship only but it has now evolved into a totally different beast.
The Brexit is not a good idea. But it has been the result of a democratic referendum with a lot of social and economic consequences. Some appointments and consequences:
-The pound has fallen by 16% against the euro and the dollar. This is noticeable in everyday life. Especially in the field of imports, Tesco, one of the biggest supermarket companies, has restricted some imports to the UK. Also, the British residents outside the territory of the United Kingdom, their purchasing power has been curtailed..
-Less confidence
-Large capital outflows and break inflows
-Restricted access to Single Market. This means higher tariffs for goods and financial services. And negotiate new trade treaties take time
-Reduce the incentives for economic migration to the UK and would be a cost to the economy.
-Scotland. More political tension. Scotland was one of the regions whose citizens voted against the Brexit. Also, is a region with secessionist tensions. The Brexit can increase this independence movement.
-Problems with Northern Ireland. How will be the border with the Republic of Ireland
-Gibraltar. Problems with Spain.
These are the most important consequences in our opinion. Also, the OECD classifies the effects in two: near term and long term. In the near term the loss of GDP is predicted to be about the 3%. In the long run term, it depends on the scenario: if it is central, optimistic and pessimistic. The losses of GDP are -5,1%, -2,7% and -7,7% respectively.
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@jcssGirona:
correct me if I'm wrong, but wasn't the referendum predicated on some very faulty info?
1
@RLiss:
I think so. But we don't know exactly the magnitude of the tragedy. As I deduce from Krugman's post, there are lots of opinions and numbers. But I think that most people would agree if we say that the Brexit is not right.
Indeed, we are in a period of time where the populist movements are growing. This type of movements follows the same pattern: the idea of confrontation (research of a common enemy) and tension. Whit this I would not say that the British government is populist, but I think that the Cabinet must inform all the citizens in the right way.
@RLiss I am not exactly sure what your comments infer but as a Leave EU voter let me assure you the majority of us had made up our mind independently long before campaigning had even started. Regarding Mark Carney the failed Canadian politician with a degree in economics he seems to have a deep hatred of UK as his recent outburst is not the first interference in a political matter (not within his remit) Mervyn King previous head of B of E for 10 years was shocked at his invented figures and believes UK can be successful out of the EU. Mervyn King is still up to date and presently Lecturing on economics at a US University.
" They cite some statistical evidence, but it’s important to realize that this is black-box, reduced-form stuff: there’s no explicit mechanism through which it’s supposed to happen. "
Remarkably, exactly same thing can be said about new keynesian recommendations for active fiscal policy.
@idk
Nope, that's just nonsense. The computable models follow reality very well, and they show a profound effect of Keynesian fiscal policy, more or less as predicted.
The loons who deny the reality of Keynes are just that. Loons.
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What the UK government has been doing: Stalling, because Brexit was never a good idea, and UK got strapped with going through the motions of acting on a slim public majority opinion that was badly informed and impulsively motivated.
Recall that David Cameron was against Brexit and left because he was strapped with an agenda he couldn’t support. May was against Brexit, but promised to do her best to carry out the impulsive wishes of a slim majority of uninformed populist reactionism.
So, now everything is about coping with some degree of Brexit, and no one is talking about it being good for Britain.
If Parliamenet does not vote resoundingly against May’s plan, they do epochal disservice to the British people. If May resists a second referendum—which will be resoundingly against Brexit—she would be unconscionably more concerned about her own position than about the good of Britain.
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@gary e. davis I don't know where you get your information but the majority is still for leaving the EU. Yes we are very angry about the liberties Mrs May took when negotiating the transition deal and future trading deal which ties us to the ECJ and restricts us making free trade deals. etc. It is not the deal the country wants and her own MP's will make sure it gets voted down. There is still a majority for leave with more who originally voted Remain turning to Leave than vice versa. A Canada++ deal or a No deal have a majority.
Any Bank of England staff who claim this wasn't intended to scare people into accepting Theresa May’s deal are clearly clueless or lying. The only part of their modelling where they used this kind of extreme worst-case scenario was No Deal - when modelling the consequences of her deal, they used what was essentially the best case, where the EU gave us a great deal on trade almost immediately. They didn't even bother to model (or at least to publically release) the most likely case, the one where no further agreement on trade is reached and the rather nasty backstop kicks in.
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You are either AT the table negotiating for your position, or ON the table being eaten by the others.
I fear Brexiteers forget that.
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Thank you for your thoughts Jim, we voted 62% Remain here in Scotland and are being dragged out unceremoniously, I and many Scots regard ourselves as Scottish first, European second and barely at all British, given the fact that 77% if Brexiteers polled said losing Scotland from the UK was a valid cost of Brexit... it stirs the imagination that Brexit is per se a quest for English Independence rather than Scottish autonomy. However it does give some idea of the complexities inside the DisUnited Kingdom... perhaps this could have beef adequately conveyed to the electorate both truthfully and before the xenophobic, jingoistic vote.
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@Alan Harvey Tell the truth Alan. It was not a Scottish vote. When you voted you knew it was a UK vote. London voted Remain Scotland voted Remain, Wales voted Leave and the majority of England voted leave. The only reason Scotland voted Remain was that all our Political parties in Scotland were campaigning for that and almost no Leave campaigning. As more information became available the view in Scotland has changed. In our UK Parliament elections in 2017 62% of Scots voted for Unionist parties and both Conservative and Labour's manifesto distinctly said they backed the Leave vote and leaving the EU. single market, customs union and the European Court of Justice. One of our greatest and most accurate poll reader (Prof. John Curtice) said Scotland was now in line with the rest of UK on Leaving the EU.
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I moved to the UK twenty five years ago. I've seen how all the investment from the EU has helped develop and rebuild infrastructure in places Westminster would never have given a second thought to. And then I've seen the tabloids rage against a finctionalised version of Brussels invented by Boris Johnson. Almost nobody in Britain truly understands how the EU actually works and so it's ripe for demagogues blaming it for Westminster's failings. And almost all of Britain's problems - from Austerity on down to the truly abysmal results of Privatization - are rooted in Westminster and not Brussels.
You ask what the UK Government has been doing these last two years? Exactly what they've always done - play chicken with the EU, threatening, cajoling, trying to play Germany off against France, and then waiting for the EU to cave and give them yet another exception to the already most customised relationship an EU member has with the Union. This is also known as "cakeism" as in have your cake and eat it too.
Most Brexiteers I've spoken to keep repeating "Nothing will change, you'll see".
The expectation from Westminster is that the EU position was always a sham and than the UK is too important to the EU for it to keep it's four freedoms intact. That the EU would fold and give the UK access to the single market without having to pay into it's budget, without being beholden to the European Court of Justice and without having to accept freedom of movement .
Chickens. Home. Roost.
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"The expectation from Westminster is that the EU position was always a sham and than the UK is too important to the EU for it to keep it's four freedoms intact."
The problem with this mindset is that there comes a point where the headache you endure from having to deal with an Important Person outweighs any benefits you might be receiving. For the other 26 EU members, Brexit was that point.
I'm a citizen of one of those EU nations and *I* don't want the British staying. The country is simply too unstable. If they come to their senses and cancel the Brexit, how do I know that the very next government to come to power won't put the question right back on the table, or at least use it to extract new concessions, and then this entire circus starts all over again? Enough is enough. They need a generation-long time-out to work out their identity angst.
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@CP "other *27* EU members, not 26. Sorry. Brain fart.
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Very valid points Taz, a problem here in Scotland where we voted 62% Remain is that virtually EVERY infrastructure project north of the Central Belt, and by that I mean health premises, community centres, road and rail is either partly or fully funded by EU, will this shortfall in available funding be available for an Electorate which tends to shun Westminster, I fear those distant geographically and ideology wise will see health, care of the elderly, mental health awareness and support diminished. A bit like pre-existing conditions in Obama Care, it will be seen as a necessity for the wealthy, yet of questionable value for those who didn’t vote with that specific political party.
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" ... the Brexit vote was more than two years ago. What has the UK government been doing?"
Reminds one of the Republican Party and health care. Conservatives on both sides of the pond are great at tearing things down; not so good at building. That's where real political work is required.
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Fortunately none of this will happen. I've said from the day after the Brexit referendum that they would have another vote and stop the most stupid collective decision in British history.
May is going to be laughed out of office, the Brexit process will be put on hold, a new referendum will quickly follow and then Parliament will vote not to leave the EU - all within 6 months.
The English can be really, really stupid collectively but people just will not allow this to happen. The Brexiters are all in hiding, so no Brexit and no Conservatives for 50 years.
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Just not seeing it. Most people would probably *like* to go back on Brexit at this point, but nobody wants to be the one (or one of the ones) who bite the bullet and stop it from happening. They're all sitting around hoping someone *else* will save them.
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@CP Is this really a hate the English hate page? The Brexiteers as you call them have gone nowhere. Unfortunately our media are mostly for Remain in the EU and from day 1 the Remain voters were out on the streets waving the EU flags. Sore losers! We are not represented at parliament where only a quarter of MPs voted Leave and those MP's who do represent us are called "rebels" for doing the job their constituents voted them to do when the others are actually going against their manifestos for purely personal reasons.
When I was in high school i was the lone student in my class who would read ‘the economist’ in the library during the lunch break. Topics covered at the time included the EU and anglo- french concorde. The latter has disappeared from the skies. The pages of the magazine explored the possibility of a european union. Britain has left the EU since. It made no difference to us these last 40 years and there will likely be none in the next 50. Britain has been in search of a new identity ever since world war 2 caused it’s empire, built over 200 years, to collapse altogether within ten to twenty years.
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Socialism has been a success. If one failed it was made to fail by greedy corporations and shareholders. Where is the rightwing dictatorship the west supported and still supports creating a healthy and just society? Would European social democracies really want American conditions to live with? Not if the people know what it is like to have no social safety net, no quality of life. Yes, social societies do have ups and downs, but they are more just and humane than the Anglo Sachsen Capitalistic societies as we know in the US.
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@R. Littlejohn
This would surprise Europeans as there are no European countries that regard themselves as Socialist.
All European countries have 'mixed' economies where a few functions are, to a greater or lesser extent, controlled by governments. However countries that join the EU are constrained in how much government support is permissible. This is because, in order for the EU Single Market to offer businesses a 'level playing field' across the EU, governments cannot step in and give competitive advantage to their own manufacturers and service industries.
Whereas the US government exercises truly awe inspiring subsidies to its industries - possibly unmatched anywhere in the world, largely through its enormous levels of military expenditure.
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A not wonkish comment from one who is unwonked. No nation will be able to survive in this world as an island unto itself, even if they are an island nation.
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I agree that the downturn won't last as long as the BOE says, but the transition period could be devastating in a lean/JIT world. It doesn't take much for a supply chain to fall flat on its face. I would love to own a bunch of warehouses in Dover right now!
I agree that the real shame here is Great Britain's government not being able to come up with a reasonable exit strategy. It is like they want to play at it and hope that there is a new referendum. This fact might haunt GB for generations to come.
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@Typical Ohio Liberal Our supply chains fall flat on their faces regularly as it is. It's amazing how often supermarkets run out of essentials like bread even without Brexit. No doubt if there is no deal journalists will walk into supermarkets, take photos of those empty shelves, and post them as proof of the damage done by Brexit regardless of truth, probably creating a self-fulfilling prophecy in the process.
@makomk Absolute rubbish. Our supermarkets are brimming with food of every variety. What part of UK do you live in because I've travelled the length of the country and never seen empty shelves. Although I do avoid London.
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The high five of two criminal dictators Putin and MBS at G20, was clearly a new low in a world affairs...two ruthless felons presiding on a world stage flaunting their criminal behavior in front of everyone, slap in a face of any human decency.
Words can't attempt to describe the disgust of that moment.
What's next.
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"Britain is an advanced country with high administrative capacity — the kind of country that history shows can cope well with huge natural disasters, and even wars. Would it really have that much trouble hiring customs inspectors and installing computers to recover from an 8 or 10 percent drop in GDP?"
Well, they COULD, but does that mean they WOULD?
I mean, here in America, by and large we absolutely have the "administrative capacity" to solve most of our problems - we've got the professional civil service and the economic and intellectual resources to back it. But we simply refuse, for ideological reasons, to use or listen to them. On everything from fairly simple things like repairing infrastructure or expanding it to meet new demands, to more complex things like addressing health care or global warming.
Is it like that in the U.K? I don't know, but based on the total paralysis I've seen from their political class over the last two years, it certainly seems so. As you say, they COULD have been planning for any number of things, including a worst-case-scenario Hard Brexit, to make them go as smoothly as possible. But they DIDN'T, and still aren't, because like American conservatives, they run entirely on magical thinking at this point.
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This is an interesting perspective, lamenting the incompetent mismanagement of the change, rather than finger wagging or prophesy. And it does seem like there is a pervasive case of mismanagement affecting the world just now! No good will come of this.
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There are two key reasons why most Brits voted to leave the EU: immigration and the failing National Health Service. One is perceived to leading to the other: admitting over 300,000 EU citizens people a year puts too much pressure on social services and the NHS, leaving fewer homes and benefits for those already here, and a strain on the NHS budget.
The waiting time for treatment, already long, has grown even longer; operations for conditions once considered routine are now only available through private healthcare, and bed-blocking—sometimes for months—by mostly elderly patients who can’t be sent home because government cutbacks have led to such a strain on social care that there simply aren’t enough personnel and resources to handle the demand.
The BofE’s dire warnings often feel like they’re angling for a self-fulfilling prophecy. Heaven forbid Mark Carney may be wrong.
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@gbtbag
If those are the two reasons for leaving the EU then that is a very sad state of affairs, as they in no way correspond to reality.
The UK admits more non-EU citizens every year than from the EU. And only the UK can determine how many non-EU citizens can enter the UK. Yet year after year UK governments do nothing to reduce levels of non-EU immigration.
And in case anyone missed it: many campaigning to leave the EU made it clear that levels of immigration would not necessarily drop if the UK left the EU.
Those advocating an 'open Britain' were explicit that they were relaxed about levels of immigration and the UK could let 'market forces' decide.
In fact EU rules include a number of restrictions on EU citizens seeking work in other EU countries. Registration and ID checks can be required, those who cannot support themselves must return home and no benefits can be claimed until earned.
However the UK refuses to enforce any of these restrictions!
The UK Health Service is the most poorly funded per head in Western Europe even though the UK was until recently the world's fifth largest economy.
The UK has an ageing population. The elderly, with their multiple and complex conditions, use some 40% of health services resources, whereas young immigrants make very little use of the health service.
Until the government plucks up the courage to fund the health service properly things are only going to deteriorate further.
In conclusion: no reasons here for the UK to leave the EU.
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@gbtbag
Good Job!! at last, how many Brits feel.
And, obviously Good Job to PK.
Hey, is M. Carney related to B. Johnson?! just kidding..
@gbtbag
Yes they are linked, but in the totally opposite way to your claim
The NHS has a high proportion of non UK staff at all grades keeping it going. There is a higher proportion of non UK staff in the NHS than in the general population, so immigrants are statistically contributing more than they are taking from the NHS.
Brexit and immigration reduction is actually going to make the NHS and Social Care provision much worse. The effect are already evident, with increasing unfillable job vacancies and a lack of any British people who want to do them.
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Question: Can the UK achieve what it originally wanted from being in the EU without being in the EU? I don't mean a different agreement, I mean changing policies that would mimic a desired state without the multilaterality. (Is that a word? If not I want credit for coining it. I'm sure it will take off.) If the problem is long lines of trucks and ships holding up import and export of goods, then Prof Krugman's suggestion of "lowering standards" should be considered. Only it isn't lowering standards, it's just creating a customs regime that would have the same effect, at least for the UK, that being in the Union has. I have a funny feeling that my analysis is overlooking something very important, but it still seems that the UK doesn't have to revert to a 1970 customs model. The one they have had the past 20-odd years worked well enough. Create a regime that reflects the outcome they want.
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@Stevenz
"Can the UK achieve what it originally wanted from being in the EU without being in the EU? "
Unfortunately, the short answer is no.
Theresa May has spent the last 2 years trying to negotiate "frictionless trade" without having to adhere to the four freedoms on which the EU is based: movement of people, goods capital and services.
The EU has declined to allow what is called "cherry picking" of EU benefits, or "cakeism" - having our cake and eating it too (this idea was put forward by Boris Johnson).
The UK is either in or out. If we are out there are consequences which will inevitably add time and expense.
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@Joan It's the time and expense consequences that the BofE's models are trying to map out. And whilst I always appreciate the POV of Mr. Krugman, in this article, his focus on modelling problems and macroeconomic projections, while, helpfully explaining the BofE's processes, are important, there are other factors that often puzzle me about economic modelling. Like, our inability to predict tertiary and collateral political (both large and small "p") events. "Plan for the worst. Expect the best."
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@Stevenz We have ports other than Dover. Goods come in from all over the world and pass through ports with ease and they are under WTO rules. The Netherlands have employed another 900 customs officers in an effort to attract more goods through their ports. I have just read that Macron is furious as the EU have told him Trade in goods will pass through other ports to ease congestion. He is raging because on one hand he said he would make it difficult for passage of lorries and on the other he is saying it will cost Frances ports Billions in revenue.
The customs issue is an interesting one. While reducing friction by minimizing inspection would be a way to ease the time lost by EU goods stuck at a border crossing, it would become a politically difficult choice as British companies would immediately object to their EU competitors having import requirements waived.
This would likely be exacerbated by the somewhat less motivated customs agencies of the EU more willing to let British goods back up behind the border. The Brits, after all, are looking forward to using less regulation as an enhancement to their productivity, and the EU is not really interested in seeing that becoming successful.
BoE is understandably leaning toward a model that maximises the effects of non-cooperative customs relations, considering the already apparent motives expressed by the various EU entities. Problems created by inherently political motivations are much harder to quantify in an economic model that presumes that all actors are pursuing their own best interests.
It seems to me that the global financial order is increasingly being assaulted by nationalistic forces growing out of the rising radical populism now found nearly everywhere. Models that don't address this reality will be inherently too optimistic in projecting growth.
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@A. Conley
"British companies would immediately object to their EU competitors having import requirements waived"
Not just EU competitors, all competitors.
"The Brits, after all, are looking forward to using less regulation as an enhancement to their productivity,"
Exports to the EU will have to meet EU standards.
The best way to reduce friction is to stay in the EU.
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@Joan Of course Exports to the EU will have to meet EU standards and our companies are already compliant. We already export and import from countries around the world with ease including US but would like to do free trade deals and Japan, Korea, Australia US and many, many more would also like this. To abolish the high tariffs on clothing, footwear and the simple banana and orange etc which the EU impose would help our ordinary citizens immensely.
After thinking a bit more about two of PK's objections to the scenarios, I think he is leaving out some important aspects of them.
1. Hiring customs inspectors and buying computers will not solve the problems at the ports, as the big problem is physical infrastructure. There just isn't room for all the trucks that will now need to be inspected. That's why there is all this talk of turning the M20 in Kent into a giant lorry park (truck stop).
2. lowering standards or waving goods in at the ports: importation of substandard goods will have an immediate effect on exports to the EU.
I don't think the BOE is that far off on this worst case scenario. Brexit is a monumental act of self-harm. The real problem is the politicians who have lied and obfuscated from the beginning, and who refuse to be straight with the people of the UK to this day.
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"There just isn't room for all the trucks that will now need to be inspected"
Expect trafficking/smuggling in and out of the United Kingdom to go absolutely through the roof after a Hard Brexit.
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@Joan Joan, you do not understand import/export. I have both imported and exported with ease under WTO rules. We will not import or export substandard goods because we are leaving the EU. In some cases our standards could be higher. Our standards are already higher in agriculture. For example caging of birds, pigs cattle in France and Spain is on the increase and our farming methods are much more humane. Stop talking Britain down! Our farmers were forced by the EU to change rotation of crops and many other practices which were poorer.
I do share your doubts about the huge costs of cutoms enforcement. "Lower the standards" ma certo. come no.
I often fly into Rome from the USA. I have never been delayed at the dogana (customs) which consists of a extremely bored guys in uniforms standing behind a desk watching the luggage role past.
I also enter for France (notably another EU country with the Euro and Schengen even) and role past the exact same desks with the exact same bored guys. At some point there was a fire in Terminal 1 so intra EU passengers were mixed with completely foreign foreigners.
This didn't cause any delays (as indeed clearing customs never caused a second of delay before the fire).
Beyond the Italian approach, the UK could also just declare all goods coming from the EU to have cleared customs -- they don't need a formal customs union to do that -- they can exercize their newly recaptured sovereignty to just let the stuff in without delay.
Over here East of the channel, some countries might make some trouble. I don't think the French would want the hassle (we wouldn't want angry customers in union Jack vests spray painting free trades slogans on l'Arc di Triomphe would we ?). Maybe some difficult country which is far from the UK and doesn't trade much might actually inspect and suffer delays (I am thinking of my ancestral Magyarorszag at the moment) but I don't think that would bother the brits much.
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I don't expect it to be easy for any country to leave an economic association of this magnitude ("union" is not really an appropriate word, especially as GB never introduced the Euro). And the good old English expression "bonkers" comes to mind when we see and hear the behaviour of the privileged sons of Albion like Boris Johnson and Jacob Rees-Mogg. Ms May is bravely doing her best but she, like all of us, has no idea what she is doing.
I am glad that I live in Germany, have dual nationality and can simply hide my British passport instead of hanging my head in shame.
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What needs to be taken into account is that most manufacturing industries can't afford to wait until the bottlenecks at customs get cleared out. By the time the customs problem has been fixed, it will be too late. Jobs in manufacturing industries with global supply chains will be lost forever.
The entire concept of global supply chains is based on the seamless transit of goods from an international supply base to the manufacturing plant. The entire UK manufacturing industry has evolved over the past three decades on the assumption of frictionless movement of goods between the EU and the UK. This means tens of thousands of trucks and containers moving all the time across every port in the UK.
This is not remotely comparable to the flow of goods that existed in 1973 (before the UK's entry in the EU). There is no way that the UK - an island, let's not forget - could adapt its infrastructure in time before most manufacturing business either decide to leave or go bust.
Brexit is the result of monumental stupidity and ignorance by people who don't have the faintest idea of how a global economy works, and who seem to ignore the geographical challenges of trade with an island nation. This is not the 19th century anymore. The empire is not coming back.
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There is no such thing as a homo oeconomicus. Psychological factors are huge. If there is chaos at the British border, there will be an impact. The chaos at the German border in 2015 only lastet a few month, but the repercussions go on to this day.
3
Ssssh, Parliament are so so close to u-turning on a second referendum - don’t do or say anything that will make the fundamentalists shriek “Project Fear” and dig their heels in!
I think May is looking for an honourable exit from Brexit and I think that when her deal inevitably gets stomped on that will be her moment to throw the towel in and say, “oh well we tried our best, we’ve given our all, we worked really really hard etc etc, but let’s kick this into the long grass...”.
Because if there’s one thing the Tory Party fears more than any other, it’s losing power - and a No Deal Brexit will eviscerate her party for generations. Once all those who voted Leave out of a desire for change or as a kick against globalism realise that they were monumentally lied to, and that the liars who told the lies will be the ones profiting most.
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@Mat if the powers that be don't want riots on their hands they better not even think about it why cant EU supporters move to the EU if You so wish
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@Adam Hiley
Your only argument against a referendum giving the people a final say, two years after the leave vote, whether they want the deal that May negotiated, or would rather call the whole thing off is riots?
4
@Joan You're essentially arguing that, after the country voted to leave the EU, people should be given a choice between not leaving the EU and permanently being forced to remain in the EU. Democracy is basically an agreement that political disputes should be settled at the ballot box rather than through violence - break that and things can get really nasty fast.
2
I honestly believe the only real solution is to show the horrific "Proof is in the Pudding" to Brexiters, otherwise they will continue to fight for fantasy Brexit forever.
1. Crash out to World Trade Organisation rules
2. Watch hundreds of corporations flee to the EU
3. Watch layoffs approach 1 million
4. Watch lorries etc backed up for weeks at British and EU ports
5. Then the domino effect of complete economic collapse
6. See the tax base collapse
7. Suspension of government pensions
8. Watch the NHS die
9. Skilled foreign workers flee
10. Food riots
11. At each step, the Pound Sterling crashes lower and lower, igniting runaway inflation
12. Go begging on hands and knees for the EU to take us back
It will take 20+ years to recover from this stupidity, while disaster vultures Boris Johnson, Rees-Mogg and their cabal sit on top wrecking whatever is left.
I don't see any way the Brexit idiots will give up their fantasy without some serious blood being spilled.
9
@William
I agree. It's obvious that many of those who voted for Brexit didn't grasp how harmful it was going to be. It's a bit like someone not believing you when you explain how deadly Novichok is. What's the cliche? The worst vice is advice. Bitter personal experience should ultimately do the trick.
4
@William Oh! William from Memphis you surely are not descended from British stock. You know nothing of the British will to succeed especially when under pressure. We were still on coupon rations years after the second world war but we were working for our country. We were bankrupt and have just recently finished paying the back the US war debt. We foolishly let Germany off with their debt to us. We lent the Republic of Ireland money when they were in difficulty and the EU did not offer to rescue them. They are very slow in paying us back but they stick us in the back with ease over the Irish Border. We are fired up and just need to go forward. As someone said we need a Churchill or a Thatcher but our problem is we got a Chamberlain. It is a bit hurtful to read that the world including those we thought were our allies criticise so sternly our democratic vote. So be it. We know where we stand.
What I seem to understand from this analysis is that the arrogance of the Tories and the ignorance of the populace that were bamboozled into voting for Brexit have rendered a once proud nation into a cheap laughingstock.
11
@james33 And then there’s us (US).
6
@james33 We'll see. He who laughs last laughs longest! We are still a very proud people. Macron has the yellow jackets on the streets. Spain has 50% youth unemployment. Germany has it's marches and rape of a thousand girls in Cologne. Greece has been bled dry by the EU and wish they had never joined. Poor Italy is being told the EU makes their laws not Italian politicians. Gentle Sweden was so generous they took in more asylum seekers than most and now have 55 no go zones and females are urged not to go out at night. Belgium is on the point of ruin. Austria, Poland, Czech Republic and Hungary have seen the light and say no to the EU kalergi plan/barcelona declaration of onward march towards complete multiculturalism. The unelected EU bureaucrats rule the roost and soon there countries will no longer be able to make their own laws and their cultures are to disappear by EU law. A bit of hardship will be worth it to join the free world. Countries ask yourselves, why are we finding it so hard to leave. Why has the darling of the EU George Soros contributed multi millions towards overturning Brexit. Against all the odds we voted OUT and we will not succumb to bullying. Are we truly alone and are you all too afraid to support us. It would seem so on the New York Times but from all around the world peoples call, well done Britain.
Putin must feel like the greatest wheeler-dealer of all time. He managed to spend a few million dollars and did what the USSR and the KGB tried to do for 60 years. He brought down two of Russia's enemies without firing a shot. NATO countries are in chaos and America is crumbling under Trumps stupidity. No wonder he's all smiles and high fiving MBS. Kudos sir.
9
UK will sell what remains of its soul to Xi.
4
@northlander. Hey, if New Zealand can join the Belt and Road initiative, the UK can't be far behind. Heaven help us all.
3
So England is following through with going down a black hole the people voted for in complete ignorance.
How on earth can something so patently stupid go on?
6
@The Iconoclast Maybe 2 terms?
@The Iconoclast Hey, Hey, How come someone from Oregan know so little of the EU. We did not vote in complete ignorance. You have been listening to too many Remainers. Time to listen to some of your US economists historians and your Chamber of commerce. We have been one of the largest contributors to the EU budget but in so many avenues they continued to try and dismantle the UK. They encouraged EU countries and others to buy up UK shares of our most successful businesses and then paid the new owners to relocate to Eastern European countries. German companies with manufacturing ties in China even paid employees of one of our most envied companies to steal new inventions. The employees were Chinese design engineers educated at UK universities. Farming had to comply to EU rules made to accommodate their numerous small farms and our fishing fleets were decimated. Anyone working in industry will have known of new rules year after year which do not improve but just hinder and dislike of EU has built over the last 30 years. We are well informed but I can understand why public servants who do not read may have been ignorant.
Our problem is not with the European people but with the the unelected EU bureaucrats. How dare you say we voted in complete ignorance. Tell me what a person from Oregan knows that those of us employed in Industry, Farming and Fishing etc. do not. We live under under never ending EU rules of protectionism. which favour countries such as France with small poor production methods and allow cruel practices in in animal husbandry such as the ever increasing body caging of pigs and cattle. They tell our farmers how to rotate their crops when for decades before joining the EU they had perfected methods. Our fishermen have to return tons of dead fish back to the sea if they happen to net the wrong type along with the allocated species. We have twice the number of people per Sq mile than France and cannot keep up this present rate of immigration when a third of EU citizens do not work and the those who do are contributing only £500 per head in taxes when it costs £10,500 per person on housing, schools, NHS, services etc. etc. We deserve the right to say who comes to our country. There are now at least 6 EU countries whose citizens number over 50% who would vote to leave if their governments would offer them a referendum. You are extremely lucky in US to have your freedom of speech but we do not and laws are restricting us In schools and universities our children are being brainwashed because of various EU laws and treaties such as the Barcelona declaration.
"when massive trade liberalization happened in places like Mexico, the hoped-for growth miracles didn’t materialize"
This is also true for the US and probably Britain as well. Certain countries, especially in East Asia, oriented their economies toward exports, taking advantage of demand in the advanced countries like the US and low wages in their own countries, and did very well from international trade. Less-developed countries without central control of the economy, like Mexico, could not coordinate their efforts in this way. In the US corporations control things, so international trade is conducted for their profits - especially the enrichment of CEO's - and there has actually been no particular boost to the economy from globalization and a negative effect on wage-earners. If there had been a boost economists would not have been talking about "secular stagnation" and the the recovery since 2009 would not have been so sluggish.
The very pessimistic forecast by the BoE probably reflects a distinctly unrealistic idea of how much globalization and European integration have improved economies.
3
The problem with Brexit is that there were really three options, not two, when the referendum was conducted: stay, remain in the customs union, and leave completely. The latter two were combined simply as "leave", leading to an unresolvable political problem as to which sort of "leave" to take. The only sane resolution at this point would be to defer Brexit until that choice can be made by the people.
3
@RG
Re:"The problem with Brexit is that there were really three options, not two, when the referendum was conducted: stay, remain in the customs union, and leave completely"
It's not that simple. Membership in the EU isn't offered "a la carte" to prospective Members.
So, if UK wants to close borders to immigrants, and decline to follow any number of other restrictions, while still maintaining open borders to goods and or services, the EU can just say: "No, if you want open borders to trade, you must also agree to conditions A, B, C, etc".
That is what the lengthy negotiations between UK and the EU have been about. UK cannot just demand exactly the deal they would like.
7
The sentence "But relying a lot on effects we can’t model seems dubious" seems dubious. What do you mean "we" bright man ? I am willing to bet you could whip up a model where trade causes high productivity growth within 15 minutes.I am not willing to bet on you against you as being the guy who bet he couldn't do it would creat a bit of conflict of interests.
I will attempt to do it in 30 minutes (OK I have begun thinkin already).
Then against data you have an example (one (1)). I can think of many debacles of people who decided not to rely on an effect because they couldn't model it.
1) we can't explain why nominal stickiness might be optimal & in our models firms maximize profits. The claim is true. Menu costs don't do the trick as firms synchronize. Calvo fairies are embarassingly implausible. Akerlof said near rational (not optimizing). So they decide they must assume prices are flexible and we get a RBC debacle.
2) "zero isn't an especially important number" Paul Krugman 1988 (at 1050 Mass avenue). There is no reason why people should accept constant nominal wages with 2% expectable inflation and not accept a 2% wage decline with 0% expectable inflation. So it can't be true. But it is.
3) There can't be a liquidity trap because of the Pigou effect. Also there is Ricardian equivalence. No one noticed that Pigou and Ricardo contradict each other until ... *you* remember when --- it was in the 1990s (and that example is *not* an elephant).
out of space
1
England is embarking on a course of action, ensuring its sovereignty, by separating itself from the most onerous reality of being a member of the EU, such being the open borders between member nations, which permit all member populations equal rights, creating a United States of Europe.
The last 40 years of the rendering of its Englishness has proved too much, and Brexit which was inevitable, is the resultant reality.
Europe is a continent of dozens of sovereign nations, all with distinct cultural differences and traditions, existing as such for centuries, with the idea of unification unfathomable by the majority of the populations of these sovereign nations.
The EU project was the brainchild of the "Uber" wealthy nation states, designed from the outset to create a common market which would further enrich the elites, and do so at the expense of the uninformed and unwitting poor and middle-class.
For nearly 30 of the 40 years, the party was able to continue until the excesses of the historically blind elites began to be felt by the southern tier member states, excesses which all but beggared them, look at Spain, Greece, Italy, and now France, a core member bursting into flames of discontent.
England is getting out, and getting ready, because the writing on the walls can no longer be ignored, writing which is increasingly desperate, and in spite of the repetitive messages the poor and middle-class are trying to impart, the elites, (think Macron), still refuse to see.
4
@Mel Farrell
The European Project came out of the ruins of the second world war. The idea was that countries which are trading with each other are less likely to go to war.
Freedom of movement is available to the British along with citizens of other member states. Young people are particularly dismayed that this is being taken away from them.
Finally, England and Wales voted leave (although London and some of the larger cities in England voted remain), but Scotland and Northern Ireland voted solidly to remain. The vote overall in the UK was very narrow: 48-52. So the sentiment about leaving the EU is not as straightforward as you present it.
7
@Mel Farrell
Just a reminder: it's not just England that is on its way out of the EU, but the whole of the United Kingdom, which also includes Wales, Scotland and Northern Ireland. However, you might be proven right if Brexit happens as the three other countries might choose, for different reasons, to leave the UK and re-join the EU, leaving England alone.
And make no mistake: England would then be at the mercy of the the same elite that has promoted Brexit (Johnson, Rees-Mogg, Fox, just to give a few names – if they don't qualify as elite, the term has no meaning at all).
It's true that the EU is a bunch of countries with very different cultures and traditions. Often unwillingly, very often awkwardly, they are trying to maintain peaceful co-existence based on some kind of shared prosperity. Given the only alternative history has to offer (2-3 generations ago Europeans were killing each other in a war that cost 60 million lives), we should celebrate that the project is still alive, despite its numerous flaws and challenges.
8
@Mel Farrell,
You are right about Macron refusing to see. Macron's solutions to the growing number of ordinary working citizens who can no longer afford to exist, is more of the same: Increased "competitiveness", which inevitably means making life even more difficult for workers, until such time as ever larger quantities of the same failed policies, will somehow magically have exactly the opposite effects from what we have observed in reality, for many decades now.
But this is about much more than Brexit, France, or the EU.
This is about failure of the world wide consensus on economic policy. There is no single cause, but corruption is a big one. The wealthy have controlled politics to arrange the economy to deliver ever increasing inequality, and then prevent any means of reversing that excessive inequality - whether via higher wages, or taxes.
Excessive inequality is the real problem. It creates a situation of insufficient Demand (rich have lower marginal propensity to consume). And the policies to increase "competitiveness" are worse than a zero sum game to capture the fruits of limited source of Demand: They exacerbate this deficiency of aggregate Demand.
The refusal to acknowledge that global lack of Demand is the key factor limiting output, renders most other economic discussion as moot, if not also disingenuous.
During the worst of the Great Recession, it was infuriating to see Austerity as the proposed solution. It seems that is still the only solution on offer.
6
I am an American and was assigned to the London office of my company to help launch a UK product. I stayed there for a month. I'd visited London numerous times as a tourist but this was my first time actually working there. Like Mr. Krugman I knew Britain to be "an advanced country with high administrative capacity," yet actually trying to set up things like phone service, internet, copy machines etc. for our London office was incredibly frustrating and bizarre. It reminded me of working in a 3rd world country, to be honest. Our basic communications services never worked properly, our computer systems seemed outdated and there seemed no sense of urgency to get these systems working properly as one would find in New York or Los Angeles. It was a big eye-opener, as I knew London to be a global financial center. It was extremely unexpected and so yes, I think the BoE is right to point to these infrastructure issues as a weak point.
7
Trade is slowing down anyway. GDP is barely moving up except in the USA, but at a slightly below average rates. De facto becomes de jure with the implications to all especially those workers within Europe who established residence in a county different from their natal one -given the narrow nationalist perspective in these matters. Desperate solutions to keep a diminishing slice of the pie. Not effective nonetheless since tariffs and migration barriers only address symptoms but not causes
2
"Britain is an advanced country with high administrative capacity — the kind of country that history shows can cope well with huge natural disasters, and even wars. Would it really have that much trouble hiring customs inspectors and installing computers to recover from an 8 or 10 percent drop in GDP?"
Paul, you have GOT to be kidding. Take a look at what the coalition/Tory governments have been doing over the last 8 years or so to public services, including things like the Border Force, which was our current PM's remit as Home Secretary. I didn't think I had seen such abject incompetence until Theresa May took over the brexit negotiations and appointed a fully-packed clown car, now aiming at the cliff like Thelma and Louise.
I am not optimistic.
7
Brexit was the UK's Trump, an emotional lashing out in response to problems that require wonkish, honest answers.
It'll be interesting to see if emotion plays into the way the EU treats the UK after Brexit. Will the EU make the best deals possible, even if those deals lie with the UK? Or will EU interests acquire inferior, say, Shetland sweaters from, like, Spain, just to stick it to the UK?
BTW I have no idea if Spain makes lame Shetland sweaters. It's just an example. Please don't sue me, Spain.
3
I watched some of the debates on BREXIT in the British parliament on television. As far as I could see, the opposition was very respectful towards the democratic will of the British people. I somehow believe that constituencies have some 6th sense on national interests. If that's the case, costs on BREXIT may turn out to be much lower than expected. England will have much more flexible instruments to deal with future events. On the other hand, inside the EU there will remain 4 different realms, i) France + Germany ii) (Other) Mediterranean countries iii)Eastern Europe iv) Remaining countries in the North (east). Inside balance of the EU will not be the same anymore. Some countries here should be expected to loose some of their political bargaining power. Netherlands, for example, may have one of the most uncertain positions. Will such country or similar ones follow the UK? Such questions have to be clarified in order to have more concrete assessments on the issue.
3
I was born in England of Scottish parents, although most of our lives have been spent in Canada and the U.S. In our extended family there are no Brexit supporters.
The big picture is simple. Britain does not produce enough food to feed itself, and therefore it must trade.
According to the U.K. Parliamentary research office, financial services make up 6.5% of the U.K.’s economic output. They contribute 61B £ in exports, against 11B £ in imports. Almost half of this business was with other parts of the EU.
The largest British manufacturing exports are machinery, pharmaceuticals, electrical goods and vehicles. In raw numbers, the trade in physical goods is almost five times larger than the trade in services, but this is because the manufacturers are integrated into complex supply chains, mostly with the EU. British manufactured products on their own have no compelling value.
Financial services depend on credible financial regulation. The customer in another country must have confidence that their money will be treated with respect. The United States succeeds at this because it is large and relatively well-governed. Britain succeeds because it is part of the EU. Outside the EU, its value as a financial center is much reduced.
The question never answered by Brexiters is this: How will Britain afford to feed itself? They talk about new trade deals, but to trade what? Their planned damage to the existing export sectors can’t be offset by make-believe.
20
Whenever I hear pro-Brexit British politicians speak, they are absolutely confident that Brexit is the best and only way for the UK to go forward regardless of any evidence to the contrary. Their blind faith is replicated in the US by the supporters of our current president in their refusal to see any fault in his administration.
18
In response to loco73, who writes :
"Brexit" also underscores what happens when you have a badly informed population and a politically inactive, disconnected and disenfranchised citizenry."
This is the analysis of the elite living in a bubble.
As in the current unrest in France, Brexit is the response of ordinary citizens to globalization, that enriched the city based elites and impoverished those left behind to global wage competition in the country side
At some point, inequality reaches a point where revolution happens. As Luc Ferry noted today on the unrest in France
"We are dealing with elite elites completely cut off from the world. We have a revolt of people who are not bad guys. To speak facism is a shame, a stupidity and it is insulting people.
Luc Ferry
------------''
Luc Ferry is a French philosopher and former Minister of Culture and a proponent of secular humanism.
"
14
@Woof
But many of those in charge of Brexit were indeed members of what you term 'the elite.' Both Boris Johnson and Jacob Rees-Mogg went to that most elite of schools, Eton, as did former prime minister David Cameron, who set this catastrophe in train.
Certainly, it is the elite who will benefit from the inevitable chaos caused by Brexit.
And, looking to America, 45 has benefited from criticising 'the elite.' Now that's what I call chutzpah.
7
@Woof
The protests in France are yet another symptom of the dysfunction of globalism - as currently structured.
Globalization creates a situation where wages in developed nations are driven below subsistence level.
France has more of the kind of policies that Democrats and liberal pundits once lauded (limits on work weeks, living wages, socialized health care). Macron is actually proposing destruction of the welfare state, as a "cure" which will bring back "competitiveness". How is this not just more evidence of a global race to the bottom on total societal compensation for workers?
Isnt it ironic, that Macron holds out cuts to the welfare state as the "fix" to make globalization work, even as the so called liberal pundits and mainstream US Democrats hold out an *increased* welfare state, as some kind of "fix" for what ails the global experiment?
It seems more consistent with the facts, that these contradictory "fixes" proposed by mainstream "elites", are merely denial, and failed stalling tactics, to avoid facing the obvious flaws in the way global trade is currently structured. Given the increasing resulting political upheavals, these denials and stalling tactics are very dangerous.
It is very clear that the global problems, are due to over supply and under demand, which are hard to fix, with globalization.
Increasing the welfare state in the US, is not a politically viable cure. And hollowing out the US industrial base is folly. Our leaders better change course.
1
@Woof
No, this is the analysis of people who know of what they opine upon, despite being the much maligned "elites", which these days seems to be more code for highly intelligent educated people as opposed to the idiots who voted for Trump and for Brexit, or the megawealthy (or in Trump's case, the assumed megawealthy) they seem to drool over and vote into office time after time, incapable of learning anything and having tantrums in response to the people who might try to help them.
If you are mad about globalization helping only the wealthiest, then what kind of lunacy is it to constantly vote for the people, whether British Tories or American Republicans, whose only goal is to squeeze even more out of you so they can hand it over to their filthy rich supporters.
And having created this calamity, which all of us are now suffering, we are supposed to feel sorry for them?
I am saving my compassion for people who deserve it.
1
What happens after Brexit if all the promised well paying working class jobs along with improved living standards do not materialize for Britain’s middle class? If Brexit works, then Britain could remain a socially politically stable democratic nation. But, if Brexit fails to deliver all bets are off.
5
I agree about short vs long-term effects on trade not being permanently worst-case. However, did your or the BoE's analyses consider backlash, or is that guesstimated as part of 'disruption'? Will the EU happily go on trading with its recently divorced ex, or will it look elsewhere for similar goods and services? The US and China can be counted on to seize the moment as EU folks quit British trade in disgust.
Further, the British banking and finance centers are a key to recent British prosperity. Massive sums may be moved out of Britain both out of fear and out of shear spite. Banking is about trust. Will Brexit break that trust, somewhat if soft, severely if hard?
6
Democracy is not infallible. If a foreign agent meddles in the process, then special compensation should be made and "do-overs" should occur.
If someone meddled in the glorious Superbowl or Euros or what have you, the result of the match would be tainted. I'm sure the outcry would be deafening & the match result would be considered void.
Why is this not applied to our modern democracies.
It's becoming increasingly clear that Russia meddled in both brexit and the trump "victory"
I know it is harder for the US to re-stage an election, but for the UK a new referendum should be a no brainer, and the only option in all of this madness.
17
@Ny'er
The American public reflected here doesn't understand the real issue.
BREXIT is not about economics, it is about sovereignty.
The EU is an undemocratic, unrepresentative bureaucracy, the majority here were well informed, the government issued dire warnings, all of which turned out to be wrong.
You Americans fought for your independence some 250 years ago, we are trying to do the same against a Germany dominated EU which is heading towards a unification (US of Europe).
We wanted amicable separation, possibly a modest FTA based on 40+ years of close ties.
This "withdrawal agreement" is another name for being a vassal state until the EU releases us.
You also underestimate the damage that the EU will sustain if we were to leave on pure WTO terms, we produce all the Airbus wings, we buy millions of dollars worth of perishable produce (which will rot within a week).
WTO exit is MAD all over again, but as Franklin said something to the meaning of: Those who compromise on freedom to obtain financial benefits will fail and lose both'
3
@PaulDirac. English humour?
3
GB will give up a lot, and get virtually nothing in return. Sovereignty?? Try to control your borders without the cooperation and assistance of your neighbors. Good luck.
By the way..... Amsterdam and Frankfurt are eating London’s lunch.
2
From my experience, many of those backing Brexit did so to create chaos. They're unhappy with the status quo and believe that they had nothing to lose. It's a nihilism of sorts based on a doomed amalgam of arrogance and ignorance. Of course, things can get worse. But that's something that our American cousins have learned over the last two years.
You wouldn't believe the number of people who say, 'The EU needs us more than we need it.' Well, let's see.
15
@Monterey Seaotte
This is something that our american cousins do not get: BREXIT is not primarily an economic issue.
We do realise that in the short term we may have a few problems, the severity depends on how the EU choses to play.
However, consider this: the UK produces all the wings and most engines for commercial Airbus products.
Also, we buy millions worth of $$ of agro. products, great deal of which are perishable, also wine, Cheese etc.
I predict that within two weeks of a EU boycott of the UK Paris will be knee deep in the other famous produce of French farmers - Merged, usually the smelly stuff.
We can buy wine cheese veg and fruit from two dozen countries -at 30% discount to the Eu price (see CAP).
BMW, Mercedes, and other EU car manufacturers will be on short time because they sell 30% of their total production here.
Does Dr. Krugman think Brexit is an unilateral affair? UK may upgrade customs in Dover but, what about Calais?
5
With all the hand-wringing and second thoughts we've seen since the Brexit vote two years ago, has anyone in a position to do so seriously floated the prospect of another referendum? Since adequate preparations for the originally desired outcome seem to have been neglected, and the danger signals are growing louder, wouldn't it be prudent to see if the will of the voters has changed?
Especially with so much evidence of electoral chicanery by since-discredited Leave advocates?
10
What it amounts to is that Brexit is risky as hell. And it's reward, if any, appears to be, collectively, miniscule .
15
@James F Traynor: As with Trumpism, concern over immigration motivated the Brexit vote to escape from the EU's open borders pact.
2
There is reason to think that new customs facilities might not start up smoothly.
Twenty years ago Hong Kong opened a completely new airport to replace the one they had. They switched over operations overnight on 6th of July 1998. The initial start-up was a fiasco, with 3-5 months of severe disruption. In particular the new cargo terminal didn't work, and delays there caused damage to Hong Kong's economy. The computer system was a major source of trouble.
Even if new customs facilities were ready to go, there would be a good chance of several months of disruption while everybody got used to the new arrangements.
2
@Schrodinger
Did George Washington hesitate too much before closing to fight th
e UK over FREEDOM, rather then submit and pay the tea tax?
Brett is not about the economy.
The EU is undemocratic unaccountable bureaucracy which is heading towards a single state (US of Europe), which we do not want to share.
All we want are fair trade (even WTO terms are OK) with the EU and the rest of the world.
@Schrodinger: Given the lack of agreement for a Brexit plan, I think it quite plausible that Britain won't be able to agree on how to implement new border inspections for a post-Brexit environment.
3
I look forward to your editorial contributions 6 months after Brexit. I'm sure they will be full of shining examples citing the outstanding capabilities and agility of the UK bureaucracy and how it is so very accountable to the public. Good luck after Brexit, you'll need it.
5
I'm a retired economist who worked all his life on economic development. One thing that I learned is that it (or its absence) is not primarily an economic phenomenon. It's primarily political and social. Only because the economic effects can be much better quantified has it seemed to be primarily economic.
The BoE and other economic modelers can, I expect, do a moderately good job of estimating short-term (a couple of years, in this case) effects of Brexit. But what will really count, for Great Britain as for every other country, is the quality of its people, its customs and institutions, and its governance. These qualities, plus the fact that it's an island (actually part of two, but...), stood it in good stead for many centuries. One or two or more percentage points of GDP are not noticeable in this history, nor are they important for the future. Unfortunately, like too many other nations these days, its people and its governance aren't looking as good as they used to. If they can get back their smarts and their effectiveness, they can take the blow of the stupid Brexit in stride; if not...
13
It may end up coming to another referendum yet. Still, Brexit is a symptom of something wrong in the political system. Even with inaccurate information and foreign meddling, too many people thought an unknown devil was better than the known one. That is a colossal political failure that requires years of bad blood to generate.
Before the rise of neoliberalism, it was widely understood that the party that won the election would co-opt the losers by throwing them some bones so that they would continue to have a stake in the system. That's what distinguished stable countries from Third World coup-prone nations. For some reason, over the last 30 years, political/cultural elites in rich Western countries didn't bother to do this. It took lots of policy-making avoidance, lots of pointed indifference and sanctimony to bring the UK to this precipice. Both the elites and average joe's worked in their own way to bring things to this point. Frightening now but it was avoidable.
18
The reason the UK is in this ignoble position is that Theresa My lied to us from the get-go and conducted the negotiations with exactly this end in mind.
She rejected reasonable "Canada deal", and worse she rejected any move to prepare for a no-deal i.e.WTO (failure of negotiations).
The first rule of honest negotiations is to be prepared for the failure, if you are not prepared you are digging yourself a huge hole and the EU did not need to consider the consequences for itself (in a WTO exit), which are dire too.
A WTO exit is a MAD type result (UK produces wings and engines for all Airbus planes), and what will be done with the daily millions worth of the agro. products we import from France, Italy, Spain, Dutch and the rest).
I'm not sure why you are against the UK exiting the EU which is undemocratic, unaccountable (for the last 20 years they failed their own accountancy watchdog), but the worse of it is that the EU is heading for a single state (The United states of Europe) under the hegemony of Germany.
5
@PaulDirac The documents in:
europa.eu/european-union/documents-publications/official-documents_en
seem to indicate that under EU laws it would be impossible for any member state to dominate others. Could you please provide the reference that "EU is heading for a single state ... under the hegemony of Germany."
8
@Tumiwisi
This is not a court of law, the documents are repeated declarations by several EU presidents (there are 5) about the future direction of EU political integration.
The French President, M. Macron, is now working on a European army.
Germany is dominant due to its size and unfair competition practices (even your president pointed to this). Germany has an 8% GDP growth while the legal limit is 5%, but no one dares challenge them.
Their's is the loudest voice and most decisions go their way in the council of ministers, because their hand is on the money fountain.
2
@PaulDirac Many feel the way you do. But, in all fairness, I have to point out that to me - like most Americans - supporting any argument with "even your president pointed to this" is a guaranteed ways to lose it.
8
Paul: an un-Wonky question: How does it affect my 401(k)?
2
Who looks at data anymore---we live in the world of how your gut feels---sadly, the data will render a pretty hard punch to the gut.
11
Britain can only limit the damage by becoming a fiscal pariah at the edge of the EU, offsetting it’s unattractive non-membership (extra admin, border delays, travel time etc.) by undercutting taxes of EU members.
Lower taxes, in turn, need to be translated in slashing public services and programs.
This, of course, is what the hard line Tories wanted all along.
10
We should remember that the UK is made up of islands with few major border entry points from the EU, compared to what exists between the US and Mexico, US and Canada, most EU members, Russia and the EU, China and its neighbours and so on. There is only one Chunnel, and few ports designed to handle the customs and other duties needed. So opening up numerous ports of entry will be a massive undertaking which will probably take years to build. So the BofE's chaos period may be correct.
8
The strong pro-Brexit pushers, Boris Johnson and Michael Farage, are con men who admire Trump. They fooled the lower middle class in voting for Brexit, just like Trump fooled the American lower middle class in voting for him. The recent huge losses in the House by Republicans, by a truly representative electorate, show that the lower middle class has realized it was duped by Trump and now they want him out.
Why can't Britain have another referendum to see how the duped British lower middle class feels now about Brexit ?
23
@D
No one fooled us, the government set out dire predictions (all of which were disproved), inspire of the organised campaign "Project Fear" we decided to leave.
We fully understand that short term the EU can inflict some damage, but the thought of remaining long term under a non democratic bureaucracy which is aiming at becoming a single state under the German hegemony, is intolerable to most of us.
@PaulDirac Note please, from the comments, how many of us believe you. And why should we, given that your argument (if that is what it is) appears to be based on little more than your prejudices about the EU and some of its constituent countries. Bureaucracies by definition are not democratic, but accountable; it is the institutions for whom they administer that need to be democratic. The EU is not perfect, but it has democratic and accountable structures at its heart, including the European Parliament and the Council of Ministers. These structures were agreed and are maintained by the elected representatives of each of the EU’s constituent member countries. Of course, there are many criticisms that can be levelled. But you tell me of any democratic governmental or intergovernmental body for whom that is not true.
13
@Malcolm Payne
Don't expect PaulDirac to respond with rational arguments. These people know that appeals to visceral emotion will find support from those among us susceptible to such chicanery. They're not unlike Senator Joe McCarthy, who was eventually exposed as the bully that he always was.
7
Unmentioned is what a massive victory Brexit - however it finally manifests - is for Russia's propaganda ("fake news") efforts. The misled, misguided voters who accepted the equivalent of a dirty bomb into their midst were misled and misguided in some large part by the disinformation strategy of the Russians. Hmmm, just like America was nudged into making a misguided choice in their Presidential election. No wonder Vlad Putin is always smiling these days.
14
@will duff
Yes, and what is good for Putin is a nightmare for the rest of the world.
@will duff
Total rubbish, you are confusing the UK with USA's election of your interesting current president.
There was a huge push by our government, including some dire economic predictions, which all turned to be baseless, to get the "right" result.
It failed because we want to be free from the undemocratic bureaucracy caked the EU.
It is easy to imagine that there will in fact be negative consequences of Brexit without fixing a number or percentage to it. Before being part of the EU the Brits survived and in all likelihood will once again. I just don't see what they hope to gain by the length and extent of disruption in their supply chain and ability for its citizens to freely cross borders and work in other EU countries.
6
@Steve
This is not, mainly, an economical decision, although long term it will be.
The Euro is a desperate hack, it creates an unsustainable situation in the EU. The EU is undemocratic project which is guided by "what is good for Germany"
Americans revolted 250 years ago against George III because the British rule was undemocratic, why are you surprised by the UK's similar stance?
1
@Steve For sure it is true that the UK survived before EU membership. But 40 years ago the world, and Europe, was a very different place. Now, economies are much much more interactive than they ever were. A simple comparison between ‘then’ and ‘now’ is not going to help us know whether the UK will thrive, rather than just survive.
5
@PaulDirac
If you anti-Eu Brits don't realize you've dug yourselves into a hole and stop digging now, you deserve all the economic pain you are headed for.
P.S. The Euro may be a hack, but since Britain doesn't use it, its hardly relevant.
3
Border logistics may bring some problems but the desire to expel "undesirable people" from Britain may prove a bigger problem. Brexit demands an expulsion of non-British subjects that will disrupt much of the economy. New protective tariffs by both sides is also a strong possibility where Britain suffers much more than the EU countries.
6
The pound will drop even further, and London will be fun again to shop. Fine with me...
2
All this economic analysis is fine but IMHO, Brexit is not about economics. Its about excluding non-white immigrants from EU countries and about the illusion that Britain is the great military and economic power it pre-World War I. It never will be again. Looking carefully at the negotiations shows that Britain wants all the privileges of the EU without any of the responsibilities.
This is like if California, the 6th largest economy in the World wanted to become its own nation but still get all the benefits of being part of the USA without paying its fair share of the costs.
13
@Jeff
We want to control immigration, just like you, Canada and just about any normal country.
Most people just want good trading relation with the EU, even cordial WTO based will be great.
We would also like to be able to sign FRA (Free Trade Agreement) with any nation which cares to agree.
FTA's under the EU are hugely complicated because the entrenched agro businesses, car manufacturers are so inefficient.
If you don't like the USA's regulation, you would hate the EU, which has 10:1 more regulations than thee USA
@PaulDirac For ‘we’ please read ‘I’. You do not speak for me. For ‘most people’ please read ‘I think’. Please do not include me.
4
Did the "computable general equilibrium" model have dynamic properties? If not second (and third) order effects had not been incorporated, as you have indicated.
As Jo Johnson indicated in a recent interview, whatever brainpower exists id the UK has, for 2.5 years, been devoted largely to the Brexit business. It is inconceivable, short of the unknowable, to believe that whatever the outcome, the people and government of the UK - presuming there still is a UK after a no-deal Brexit - will not have the ability to make accommodations that would ameliorate the immediate outcome.
One should not be too, too, sanguine, as Keynes had pointed out in his "Economic Consequences of Mr. Churchill." If the Rees-Mogg gang gains control of the government, one can expect policies to be counterproductive, except for the benefit of The City and Oxbridge toffs. Alternatively, a Labour government would mitigate the adjustment by promoting a program that would create a new "Socialism in One Country." Which one prefers, as usual, depends on political ideology, not economic analysis.
2
Paul, thanks for an informed analysis; it's a pleasant contrast to your anti-Trump screeds.
I suspect what the BOE is putting in there is a hedge for maliciousness in the EU; revenge for splitting. Brussels has a clear reason to punish the Brits for leaving, in order to prevent other countries from leaving. Those are well accounted for in the worst case models.
2
@John clearly a Trump supporter.
The EU isn't being malicious, it's solely focused on providing the best deal for the 27 remaining member states. Giving the UK a better deal than said 27 states is beneficial to nobody except the UK.
8
Paul, in case you don't know, including the term "wonkish" in any of your editorials is interpreted by those who should most read them as saying, "unless you're as smart as me you won't understand this". It's an adjective that's best avoided unless you wish to be thought of as elitist.
5
@Dr B: The entire topic of mathematics is "wonkish" in the US.
9
@Steve Bolger
Bravo! 25% HS drop out rate . . . so what's the problem?!
3
Mr. Krugman recommends “When all else fails, lower your standards”, but omits that there will be two sides to the new post-Brexit border in case of No Deal, the UK side and the EU side. The EU side has made it clear that it will not lower the standard, all while having every intention and incentive to make the customs controls a smooth process (in fact, the only serious preparations are on the EU side, especially the key Rotterdam port). The fact that the Brexit boys in recent years have been very outspoken that "lower standards" when competing with Europe are a key element of the post-Brexit riches they have falsely promised (notice the not-so-subtle double-ee in "brexiteers") explains why the Europeans cannot and will not do this. Factor in, besides customs checks, the impossibility to quickly open alternatives to the Calais-Dover bottleneck (remember the proposal to requisition tourist ships, launched not just by Dunkirk romantics but HM government itself). So the BoE estimates strike me as quite realistic.
9
Brexit, let's insist on it, is a failing maneuver to enhance economic growth while stamping out immigration's force... for the good of the country. Could Britain's xenophobia match Trump's stupid cruelty 'gratis' and with 'white supremacist' support,,,in denying the richness of our diversity and the empreneurship it brings to account? Britain's exit from the European Union is a disgrace. It's effects seem predictable enough, the lowering of standards in social progress and a more progressive change towards eliminating inequality.
5
An equally wonkish treatise on psycho-sociology would help this great article in its context. Those who wanted Brexit are unmoved by economic evidence, and wouldn't understand economic projections. Brexiters want the UK of 1950 (controlled immigration from the Commonwealth doing menial jobs such as driving buses and trains, working in factories, and then disappearing in their ethnic enclaves - and well off high street). They think that returning to those economic times is okay too. I.e., projections of economic gloom and doom mean nothing compared to the vision they have about being in control of the society and the culture.
I.e., economics may appeal to high street bankers and traders, but the population is driven by visions of black and white TV. Not that different from here, eh?
12
The Brexit vote was just like the vote for Trump: baked-in idiocy that cannot be reversed.
18
@Steve Bolger
Except that the Brexit can be reversed.
So can Trump, in another 2 years.
3
It seems like a similar story is being played in London as it is in D.C. - Fake News and Alternative Facts used to persuade common folk to trade-off sound trade and customs-union policies in exchange for dreams of better times. It is a battle between Great Men who present Great Outcomes that history had shown to be destructive and, in one prominent case, a prelude to genocide.
Cooperation based on negotiated trade and movement of skilled workers and laborers across borders is the best policy in a fractured global political-economy. When hardship rears its ugly head, bad people will appear to make matters worse under the pretext of MAGA and other such marketing nonsense.
If there is any benefit from the Leave vote, it is the result will likely prove predictable - Lord Keynes wrote “The Economic Consequences of the Peace” (1919), after WW1. He argued that “War Reparations” - high tariffs and debt repayments, that the "Allied Forces" required from Germany were unsound. The result was Adolph Hitler, WW2 and the most horrific genocide in modern history.
The Leave voters may have similar regrets. The old saying is apropos: "be careful what you wish for, it might just come true".
5
The Brexit vote challenged the British government to develop plans to deal with Brexit. Any thinking person would give the government an F (maybe a D-- from a sympathetic grader). The Bank of England had the opportunity to call out the government for its failure to provide leadership. The BoE, ever so British, just could not state the obvious. Nor could the British media. The reporters ought to have noticed that the time has come to state the obvious -- the government has failed its people at a critical moment. That failure is unforgivable.
4
Just as Americans were tricked and conned into voting for Trump, Brits were sold a phoney-baloney bill of goods with Brexit. (Thanks, again, Bannon)
Now, knowing what Brexit actually IS,
too bad they couldn't get a re-Vote.
Or perhaps Vote on getting a re-Vote.
7
Brexit was designed to provoke radical chaos in order to enforce a new social order in the UK, a kind of neo-feudalism that in normal circumstances would never have a chance to be implemented.
No single hard brexiteer has come up with a workable plan for a post-Brexit UK. They don't have one, they don't *need* one. Not preparing for the disruption of a hard Brexit is therefore part of their strategy. Whatever happens, it will be the EU's fault (or May's, whom they see as their useful idiot).
The problem is that 80% of the UK press (in terms of readership) is controlled by right-wing oligarchs who are very sympathetic with the idea of a neo-feudal social order.
11
Well, Cadbury has been reportedly stockpiling chocolate, thus the government can let the people eat cake.....
Things never turn out to be as bad as the worst predictions because people respond to danger and reduce its impact. But for that to happen the worst predictions have to be made in a convincing form, and it seems to me the BoE is doing an excellent job performing that role.
Britain's economy will survive Brexit, and will eventually recover. But the raw GDP data won't convey the disruption to millions of families as the British economy transitions to an uncertain future that, whatever it will be, won't resemble the past.
That future will bring huge winners - 25 years from now there will be new titans holding unimaginable wealth and a penumbra of newly enriched families associated with them. There may well be enough of them generating vast incomes to show a strong upward trend in Britain's GDP, a trend that renders all the worst predictions seemingly false.
Yet I doubt Britain's traditionally deprived areas will see much of that, or that those losing heavily from Brexit will be made whole. That's millions of people whose lives will be permanently blighted because of Brexit and for whom the existence of a newly enriched tiny minority will be scant comfort.
6
While on the issue of Trade, Mr. Krugman I'd like to see your analysis of a side by side comparison (and impacts) of NAFTA 1 vs. NAFTA 2. Or did Trump just destroy and resurrect to claim he did something?
8
Ascribing naivete as the possible trigger of any of BOE's actions is an extreme act of charity that I'm not willing to make. BOE and their local cloud of financial entities make up one of the apex actors in global finance. You don't get there by being prone to error. You also don't get there without being ruthlessly predatory. I suspect their doomcasting has much more to do with worry about losing fractional control over planetary finance and the geopolitical power which that conveys, rather than any petty concerns about England's local economy or the cost to their own citizens.
"Britain is an advanced country with high administrative capacity — the kind of country that history shows can cope well with huge natural disasters, and even wars."
This is the most important sentence in Paul Krugman's essay.
Natural disasters and (to a lesser extent) wars are, as economists might say, exogenous. As a result (in part), there can be greater unity among politicians around solutions. And sometimes, a second-best solution on which people agree is better than a best solution rejected by large segments of the public or of politicians. When a large faction objects, they may block solution, however good it is (look at the Republicans on health care, though they bar all solutions).
Brexit is a monster baby of political division. Solutions to Brexit so far have been and will likely continue to be monster babies of division. Then there is the purely malicious influence of right-wing fanatics like Nigel Farage and Boris Johnson (the Mitch McConnells and Donald Trumps of Britain) abetted by Russia.
Simple but deep political division over Brexit will likely serve to make things worse — indefinitely. Conservatives who prate endlessly about the business sector's need for confidence and certainty (but never about labor's needs) should appreciate this, yet they support of Brexit — a perfect example of the sheer irrationality driving Brexit and an indicator that the real outcomes are likely to be different from what anyone has suppose, and worse.
9
Brexit is a conservative creation so how couldn't it be bad?
2
Why would the UK want to do this to itself? Is the sense of "going at it alone" really worth the economic pain? Is this nationalism helping the middle class and poor, who will feel the most financial pain?
3
In a way, I think this is the result of globalization, that did not deliver what the neo liberals expected; "growth and riches with no end"; but export of plants to countries with cheaper labor and as effective as in the developed countries, and disruptions in many other "emerging" economies, with the result of big exoduses in many countries: a global disruption.
Now, the symptom is Brexit, but it is not the sickness. Going back "to the way we were" is not viable; history only recedes for the worst.
5
Historically, it took from 1776 -1789 for US to work out the details of Ameriexit in the policy, process, and product sequence. That was the political arrangement. See Charles Beard on the economic bases for the Revolution.
For Britain, the RoI/NI dilemma tracks back to 1916. Then one could analyze the effects of England's Imperial withdrawal and subsequent decisions re membership in the European Union.
For short term or long term outcomes, it depends on whose ox is being gored at any given time.
1
@Fran B.,
That dilemma dates back even further, I'm afraid. It dates back at least to Cromwell's invasion of Ireland in 1650, and the subsequent loss of at least 15% of the Irish population.
First, this is not BW, but her husband FWM, a retired financial journalist.
Whatever one thinks of Brexit, the BOE seems to be ignoring the fact that people are adaptable: they don't just roll over and play dead in the face of adversity. The central bank also seems to be ignoring the fact that for some (and it tends to be a very important some) a crisis is an opportunity.
And straight line projections rarely come true when there are many moving parts, requiring assumptions about lots of unknowns. As a financial journalist, one had to be skeptical of such projections virtually every day. Reality is kaleidoscopic in nature: a picture presents itself; actors respond and the picture changes. Merely reporting something can affect the course of events.
I was recently in London and couldn't help but notice all the construction activity. What are they thinking? Apparently not what the BOE assumes they are thinking.
Interesting times.
5
"I wonder why Britain couldn’t follow the old prescription, “When all else fails, lower your standards.” "
With the greatest respect Prof Krugman, I think you misunderstand the problem.
The problem isn't from the British side, its from the EU side.
I remember reading an article in the Financial Times about a year or more ago about the problems that Turkey has doing trade with the EU.
Non EU member Trucks have ENORMOUS constraints placed on them by the EU. Not only does the paperwork have to be EXACTLY perfect, Turkish Trucks, as non EU members have all kinds of crazy restrictions imposed upon them when they enter EU territory.
For example Turkish trucks wishing to traverse Austria to their final destination in Germany cannot simply drive through Austria. They must drive to Austria's border with Slovenia and then pay €1,000 to put their trucks on a train through Austria and thereupon are deposited on the German Border. Failure to do so, risks many thousands of Euros in fines.
The FT article can be read here: https://www.ft.com/content/b4458652-f42d-11e6-8758-6876151821a6
This article illustrates why Britain faces a nightmare once they leave the EU.
In my opinion the Bank of England is being very realistic in its outlook.
9
I would recommend to everyone to read this long piece from Guardian, titled:
How Britain let Russia hide its dirty money...
https://www.theguardian.com/news/2018/may/25/how-britain-let-russia-hide-its-dirty-money
No one can be surprised that now they face Brexit, as no one should be surprised that we have trump.
The global heist from unsuspecting world population has been going on blatantly for several decades in the highest levels of governments.
It was welcome and encouraged.
David Cameron in 2011 travelled to Moscow to as for Russian investments, knowing that Kremlin's money were Russian Mob money, but as we know Deutsche Bank and others corrupt institutions will always take care of it.
We live in a age of indecency, corruption on steroids, insatiable greed and dark moral vacuum.
All this laissez-faire approach proved to be unsustainable.
Who knows what other calamities are ahead of us...doesn't look rosy to me.
11
@faivel1 The Guardian article could be written about the US and how the Republicans have accepted "dark money" with open arms, and spent considerable effort to allow donors to those donor funds to remain hidden. Witness the infamous meeting at Trump Tower in June 2016 and the cover story that it was about "Russian Adoptions" (essentially code for matters connected to Majesky Act and impacts on moving of money). Add how much Russian money flowed to and through the Trump organization, and we see some of the reasons Trump is so concerned about scrunity by Mueller of his family's business.
7
The key words in this article are "truly amazing". What has happened in Britain in the past two generations is that the consumer economy swept away the political culture and people were left empty and stupefied, and then some perfectly vain and stupid right-wingers, with the inexcusable Boris Johnson posturing at their head (except in moments of crisis, when he disappears), took advantage of the emptiness, lied and lied again to convince the middle class in the south to support Brexit, while the beer-besotted youth stayed home and allowed their future to be given away, and now we have a mistaken exit from the most important political event in Europe, a union. Imperfect and bureaucratic and nit-picking as Brussels is, it is a start. The UK could have contributed its unique and excellent political experience to enrich the EU. A second referendum is absolutely necessary.
13
Trade is a two-sided coin. If the EU bureaucrats seek to punish the UK for its insolence in leaving (and therefore send a warning to Greece/Italy et al) then they'll only be cutting off their own nose to spite their face. One person's spending is another person's income.
This was never about immigration, it's about inequality and the losers of globalisation speaking up. Same thing with Trump. The political problems of the West aren't about the poor choices of the domestic populations, it's about the poor choices of the elite.
4
Well, if it really goes badly, Britain can always request US statehood.
6
@DoTheMath
… and be neglected like Puerto Rico.
The Brits are not "the people of the beautiful skin" like Puerto Ricans, but they are Europeans, and Americans look down on them.
1
@DoTheMath - I would prefer they offer to take us back … after all our experiment with democracy has failed.
3
@DoTheMath
Oh, boy! That's a bad. bad idea. It's bad enough with the right wing twits, just imagine the right wing English twits.
2
I have a hunch that Britain will have another vote on whether to leave the EU. I can't give you any facts or arguments that support that hunch, but it's just a gut feeling based on having lived in London for many years and having followed British politics for decades. No one is happy with the 'deal' that Prime Minister May made with the EU, neither the pro-Brexiters nor the anti-Brexiters.
Right now, ministers are leaving the May government in droves (I think it's 7 so far, but I have lost track of the actual number). The Tories are badly split on the issue. So, too, is Labour and their leader, Jeremy Corbyn, does not seem to be very interested in the issue and is more focused on achieving a Labour victory at the next election. It reminds me of a Marx Brothers comedy where they mess up whatever they attempt to do. It would be funny if it wasn't so serious.
Instead, I think the only solution is to have another referendum, a sort "Are you sure?" vote. The original referendum never had Parliament's backing in the sense that Parliament never agreed to follow the decision. Instead, it was done more as an impulse by the previous PM, David Cameron, who thought it would be like the Scotland referendum and that he could resolve the issue once and for all (boy, was he wrong).
Consequently, I think there is no other alternative than to have another referendum, "one that counts" (legally). Again, do I have any basis for that opinion? No! Do I think it will happen? Yes!
16
@MVT2216,
I think Norway+ is more likely than a re vote.
1
Great column. Presenting nuanced and well-reasoned Brexit economic projections is a great public service.
I especially appreciate the straightforward discussion of the limitations of the various models -- a narrative version of a sensitivity analysis.
Too much of our current public discourse comes with a strident tone of certainty (full of passionate intensity, as Yeats says); it's refreshing to have a clear and thoughtful presentation that at the same time embraces some of the current uncertainty.
Careful, Dr. Krugman, columns like this might make us have to re-think the "dismal science" moniker.
7
"Not surprisingly, Brexit opponents seized on the report, while supporters accused the BoE of engaging in scare tactics."
Scare tactics was the same strategy that proponents of Brexit facilitated before the 2016 vote.
3
How do you model business's creativity and determination to "find a way" (to quote Malcomb from Jurassic Park). Once the playing fields are established (albeit with more friction and latency), people will figure out how to trade and make money doing it. It's just hard to figure out now because the system we have has evolved and adapted to be the system we have.
Brexit will be a big change, with lots of consequences (i.e., it won't be a small perturbation of what we have now), and so it will become a thinking outside the box time that will result in a new Europe, one that's hard to explicitly imagine now.
2
I agree that the handling of Brexit has been a perfect storm of incompetence. I trust Mark Carney given his performance as President of the Bank of Canada. But the important point is the Bank's report is not nonsense.
More importantly, a no deal Brexit is likely to lead to an independent Scotland and a unified Ireland. In the latter regard, the DUP agreed to a reduction in the size of the N. Irish Assembly in the last election. The Northern legislature will fit comfortably into the Dáil with no need to redistrict or change the electoral system.
The irony here is leaving the EU is far far far more complicated (and possibly impossible) than Irish unification or Scottish independence.
22
The Republic of Ireland is now richer than Britain per capita, but it is only 1/10 the size. It can't afford to absorb Northern Ireland, where over 60% of the economy is government spending, mostly paid for by England, provided to keep the Protestants and Catholics from killing each other.
6
@Amanda
The Republic has had a united Ireland on its agenda since forever. I agree that the North is the poor relation, but I also wonder how many unionists will leave when there is a united Ireland. Despite the DUP, a majority in the North opposed Brexit.
A united Ireland even with the problem you so well state is still, in my opinion, just about inevitable.
1
The degree of integration within the EU, even without the same currency (for which the US has to be happy because a very strong euro would be a threat to those huge US deficits) may be difficult for us North Americans to understand, because, on the surface, national rivalries in the EU are very strong. The effect on economic activities will not only be limited to the supply chains issues. The more crucial ones will be all about access to fairly high quality and adaptable human resources coming from the EU. The UK is lagging, not in terms of quality, but quantity of graduates required for its economy and very efficient service sector to keep as one of the best, if not the best, in the world. One just has to visit London to see how the absence of such readily available, often multilingual resources will impact the service sector. Then one goes to the risk of political disruptions in the UK, but which could also happen in the rest of the EU as it is under attack from Putin and Trump. So the scenario of the BoE, for me, is conservative
18
This issue reminds me of the hyped up Y2K "disaster" (remember that one) - which in fact never happened. Talk about a fizzle! The fact that "Chicken Little" experts are bandying about apocalyptic visions of never-ending lines at "hard borders" as a result of a harder form of Brexit means that they've not earned their lessons - namely, that people are immensely resourceful and can engineer their way around problems in short order, especially those in a creative and advanced country such as the UK. There may be disruption for a short while, but when GDP is at stake, the British will wave through goods and services like there's no tomorrow.
6
@Tom
Y2K was definitely real. I personally worked for 2 small companies that were disrupted by computers that were not Y2K compliant.
The 'world' realized that Y2K was a hard deadline and could not be ignored or postponed and reacted accordingly thereby avoiding most of the problems.
6
@Tom
With all that waving through what about security in the age of terrorism?
They're underprepared for the same reason we underfund vaccines and antibiotics. Politicians react to what makes big news now, and the press isn't doing enough to talk about future disasters that we're not ready for.
8
There is no doubt that Brexit will cause serious disruption to the economy of the U.K. How much is extremely difficult to project since we have never before seen the extent of integration across the economies that are members of the EU.
Great Britain is lucky that they have kept using the British Pound instead of the Euro. If they had made this transition like most of the members of the EU, it would only have made matters more complicated at the breakup.
3
Is it just business, or is it personal. Will Europe look at the rather quixotic, capricious 'Trumpian' break from the E.U. as just business or will they want to extract a punishment rather than a penalty? Will Europe want their to be a cost or a pain for England's causing them the pain of breaking away. The Northern Ireland problem alone is enough to anger many countries doing business with them. So is it business, or is it personal?
1
Business is going to permanently leave the UK because of BREXIT, you need only look at the exodus from the City of London. Forget the micro issues of supply chains and long lines at the ports. They will be bad enough but the UK will no longer be the same trading partner, business will seek alternates over time. This is a big deal and it boggles the mind why no one seems to be promoting a second vote given the Russian meddling.
42
But the divorce will take years and years and years to accomplish - see May’s “outline” of an agreement which only calls for the two sides to keep talking through 2020. Then what do you think will happen? They extend again and again. Gosh, I’m almost sounding like I support a hard Brexit.
3
I look to the G20 group photo and notice the UK's position in the world - on the second row. Most likely there is some political touch in the picture, as in Economic conference, Putin should not be on the first row. No doubt UK is in a wrong track when global financial, e-commerce and entertainment services are driving the world prosperity and UK is imposing barrier on those commerce's. It is not custom posts, it is logistic cost and Europe is already lagging behind China by 4 points. If this barrier increases that cost by even 1%, UK will become less competitive wrt to EU countries. The competition with France and Germany will destroy UK economy much more. People of Britain need to rethink about the direction of their country - it is not nineteenth century world of English language supremacy. It is a world of cerebral power and Braitain is falling behind.
6
None of the BoE report shocks me. I moved to Scotland before Brexit and was in Brussels shortly before the referendum. This was always the conclusion but the world is sick of experts so who cares about long-term effects. Great Britain will become little England with an economy that may never recover.
Brexit was good for Nigel Farage and Boris Johnson and no one else.
36
True. But Scotland will be even broker than England.
5
@ERS
Actually, I don’t think it has been good for Boris Johnson either.
1
@Amanda Um, Scotland has oil.
2
Substitute Trump for Brexit and you have the US situation. Both nations are divided to the point of dysfunction. Both nations suffer from demagoguery, with dangerously substantial proportions of their citizenry susceptible to same. And as explained in this column, nobody truly knows the downside effects of either, as we're both in uncharted territory. It's sadly fitting that two nations that have enjoyed such a "special relationship" for centuries suffer together. And, man, are we ever suffering, all entirely self-inflicted.
46
“When all else fails, lower your standards.”
Yeah, I can definitely see this happening, particularly at the Irish border, which no one on any side of the issue wants closed. So there will be a lot of "wink, wink, nudge, nudge" enforcement by 3-4 customs inspectors just waving people through.
3
Regarding the lack of planning for customs infrastructure in the event of a hard Brexit, one has to imagine the possibility that the Remain crowd in the establishment dragged their heels in the expectation that this would stymie any kind of Brexit. What do the Brits think of that?
3
@Barefoot Boy
How do you believe “the establishment” works? This is a simple matter of the PM directing the civil service. If she had told them to get ready and budgeted for it, they would have done that. But she waited until very, very late to direct “no deal” prep and then never put the people and money need for the prep because it would beconflict with her political messaging.
It is nonsensical to suggest subversion or other conspiracy to fail by people never actually told to accomplish the thing in the first place.
2
@Cormac Point taken, but then am I to believe that nothing gets done in England that is not directed by the PM., that someone at the top has to "tell them?" Were there other voices saying, "get ready?"
To your question, What has the UK government been doing?, it seems the answer until recently was: fantasizing. Brexiteer ministers spent months mouthing off about "having our cake and eating it," as if the legal agreements defining membership and the treaties signed by the UK could be simply thrown out the window. Predictably, they now howl about the intransigence and disrespect of the EU, throwing blame to cover up for their own misguided thinking. It was always clear that leaving the EU would hit the UK economically for years. To see patrician MPs floating around with grandiose visions and absolutely no idea how to achieve them was to relive some of the worst disasters in British political history. As in the lead up to WWI a century ago, the government truly has been "sleepwalking."
19
"What’s puzzling about the scenarios shown in Figure 1 is that they show these disruptions going on for multiple years, with barely any abatement."
What I see in the BoE's graph is a one-time hit to the economy, after which it resumes growth at the same rate as before. I don't see the disruptions themselves continuing for years, but the rather it is the consequences of the initial disruption that push the BoE projection for GDP down a step.
Why is that surprising? Perhaps Krugman is looking at the US "recovery" after 2008, which "boosted" the economy into rapid "growth" by allowing corporations to borrow money at near-zero interest rates. With the nominal expectation that the corporations would invest the money to help the rest of us.
And which those corporations, in their in their capitalist wisdom, used (A) to purchase robots to enhance production "efficiency" by reducing the number of workers, and then, when there was no more to be squeezed out on the profit margin (sales being flat), (B) to purchase shares of their own out-standing stock, puffing up the earnings::share ratio and thereby boosting the share price.
All of this gave the appearance that our economy was growing rapidly, while the reality is that our "recovery" has been an illusion; there has been little genuine "growth", and economists continue to view displacement of labor as increase in "efficiency".
Small wonder that traditional economists remain flustered and confused.
12
Are you suggesting that Krugman is flustered and confused?
He's been that for quite some time now, and certainly since the economy has been so strong for two years under Trump.
Remember, he predicted the US economy would fall off the cliff in January 2017. Instead, it started climbing it and climbing it at a decent pace.
1
@The Owl
Yes, it's climbing, but who is happier? and for how long? Remember the years before the Great Recession?
2
@Angus Cunningham...
Recessions are part of the economic futures of nations, including ours.
It would seem, however, that there is little in the economy that is similar to the excesses that preceded the Great Recession or even the recession of 2008.
And while it may not have done the job completely, the banking measures enacted after 2008 have somewhat strengthened the mega-banks to such a degree that failures like Lehman Bros and AIG are not going to have the types of impact that they once had.
Is growing GDP the only thing that matters in economics?
There is this nagging little problem of climate change. We are told that we have to stop all emissions; and then some.
Put customs officials aside, how the hell do we stop all those emissions and what will things look like? What will economies look like.
I am "horrified and outraged at how the issue has been handled"!
5
Dr. Krugman: I immensely enjoy and respect your work. But in the end you are still an economist. You decry predicted effects “we cannot model.” Well, economic models typically make predictions based on assumptions of rational behavior that we all know from experience are wrong. Remember the old joke about an economist’s solution to getting out of a deep hole: “first, assume a ladder.” Keep up the good work, but beware of those models.
5
searched for “Labour” and “Ireland” and could not find a reference. These are the two unknowns in the economic equation.
Historians would tell us that when the “Good Friday Agreement” ended “The Troubles”, one key article of that agreement was that there would be an open border between Northern Ireland and the Republic.
Now, if UK leaves the customs union then there needs to be a hard border between Great Britain and Northern Ireland. It is like a hard border between Alaska and the lower 48 states. [ANC to SFO flight lands in the international terminal and you go through customs!] The other option i.e. hard border between Northern Ireland and the Republic would lead to UK breaking the agreement! That is one big unknown.
The other unknown is Labour. Labour is a messy coalition between two warring halves. At one end are the ‘Momentum Group’ (mostly millennials) and BAME (Blacks, Asians and Minority Ethnicity). They are strong supporters of Corbyn and oppose Brexit with tooth and nail and demand a second referendum. On the other end, lies the Labor establishment and MPs. They support Brexit and tried to oppose Corbyn. Today they have a testy relationship.
I expect Labour to split on these lines and form two parties.
Corbyn, till today and admirably, had his feet on each of the two boats. Now the boats are going to diverge. He has to now make a choice or fall in the middle of the Thames.
5
If you need any proof that the UK was right to get out of the EU just read how the EU treated the UK during the negotiation, not as a great independent nation but as a lackey who dared to ask to get out. The EU is a bureaucratic nightmare dominated by Germany and serving big corporations and money. The sooner people realize that the better.
3
@Andir I watched these negotiations too, and was stunned by how ill-prepared the British participants were, arriving at the table with nothing more than blank yellow tablets. The EU expected to discuss substance, the Brexit team was not just unwilling but unable to respond, clueless.
7
@Andir You do remember, do you, the arrogance, disdain, and outright lying with which today's Brexiters treated the EU...not least Boris J, who lied for years about bent bananas? And yes, the EU serves big corporations and money....big surprise! That doesn't mean the majority of everyone else hasn't profited, too. I live it and I see the advantages. Brexit is not going to end well at all, so don't blame the EU.
And BTW, the UK stopped being a great nation a long time ago! I lived that too.
9
@Andir
During the first year or so that David Davis was the cabinet minister in charge of Brexit he attended tiny fraction of the meeting held to discuss it with the EU.
He showed little interest in or knowledge about the real difficulties of Brexit he just knew he favored it.
Typical of his type of Tory.
4
You know, I am an Anglophile kind of a guy, with Brits on both sides of my family tree, BUT, there was a. Palpable arrogance and hubris in the air when Brexit passed. The Brexiteers were convinced that the EU would cave and that Britain(really England) would have all the benefits of the EU without any of the obligations.
To this day, they are stunned that things have not worked out that way.
31
Reality doesn't seem to matter to people anymore. If Trump says he's helping the working stiff then they will believe it because they want it to be true. The folks who voted for Brexit wanted to believe that it would be a boost to Britain, not a drag, so they convinced themselves. If it hits them hard in the pocketbook they will probably blame it on anything besides Brexit.
14
"...the UK doesn’t have remotely enough customs infrastructure to do the job."
On 21 November two people from Her Majesty's Revenue and Custom appeared before a Parliamentary committee to give an annual report.
When asked how long it would take to get the computer systems into place on the Republic of Ireland/Northern Ireland border they answered, "24 to 30 months" once they knew the Brexit details!
While it hardly seems possible, commercial vehicle traffic between the RoI and NI rivals that between Dover and Calais. Because so many industries depend upon just-in-time deliveries a day or two delay at the borders has an effect that ripples throughout the economy.
To continue your wonkish ways see:
http://data.parliament.uk/writtenevidence/committeeevidence.svc/evidencedocument/treasury-committee/hm-revenue-and-customs-annual-report-and-accounts/oral/92710.pdf
9
@Fred . . . and most RoI-EU commercial traffic rolls thru Britain, literally, using the Dublin ferry to Liverpool and then the motorway to Dover then back onto the ferry to Calais. If all that roll-on-roll-off traffic has to be diverted onto slower containerships, RoI's economy will grind to a halt. Professor Krugman - please analyze that!
5
@Candy Darling
You may be correct about RoI-EU traffic but my concern is with Roi-NI traffic.
About 7,000-8,000 commercial vehicles a day cross the RoI/NI border.
Detailed statistics as to the percentage entering/exiting NI from/to RoI are hard to come by.
Nevertheless, the agricultural and commercial interests in NI are worried sick about any Brexit deal the makes the border with the RoI a choke point.
Finally, remember that the majority in NI voted to Remain in the EU. (That's not a Trumpian majority.)
4
@Fred - I am concerned about ALL RoI commercial traffic, the arteries of its economy.
Brexit plays so well into Putin's plan to return Russia to European domination, that it well may be his hand behind all this.
And that is frightening to many of us, for if it is true that Putin is behind Brexit, he is working a very long war strategy, and with Trump in the White House, and if the UK exits the EU, then Nato is weakened, and he gets to steal even more land. Or worse. Much, much more worse.
Democracies like America's and the UK's are terribly vulnerable as their politicians and media are so corruptible.
Hugh Massengill, Eugene Oregon
17
@Hugh Massengill
The reason democracies like America and the UK's are so vulnerable is that vast portions of their electorate are ignorant, racist, uneducated, accepting of the most preposterous lies, and subsumed by preposterous mythologies (American exceptionalism, the British Empire yet reigns) that prevents them from using any semblance of reason to move forward.
I have long been of the opinion that the Tories never dreamed of Brexit passing. They only planned to use the campaign to motivate their ignorant followers. Their oft repeated promise was to immediately increase funding for the NHS by the amount it costs to maintain EU status, 350 million pounds a week, which was upped by May to 20 billion pounds a year. They all knew that the cost of Britain running its own borders would be a lot more than the present EU open borders. Besides, Boris Johnson and Theresa May and Nigel Farage don't LIKE NHS. Imagine if Trump and McConnell and Ryan had campaigned that if they could have their trade wars and withdrawal from various trade treaties, they would put a gazillion dollars of profit into increasing Obamacare.
8
@Marvant Duhon. On Tory dreams: Cameron thought that a referendum sure to go down to defeat would protect his right flank from the UK's rising extreme right. He cynically gambled with British wellbeing and lost spectacularly.
14
The Bank Of England has plenty of egg on its face. Given the questionable assumptions of the latest Brexit study I can not help but think Mark Craney has politicized the central bank to an extent. I honestly believe, it is time for this man to go.
I'm reminded of lemmings over a cliff.
Two elections in which crazy happened, and we humans proceed to endow them with all the legitimacy they do not deserve.
I get it... to overturn the idea that a democratic election doesn't count is a bridge too far, because it undermines the legitimacy of the the system and could bring down the whole house of cards.
But when the election really wasn't legitimate, there ought to be something else... not just going off the cliff because.
8
I'm attempting to get staff interested in this topic. Recapping on John Cochrane's criticism of your work he states, "It makes sense to appeal to some future economics – not yet worked out, even verbally – to disdain quantification and comparison to data, and to appeal to the authority of ancient books as interpreted by you, their lone remaining apostle." Ben Bernanke thinks a double down with China would be a mistake. I was thinking about China's ghost cities and exports of our new clean manufacturing. The Brexit is positioning itself to have more control over its trade but I think it's Germany that has positioned itself for trade in the Euroasia market.
http://faculty.chicagobooth.edu/john.cochrane/research/Papers/krugman_response.htm
1
If no satisfactory deal is possible with the EU, Britain can trade with the world under standard WTO rules after Brexit on March 29, 2019. 17.4 million British citizens voted for Brexit. They wanted control over immigration, freedom to make foreign trade deals as an independent country, and freedom from continental European bureaucratic tyranny. The disfunctional Conservative Party anointed a Remainer MP, Theresa May as Prime Minister. She failed to prepare for Brexit. She was submissive beyond belief to EU blackmail. The Franco-German EU has blundered fatally on immigration and the Euro. Time to get out.
1
Horrified. Those with power in the Tory Party of the UK are the rough equivalent of the incompetent appointees of the Trump Administration, notably including Mr Trump and family themselves.
6
Are we about to spend the next couple decades playing out the same story line, at higher stakes, with climate change?
4
@Alan
Probably, Alan, but on a yet broader stage than 'only' the English-speaking world ...
Your last sentence is an indictment of May and the Tories.
1
I was in Ireland during last summer’s crisis, where the contempt of the Irish political establishment for the Tories was palpable. Brexit was bad enough, but what really rankled was the ineptitude —no Irish politician would ever dig a hole as deep as Brexit, much less hop in without looking down.
8
How bad ??? Very bad. Maybe not Trump level bad, only time will tell. All in all, I’d rather be in Kansas. And I’ve never said THAT before. Who could have guessed ???
Seriously.
5
To read Dr. Krugman's column and to read all the commenters parrotting the Party Line about how frightening it would be to diverge from the Past and set a new course....I have come to the conclusion that we,, in the United States, need to reconsider this dangerous and foolhardy "Declaration of Independence" movement that can lead to nothing but economic ruin......why on earth would good thinking colonists desire to break from the Strongest and most Prosperous British Union that we now enjoy??
2
@Wherever Hugo This analogy would be really good if the world was exactly the same as it was in 1776.
1
“When all else fails, lower your standards.” That's what is going to happen, regardless of any deal, or no deal. Ireland? There is no incentive for Ulster or the Irish Republic to enforce any border, never mind a hard one. Who, on the UK side, will enforce a crash out? Who, on the EU side?
2
If this is so bad, why can't the politicians just stop and reverse course. Hold a second referendum?
4
@Andy:
I think that is a real possibility. Millions of voters didn't even know what Brexit was when they voted -- Google saw a lot of traffic with the search terms "what is Brexit" on voting day! Now a lot of those people would like to have a second referendum.
3
@Andy
Reversing is not easy, and indeed is as impossible as reversing time is. But goodwill and intelligence in the face of imminent disaster is BEGINNING to emerge again. My bet is that both the UK and the EU will squeak through intact and barely changed for the next 2 years, although lawyers and financiers will profit handsomely, as usual; and then all EU countries, the UK included, will turn with a new and more competent generation to addressing climate change and inequality issues.
They put the cart before the horse with Brexit. Asking the question in a referendum without considering the consequences was a joke. Even now, they have no answer to the Irish border problem.
I hope England and Wales get what they voted for: an understaffed NHS, uncertainty, chaos. And that Northern Ireland and Scotland can break free from this folly and rejoin the EU.
The only winner from all this nonsense is our geopolitical enemy in the Kremlin.
7
There’s nothing like the power of a bad idea to inspire others that are even worse. Once you’ve persuaded yourself into doing something dubious, it takes on a logic of its own. Four words no politician likes to say: “I made a mistake.”
5
Mark Carney? You mean the guy who raised interest rates in the middle of the GFC. It was the Depression last time that happened.
To close the circular logic of general equilibrium one needs to accept the fantasy of increasing costs to scale. The only organizations that can make costs increase to scale are the ones that are out of business.
Economics is about the efficient means of production. Period. And people are not rational just because the profession pretends it so. England will be fine.
Backlog at the border? Wonky indeed.
Won't the U.K. be getting out from under reasonably humanitarian regulations set by the E.U.? Isn't deregulation a cause of risky business practices with sometimes dire consequences for the common folk?
Look at us in America under Trump. We have lost all pretence of regulation of the oil, gas and coal industries (the major causes of proven climate change.) Business was handed a tax cut to the detriment of healthcare, education and infrastructure funding.
Progressives in the U.K. and America have a long hard slog just to get back to the days before Brexit and MAGA. It would help if the common folk would wake up and see clearly which side they are on.
Then vote.
10
@Betty durso That's the part no-one seems to factor in. Compare Britain to Germany right now: Through-the-roof train fares on a privatized system. Failing health care likewise. Other European rail companies use profits gained from the gullible Brits ( who bid out their rail system) to subsidize their own systems at home. How the British can blame Europe for their woes beggars belief. And without the protections forced on them by Europe via living standards laws things are going to get markedly worse. It's a Tory dream despite all the play acting.
6
@Scott Hiddelston Germany's railway system exists in the form that it does because of their willingness to defy the EU. The European Commission has taken repeated legal action against them over this. From the EU's perspective, the UK railways are a model of how they want all EU railways to be structured - competing commercial services operating over an independently-run set of tracks they neither own or control.
Delays at Dover at just the top of the iceberg. Without "in-time" delivery of EU chemicals the UK runs out of drinking water. And plenty of other problems with pharmaceutics, air travel etc.
7
It's not only the English borders, it's the European ports as well. As it is, with free movement of trade, the lines to cross the Channel are long. And remember that the EU is a bureaucracy, and that's their real power. So if the line to deliver Dutch tulips to England is long on the Dutch side, and then again on the English side, the tulips will be wilted at arrival. Many small and medium scale businesses will suffer on both sides.
5
Consider this the second coming of the Y2K crisis (for those who are too young to remember, this was the fear that all computers would crash when the year turned to "00" because in the earliest computer programs the years was coded in only two digits).
In fact, nothing happened. But that was because over the preceding several years every computer program was reviewed, and many legacy programs were replaced.
If planning for Brexit had truly begun the day after the vote, then this would be a non-event. But unless Britain finds a way to remain in the customs union there will be a real crisis on its hands, as there is now not enough time to fix everything.
8
Just as the politicians who wanted to leave the European Union blatantly lied during the 2016 referendum, now those who want this deal accepted are lying as well. This is a political issue much more than an economic one. As such, you can't trust the projections of either side.
That said, now that some of the consequences of Brexit are more clear, the UK needs a popular referendum on whether or not it should leave at all.
7
Of course, Krugman is right about the U.K. reacting to the problem and taking action; engineers do this all the time. One can make a plan, and when the plan starts to falter, one can adjust the execution of such plan - that's what the human brain is about.
3
The Brexit is getting too much of a publicity than it deserves. Making a mole into a mountain. If Brits doesn’t know how to exit, they can ask Trump, he does it all the time.
3
@Kodali I don't think you understand the extent of the EU
1
@Kodali
I couldn't help guffawing at that one, Kodali!
1
The ramifications of Brexit are not only economic. They are political as well. Those who excoriate May's plan offer no solutions to the Irish border issue, e.g., or any other concrete proposals as to how the political challenges are going to be addressed. I hear them cite the 17 million who voted for Brexit but not the millions who voted against, which were the majorities in Northern Ireland, Scotland and Wales.
17
@Cornflower Rhys
Not Wales, unfortunately. Wales was as deluded as England.
Another way to deal with border delays would be to back off from the just-in-time formula. Hold more inventory.
Yes, that is an expense that reduces return on investment, by the fraction of additional capital held in the form of inventory. However, it would solve the production problem -- bring in fewer bigger shipments, large enough to await the delays of the next, and with fewer overall shipments delays would be less too.
4
@Mark Thomason
Nice in theory until you realize the volume of traffic involved.
At Dover alone, 10,000 large commercial vehicles arrive every day.
On the Republic of Ireland/Northern Ireland border, the commercial traffic is only slightly less.
Furthermore, you are assuming all commercial traffic is incoming, it is not. Try telling a customer in Belgium or Germany that they will have to build warehouses because you can't get "whatever" to them for week. Good luck.
8
Brexit is going to harm the UK. The world economy is heading for perilous times. The UKs austerity crazed gov't will induce the Conservatives to increase austerity as economic growth in the UK fails to appear. There is no doubt that this could have serious ramifications for the US economy. Especially with the mercurial nut job the US presently has as President. London's position as Europe's main financial center will be shaken. May's compromise basically denies Brexit occurring which the Zealots in her party will not accept.
16
"The most pessimistic scenarios were eye-poppingly bad"
That is the nature of worst-case scenarios. It isn't a surprise, it is their nature.
It is necessary when thinking things through to be aware of the worst case. That does not mean to assume it is inevitable, or even likely. It is just one of the real facts one needs to know in order to make decisions.
Which decisions? One could be, don't do this. Another could be, don't let it get this bad, by understanding how it might.
8
@Mark Thomason
"Which decisions? One could be, don't do this. Another could be, don't let it get this bad, by understanding how it might."
That's why reading the Guardian as well as the NYT is worth the time of Anglophiles and Europhiles alike.
The report was widely seen in England as getting the BEO into politics, lowering its independence and with it it's standing.
But let me comment on : i n particular, I have strong memories of the openness-growth debacle of the 1990s.
The most remembered papers of Mr. Krugman is
Why Germany Kant Kompete
It subsequently turned into the world's largest exporter, beating China, with 16 times its population.
----
Should you wonder about Mr. Krugman's spelling: The real reason was not economics, he postulated, but that the Germans were too wedded to Immanuel Kant's philosophy.
5
Many of the comments here do not seem to appreciate that the UK has never really been a nation which looks towards Europe.
As an island maritime nation, we have always looked out across the seas for trade.
Additionally, the referendum is often portrayed as a vote against uncontrolled immigration; while that was certainly relevant, the other major issue was the gradual loss of sovereignty as increasing regulation from Brussels took hold.
Would many US citizens be willing to pool sovereignty with Canada and Central/South America inone big 'super state', with a capital in - say Ecuador and being outvoted by similar countries?
6
@tony
Is the US not a superstate? They are after all a federation of states, with their independent legislation as well as a federal government.
There have been, and still are, tensions caused by the right for the states to decided for them selves vs the central government.
So I do not think your comparison i correct. The US is what the anti-EU people fear that EU shall become.
9
@tony
France and Germany had never really been eager to understand each other and co-operate in the peaceful pursuit of shared prosperity... They are doing so, if often unwillingly, because they have understood the logic underlying the European project: only through (clever) co-operation and integration is it possible to preserve a certain ideal of prosperous, free society in a way individual countries of their size (France has 67m inhabitants, compared with 330m in the US and 1.3bn in China) cannot achieve on their own. Disintegration leads to disempowerment. That's why California (40m) would never think of becoming a separate state.
In fact, all available evidence makes clear that the UK would *lose* sovereignty as a result of Brexit. It currently enjoys a kind status virtually *any* mid-sized country around the world would like to have – inside the EU, and therefore able to influence its rules as much as France and Germany, but outside the Euro.
13
@tony Your point re sovereignty is valid. The argument by some here to your comments that the US is in fact a federation of states misses a few key points: 1) when the original 13 colonies united they shared a common language, religion, ethnic background 2) even after decades of federation, they fought a bloody civil war - think of it as the mother of all Brexits 3) 150+ years after that civil war the South has still never really surrendered (they still hate the idea of a federal gov't. and they still want to keep blacks suppressed).
2
Its not a ridiculous scenario because tarriffs and custom inspectors are only part of the bigger problem. The chart shows the cumulative gdp in years. If you take the derivative, the negative blip is over in a few months in 2019, not years. The loss in that period is carried forward and growth resumes in 2020.
BOE maybe on the optimistic side !
3
The problem is that many have been crying wolf over the EU whenever the UK has deviated from the general direction of travel, but the wolf has *yet* to make its appearance.
The essential problem is this: when France decided to ally with Germany in 1947, the UK became marginal to European power politics. France had the iron ore but not the coal; Germany had the coal but not the ore. Germany was for free trade; France was for protection; the political rehabilitation of the former via the EEC was purchased via the protectionism of the latter. The UK offered a free trade project in 1958-60, but this was shot down.
A country that runs a current account deficit must run an equivalent capital account surplus: i.e., it must sell assets to subsist. The UK entered the EEC with a current account surplus and has been in deficit ever since (for reasons that have not been researched). The Treaty of Rome requires a single market in goods and services. The single market in goods was completed in 1986 (to the advantage of Germany), at British behest; that in services (where the UK has the advantage) seems unlikely to be completed.
It is the deficit that is the root cause of the loss of control that has caused so much angst. The UK has little left to sell; May will embed perpetual deficits by means of a treaty that the UK cannot denounce in law. Nor will continued membership of the EU eliminate the deficit. The UK was admitted by France as a peon and will leave with the same status.
7
@Froghole, Question; where does the deficit come from? Is that not because of the low production figures? As far as I can see, it has little to do with the EU and will still play a role after Brexit.
@Ernst Duvert. As mentioned, this has not been researched; I have found only two academic papers from the early 1980s. UK markets were not oriented towards the EEC as were those of the Six; it had to undertake a reorientation exercise as the Six did not (though this was already underway in the 1960s). The Wilson and Heath governments promised 'dynamic effects' to UK industry via accession; it transpired that the actual effects were rapid import penetration.
The UK was given an invidious bargain in 1972: Pompidou only let it in so as to offset growing German influence. The CAP was financed by Germany (which was resented), so the UK as the only other major food importer would share the cost. German import penetration to the UK effectively financed the German share.
The impact of VAT and higher food prices coincided with the oil shock. UK inflation was almost 30% by 1975, about half of which was due to the costs of accession. This broke incomes policies, resulting in Thatcher.
Kaldor, Myrdal, etc., wrote of 'circular & cumulative causation'; common markets amplify existing strengths and weaknesses. The evisceration of UK industry in the 1970s (partly attributable to accession) led to the turn to financial services, with all that's entailed. EU regional funds have never been large enough to offset the resulting imbalances.
Brexit is a poor policy choice, but neither the existing regime nor May's plan allows any solution to the imbalances that have arisen since accession.
4
@Froghole
The problem with this remark and with the comments is that they are based on a simplistic idea of current account surplus good, current account deficit bad. This on a par with 17th century mercantilist thinking about piling up trade surpluses. Putting together events that occurred at the same time isn't evidence unless there is a coherent explanation that links the events. In essence you are also claiming that foreign investment must also be harmful. And you are dismissing any possible links with the saving/investment ratio in a given country as well as its monetary policy. Perhaps you need to think about these matters more deeply.
1
Another known unknown
The curious case of Britain’s disappearing banknotes
The value of currency in circulation has dropped at its steepest rate in half a century
The Economist Oct 4 2018
There are various theories about it, most linked to Brexit
https://www.economist.com/britain/2018/10/04/the-curious-case-of-britains-disappearing-banknotes
Remember, it was really never about trade, it was about immigration, and racism tends to do funny things to people and Brexit is just one of them.
Frankly, I am not hoping for England to be devastated by leaving the EU. No one wants to see that. It could have real negative effects world wide, in fact.
This leads me to wondering, though, why the May deal makes it worth leaving, after all. A wounded and bowed England is not so great either, and all because of a desire to prevent immigration? Can't the EU do something to control their borders that would be good for all? Maybe not, and this shortcoming will be to everyone's demise, as we can see through our own actions or lack there of, and how this is compromising our own country, the USA.
Immigration can be good, if controlled, and because that is the real problem, it makes no sense that we are bogged down over building a wall, when so many other, more constructive things, could be done. Europe needs to do that, too, and England could still be part of that, if their was a will to accomplish it.
It may be too late for all of that, now, and it has now become more of a Greek tragedy in which everyone just acts out their part. In the final act, after their exit, we will discover an England that was banking on a huge trade deal with the USA that never materializes, and all countries have become an island unto themselves. Nationalism and isolation are greater problems than is immigration.
27
The weirdness of it all is itself weird. There is such a 'though the looking glass" quality to the entire proposition.
How can UK ministers "find out" at this late stage that leaving the EU has as a direct consequence that one is no longer a participant in the EU's rule making process, but still required to adhere to it as a condition of trading with the bloc? Or entitled to representation in the EU Parliament?
How can Dominic Raab, who actually headed the UK negotiations, and then quit, professing himself unable to support the deal he had himself arrived at, declare he wasn't aware of the volume and the nature of cross-Channel trade between Britain and the UK?
Indeed, how can the re-emergence of a border across the island of Ireland be such an issue? Of course it is there! It was before 1973 and it is there still. That it wasn't a hindrance was due to the UK's membership, but now that that is ending, it reverts to being a true boundary. Come on, guys!
So too, the personal, indeed the personnel impact. Many industries and organizations and services in the UK rely on EU citizens being an integral part of their staffing. Hospitality for sure, but more importantly the National Health Service, whose doctors and nurses come from all over. If the UK is unable to ensure their status, disaster looms.
So too, production processes that are integrated across the EU and for which the flow of components is essential. Or food supplies from the continent. Medication, even!
17
As always, a cogent piece by Mr. Ktugman. He should live uup to his name with a glass of champagne while, over here, we hope such supplies are not held up at Dover. That said, these are surreal times through which to be living while all the evidence mounts to show that "Brexit" is folly - as should have been apparent before the unnecessary referendum, the campaigns for which were a political low all round. Since 2016 I have thought that "Brexit" will collapse without another referendum. It is the most bizarre journey since the Marx Brothers used the railway carriages to fuel the engine. All eyes next on the Parliament debate and the vote.
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I wish our Parliament would discuss such issues instead of breaking down into small issues with a big visibility. Paul please come to the House of Commons urgently!
Fishing, for instance, is about 0.5% of UK GDP yet dominates the debate in some quarters. While services, over two thirds of the economy, and 93% of London's, are more or less ignored.
A CGE model basically tells the modellers more than what observers can get out of the model. Yet disaggregating a CGE model to cover various socio-economic groups, their productivity, incomes, employment status etc.is sorely needed but really difficult to do...I know I did one for the ILO in the 1970s.
So the modeller gets educated but has no power to change the debate. I have tried with a petition on change.org. I dont know how the future will unfold but the selfishness of the UK upper classes (Boris Johnson, Rees-Mogg et. al.) will be all right. The country will suffer as it loses access to so many EU services such as Erasmus education, loses incoming students, and loses political influence as it becomes a small isolated island off the coast of France.
The only solution is for the UK to reject Article 50 and stay in the EU. I fear they wont do that and my country will stagnate. For myself, more queues at airports and my pension being devalued sharply against the Euro. Yes, I'll be OK...ILO gave me a good return in terms of income. But my countrymen? Please,Paul come to the UK Parliament and sit outside with me and chant!
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The possibility of a non-hard Brexit depends on the EU wanting to make it soft. I know it's supposed to be in the EU's economic interest to facilitate trade with Britain, but what I don't know is the political situation in the EU. Are they as anti trade as the British and Americans have become? Obviously EU companies that export to Britain want to make it soft but do those companies matter? Maybe the EU will just close the borders to trucks with no concern for facilitating trade, ever.
@roseberry
Actually the EU has said that the UK could have a Norway+ deal or a Canada+ deal, but the UK chose not to.
However, the EU has been clear from the start that it can not offer a membership deal to a non-member, as that would risk the integrity of the EU. As a member, the benefits har better than for a non-member. Which in my opinion is fair and logical.
The UK has during the last 2 years been unable to accept this, and has carried on regardless of the EU stance. Which frankly is very hard to understand.
6
Interesting scenarios, but many are betting that Britain will not ultimately withdraw. If the U.K. government could find the will to properly investigate Russia's interference in Brexit, the British public might be more strongly demanding a second referendum. But it will probably come, anyway. Putin has done quite enough damage to Western society, and like a wayward child, is unconsciously begging to be put back in his place. As soon as Trump is impeached - I'm optimistic! - and Beto becomes President in 2020 - the authoritarian set will be, once again, obliged to think twice about wrecking the world order.
13
Britain is not only preventing any new wind installations, they are planning to rip down existing ones, while forcing local communities to accept fracking where it is not even practical.
The dismantling of public services and regulation (your witness, the National Health is much worse, things like the Grenfell Towers fire) serves the Conservative effort to help the rich and powerful get more while removing the social safety net.
Catering to victim blaming works there, as it does here.
Terrible stuff. This will not end well for anyone.
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Oh my! Plans for a debate on Brexit between May and Corbyn. Time to out the popcorn!
https://www.washingtonpost.com/world/2018/11/29/jeremy-corbyn-wants-schedule-brexit-debate-around-celebrity-reality-show/
"How far apart are Prime Minister Theresa May and Jeremy Corbyn on Brexit?
"So far that they can’t even agree on which television station should host their upcoming debate on the issue."
https://www.theguardian.com/commentisfree/2018/nov/30/may-corbyn-sunday-night-tv-brexit-debate
"How excited are you about the May versus Corbyn TV debate? Face it, it’s the Argentina-West Germany final you dream of. This ends in some shiny-floor Blunderdome, probably on the BBC, as the prime minister and leader of the opposition fight for positions neither of them remotely believes in."
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Lowering standards to allow goods to easily enter the UK might not be a solution. Trucks will still be delayed trying to leave the UK and re-enter the EU so why would they make the journey at all?
5
The French are hiring extra inspectors. So that side of things should work.
@Thomas Jørgensen, yes they are preparing, as are all the other EU ports of entry. Those new inspectors are the reason for delaying the returning trucks.
@Thomas Jørgensen But are the Irish?
We are seeing the results of failure of the political system in Britain. First, no one thought the people would be daft enough to approve Brexit. Next, when it was approved, no one thought the EU would be serious about insisting on following the rules or protecting their rights. Third, the political class thought they would find a way to muddle through, that a deal could be cut.
They apparently still think a deal can be cut, that they can say no to May's deal and 'work something out' with the EU. "After all no one is silly enough to insist on the March deadline and they can't be serious about what they have said."
Here in America, we have some small experience with politicians who make up their own reality and insist that it is real. I believe that both Mr. Trump, and the British are about to find out the hard way, that their world view is make believe. That people really are serious when they say "You must follow the rules. There are serious consequences for ignoring the rules." In Mr. Trump's case it may be the end of his presidency. In Britain's case it may be a hard Brexit.
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Did you consider the effects on the over-valued housing market in London and the south of England and its dependence on the inflow of foreign money? Clearly, a house price crash would account for a significant reduction of GDP.
I have little confidence in quantitative economic models that claim to apply to situations that do not possess some degree of time-stationarity. Models might appear locally reasonably consistent and plausible, but can hardly capture the competing interactions and dynamics of the dynamical system that is a modern economy (the black-box at a higher level). All precedents cited for this kind of scenario seem weak and only apply to some specific aspects of a Brexit process without much regard to interactions.
I cannot think of a modern economy of comparable scale being exposed to a similar shock of trade frictions. The Mexico analogy only goes so far as it assumes that liberalisation and sudden de-liberation basically commute. The structure of a post-Brexit economy is bound to change and adapt in response to the new environment, but I wouldn't take any quantitative prediction for what is basically a hugely complicated stochastic control problem seriously.
It seems clear that the worst case simulations are underpinned by assumptions indicating a downright hostile Brexit without any meaningful attempt of mitigation from either side. One can argue how realistic this is.
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@Chris All good points, thank you.
I wonder if any of the models account for the disproportionate distribution of the effects. Poorer people (the very voters who thought they would benefit from voting "yes" on Brexit) generally seem to get hit harder in any economic downturn, and have a harder time recovering. Poorer people, 'working class' people have less investments to cover income shortfalls, they have less reserve resources to tap to sustain themselves over shortfall periods, and they have less direct control of their own economic future. Perhaps this should be described as 'Trumpian economics', where the very people most impacted negatively are fooled into believing their outcomes will be preferred. Sure, the Brexit will attack the 'free immigration' across the border that the pro-Brexit pitch promoted, with the lies that somehow those working-class voters would reap benefits... while no mention of the negatives made it through to them. Then, when the policy actually wins, they end up getting hardest hit... 'but hey, we're really sticking it to those foreigners!' while the line up for the dole. In this country Trump's Tariffs are hitting small businesses and manufacturers, affecting the very working-class voters Trump won so heavily. No surprise that his policies, like Brexit, end up coming down most heavily on precisely those who were conned into voting for them in the first place. It is a sad spectacle, whether watching it happening in the UK, or seeing it here.
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@Jim Brokaw You are right that the working class suffers - parts of Britain are already far poorer than, say, Greece, and for decades. The "UK" has worse labour laws than the EU. I wonder, as well, why anyone uses equilibrium at all. Central banks' specific one ignores a financial sector as well, incredible to note. Another point is Krugman omits the Irish border - just as the Brexiteers had not bothered to think of 600 years of Irish oppression by England. In the case of Trump's tariffs, the working class suffers as well from the rise in prices. This was recognised in the early Australian Labor Party (ALP) which rejected protection for its expense to consumers/workers, and the way the well-off could avoid taxes. The ALP only agreed to tariff when wages became based on need not profit alone, via uniform labour legislation across Australia's proper federation. This is unlike the "UK"'s non-federation.
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Thank you Dr. Krugman. It is good to hear at least a bit about what trained economists think the possibilities are and, more important, at least a bit about why they think that way.
I have one suggestion, for what it's worth, about the consequences of a hard Brexit. Perhaps we should take into account how citizens of the UK reacted to the Battle of Britain in WW II. Suppose there were next year immediate massive disruptions of the basic economic infrastructure. The people of the UK in WW II had very strong community bonds in defense of the homeland. They "kept calm and carried on", continuing their lives and adapting to great difficulties. However, this collective action meant very strong governmental and military intervention in daily life.
Could economists gain any insights by looking at the effect of large natural catastrophes, like the Houston floods or Katrina? While these were calamitous for many individuals and disrupted or destroyed many local economic units, I understand that they often acted as a stimulus to the overall economy due to the sudden increase in emergency activity.
In a hard Brexit, I would foresee temporary governmental emergency powers, as supplies might be rationed, critical medicines and other supplies might be delivered partially by the military, and perhaps part of the highway system might be commandeered for supply convoys.
All that said, I personally am terrified that Jeremy Corbin might be given even temporary emergency powers.
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@Grindelwald
Corbyn couldn't be half as bad as the conservatives in office. They're busy looting everything that isn't bolted down. Greedy and shortsighted, and ripping up public services as fast as they can along with tax cuts to the rich. Sound familiar?
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@Susan Anderson, I hope you are right about Corbyn. I will try to learn more about what he is really like. From what I have seen so far, he seems very angry, divisive, and deeply authoritarian. Emergency powers are often needed to handle real emergencies. One danger to using them is that it is sometimes hard to get the power holder to give the power back after the emergency abates.
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@Grindelwald I would worry more about people like Boris Johnson using chaos to maneuver themselves into a position of abusing all the power they could want.
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It is a pity the Bank of England analysis, of the costs of various forms of Brexit, were not available before the first opinion poll/referendum in June 2016. There is no good economic news from any form of Brexit. It is either bad or very bad, for the British economy, and those who live in Britain.
Given the negative impact any form of Brexit will have on the British economy, surely it is not too late for the British voters to give their final approval for either Brexit or no Brexit?
Once Brexit occurs, it will be too late for voters who realise they have been sold a dud. Instead of taking back control, Brexit looks like taking the steam out of the British economy, permanently. Why not confirm the will of the people before Brexit becomes permanent?
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@Barry of Nambucca
It's weird isn't it? Rather than admit they made a mistake and walk away from it while they still can, the British people and government are going to stubbornly refuse to reconsider and keep walking forward right off the cliff they all see clearly ahead.
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@Barry of Nambucca
Like the Trump deplorables, who, despite the incredible amount of information about what a disaster Trump would be, and despite everything predicted coming true, are unable to see what Trump has wrought for them, I have a feeling that many Brexiters could not have been otherwise persuaded had God came down from the heavens and explained what the BoE is explaining to them before the vote.
2
After Brexit, British glory and pride will find a slot or two on " Masterpiece Theater". Americans are Anglophile by nature and nurture. English spoken with an Etonian British accent sounds remarkably smart, sophisticated and wise. And Cockney accent is clever and cool.
"Two people divided by a common language." Winston Churchill on the differences between his British paternal heritage and American maternal heritage.
My earliest known European American ancestor was born in London in 1613. Married in Lancaster County the Virginia colony in 1640 where he died in 1670. His descendants fought on the side of the rebels during the American Revolution and the Confederacy during the Civil War.
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@Blackmamba
Actually that's not the exact quote which is attributed not to Winston Churchill but to George Bernard Shaw. That said, it doesn't exist in any of Shaw's written works.
@Blackmamba
Born 1959 in WISCONSIN from French and German parents, went back to FRANCE in 1980, my older brother who staid in the US comited suicide.
Taking into account my brother’s experience, the level political dumbness, the bogus 9/11, the Irak war, the neoracism, the glorification of everything financial, I will never go back to this land.
Having being schooled in the WISCONSIN (*), i saw that we the kids where all descendants of EUROPE not ENGLAND in particular, hence I haven’t got any particular bond to that latter country.
(*) a town with only white people at that time.
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What about confidence in the UK economy and the strength of the UK "brand"? Economists hate these kinds of intangibles of course, but differing ideas about how these things will be impacted by Brexit play into the debate.
Pro Brexit types insist that a UK unshackled from the Eurocrats would be free to do its business as it sees fit. (the "Anglo-Saxon" model of low taxes and light regulation that Continentals sneer at).
They also see a post-Brexit UK as being able to cut its own deals on trade globally, gaining certain advantages.
Remainers point to the integration of the UK with the rest of the EU in such high-value industries as pharma, biotech, IT, aerospace and financial services. They see Brexit as severing those ties, of leading to a massive "brain drain" away from the UK. Remainers are particularly sceptical of the UK's ability to remain a financial services hub post-Brexit.
But overall, the Remainers view Brexit as damaging to the UK brand. The progressive, increasingly multi-cultural and European UK of the past several decades will now be seen as backward-looking, xenophobic, cut off from the world.
Which view will the rest of the world take, and how will that impact business decisions, direct investment, trade flows etc going forward? These intangibles will have an impact, but do economists have a reliable means of forecasting what that might be?
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@Duncan
Mostly, disaster capitalists like Boris and Rees-Mogg (who moved his office to Dublin), want to remove all standards for safety, food, etc
4
What is not talked about much in the European press or elsewhere, but is very much front page news in me home country is how Brexit will translate to either a hard border or not.
Following through on Brexit by England common, is essentially the beginning of (speeding up) the collapse of ''Great'' Britain altogether.
The troubles are automatically ignited once more (as the DUP - loyalists to England that are essentially holding the government of May together), and Scotland turning to another referendum. (which the succession side will win)
The costs are incalculable in the trillions, as well to British identity overall. It is also the doorway for Corbyn to walk through,
We shall see,,,
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@FunkyIrishman
You wrote: "Scotland turning to another referendum. (which the succession side will win)"
If there's a sure bet, that's it.
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@FunkyIrishman The United Kingdom will almost certainly collapse if there's a forced border between the Republic and Northern Ireland. Scotland has been close to leaving the United Kingdom for years now, and it's fairly clear that a vote on remaining in the EU would go against the Brexit decision.
10
"Brexit" and the ensuing circus-like atmosphere which has led to the division and polarization of British society is the definition of a self-inflicted wound. It was and is, an impulsive, ill-conceived exercise in futility, punctuated by the profound misunderstanding of the the British public as to its ramifications and long-term consequences.
"Brexit" also underscores what happens when you have a badly informed population and a politically inactive, disconnected and disenfranchised citizenry.
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@loco73
Yes , this should have required a super-majority(60 or 67 %) or two votes. It boggles the mind. What was Cameron thinking to make it so easy to leave the EU?
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@loco73
SCL, Cambridge Analytica, and some oligarchs liked the Brexit vote.
Putin is still grinning.
11
"Ever Closer Union".
The stated strategic EU end game is the ultimate removal of all european national sovereignty and the creation of a single superstate ruled by an unelected technocracy.
The original raison d'être for the EU was to prevent Germany rising up from military defeat yet again after two world wars by integrating them economically and politically with their traditional european adversaries. Thanks to the Euro, Germany now economically and politically dominates all of it's continental neighbors and so the original EU objective is entirely redundant.
The UK electorate were given the vote on whether to continue with "Ever Closer Union" or to reclaim their national sovereignty, and with a record turnout voted for the latter. The UK's global businesses and their allies in the Tory Government, together with the BofE, Civil Service and the BBC (all supposedly independent), have ignored the democratic vote and engineered a 'deal' that basically keeps the UK in the EU but without any influence.
To the majority 17.4 million Leave voters who are being betrayed by their government it begs the question as to whether democracy still exists in the UK. I don't doubt a hard Brexit will result in initial commercial disruption but shouldn't democracy 'trump' that?
If the crushing of democracy is so easily excused in one of our oldest allies then what chance here in the United States?
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@CarpeDeam
If you're such an admirer of democracy surely you're in favor of another vote, now that the public is better informed? I seem to recall that during the first vote the public was sold partly on Brexit, because it would deliver massive savings?
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@CarpeDeam There is much evidence that the "Leave" side violated the regulations (intended to ensure that the democratic process wasn't perverted by money) related to the financing of the campaigns. Given the narrowness of the margin of victory, that could have made the difference. Then there were the blatant lies of the Leave campaign (e.g. 350 million more pounds a week to the NHS). Yes, some on the Remain side over-estimated the short-term harm of a Leave vote, but there was nothing on the Remain side equivalent to the combination of willful blindness (e.g. to the requirements of the Good Friday Agreement), false claims of victimization (as if Brussels was imposing unreasonable demands on Britain on everything from condom sizes to the numbers of non-EU citizens to admit), and sentimental appeals not grounded in reality (as if, for instance, commonwealth countries were all aching for Britian to restore pre-EU trading relations with them). The EU isn't perfect, but its Council of State and its Parliament are made up not by un-elected technocrats but by elected representatives.
There are many instances around the world (including in Canada where Quebec and Newfoundland held second referenda) where democracies have not been weakened by allowing people to go at a question another time, usually with more information and a greater understanding.
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@CarpeDeam
Your contention that the stated strategic end-game of the EU is to create a superstate ruled by an unelected technocracy is utter rubbish.
EU policy is decided by the Council of Ministers (the PMs of all 28 members of the EU), voted on by the European Parliament (to which each EU country elects representatives, in a number proportional to their population), the EU Commission, which develops policy proposals and oversees its implementation, is made up of commissioners appointed by the elected governments of the member states, and its staff (your "technocrats") execute it. All 40,000 of them.
You also greatly simplify the original raison d'etre, citing Germany as the ultimate bogeyman. It was only the most recent and worst (not least because it was so horribly efficient) of the wannabe rulers - before that it was the French,who followed the Spanish, the Catholic Church, etc. etc. And Germany was not actually alone in waging war on its neighbours - what about fascist Italy and Hungary?
The point, the raison d'etre was to create links, understand one another better, improve economic growth, by simplifying trade and movement within Europe, developing common standards etc. Get people to see how much we all have in common, as opposed to what divides us. One of the original proponents of this idea was actually Churchill.
It is not "crushing democracy" to have second thoughts, now we know the options. No-one voted for economic catastrophe.
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Thanks for this, Dr Krugman. It'll be a reading for freshman-sophomore poli-sci and econ students I'll have in an English-writing course that I'll be giving (I hope) next year.
You ask "What has the UK government been doing?" and the answer is "absolutely nothing" -- actually, absolutely-nothing-worth-doing.
Brexit is a political, not an economic, challenge. Most political challenges are Gordian knots that can be overcome in any one of the following ways:
1. by trying to untie it -- this is usually done and usually fails;
2. by ignoring it, denying its existence or claiming that overcoming it is simple/easy (Alexander the Great's choice) none of which has anything to do with the knot and its complexities; or
3. by sitting beside the knot, waiting for it to rot on its own.
My prediction is that the bacteria of realism are eating away at the Brexit knot right now and that, come March 2019, the knot will have become a very smelly pile of memories -- few of which will be used to learn lessons from.
My guess is that Theresa May is a great deal smarter than most have given her credit for so far.
1
@Harold "Brexit is a political, not an economic, challenge."- Well, it is both, and the economic pains have only begun to be observed and felt. It hasn't even started. Of course it's going to be an economic challenge.
As the very smart and funny Marina Hyde sardonically wrote at The Guardian, "I am excited for an economic war with 27 countries, fought in all our names, by people who literally don’t understand money."
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@Southamptoner, in part, my point is that the economic possibilities will start to become economic realities *only if/when* the political challenge is resolved in "Leave" terms, although, of course, new economic realities will have lots of political baggage.
The recent polls I've read about suggest that over half of voters in the UK are expressing preference for "Remain." Also, information about UK/European investigations into Cambridge Analytica's earliest years are now being mentioned and perhaps link to Mueller's work in the US which could throw a spanner into Leave's gearbox. For many, both the Tory party and Jeremy Corbyn's Labour are about as attractive as stale roadkill.
My guess is that all of the above and more will simply morph the Gordian Knot into some other sort of political mess but with only very limited, short-term economic effects.
@Harold Dear Harold, I personally have not experienced a non-binding referendum about such a titanic and world-altering change like the Brexit vote. In the United States we don't actually get to vote on these things , at all!
"Half the UK voters.." well maybe some of those are daft and have no idea of the consequences will be. Much like MAGA Trump voters here, they have no idea what they're doing. Meanwhile Britain is cutting off its citizens, economy, from the rest of Europe for no reason at all, just a certain particularly English spite. (Scotland and NI voted to Remain.) It's bizarre and sad to watch, a nation jumping off a cliff because it looks like fun. I'd say this will end in tears, but it's already causing tears. European residents in the UK, and vice versa. People's lives are being upended by this pointless and stupid decision. Which was specifically supposed to be "non-binding". Meaning, it could have been thrown out, and this disaster could have been avoided. Alas, the people in charge are fully in to heading towards the car crash, they don't care about the wreckage.
Not an economist, but:
* Kanban (just-in-time) manufacturing is the basis for all modern manufacturing. There is minimal storage for parts at manufacturing plants today (at least the good ones)--or finished product. Manufacturing plants are fish that swim in a sea surrounded by other "fish", each adapted to its environment. Kanban becomes kan-Boom as soon as massive parts delays and the need for local parts and finished goods inventory arise.
In effect, these plants will need to drop back about 30 or 40 years in their process flow designs. OR, new or existing plants in the larger market (EU) can pick up the blocked production. Lots of sunk assets left in England.
One alternative is to simply go "no-border controls" on all goods as Paul Krugman mentions. This fails when the parts and finished goods are sent to the EU for lengthy inspections and duties.
A "no-enforcement" policy on EU imports would likely quickly become a "no-imports, standards, or controls" policy from the ROW. Why would any nation feel the need to negotiate a trade deal with a country with no import controls?
The short-term shock could be very large as the most modern, world-class manufacturing is wiped out in GB.
The BoE scenarios may be too harsh for the "hard exit" case--but the loses are likely to be mostly in the most efficient and largest and exporting of the industries and factories. It could be very bad in ways not modeled.
Voting again on BREXIT seems the best choice.
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The United States shouldn't be one to cast stones right at this moment.
That said, I think the BoE is a bit pessimistic but essentially correct. The danger with Brexit was never about trade flows exactly. We're talking about massive industry disruptions. I can't say exactly how the markets will reorient themselves. That depends on how Brexit is finalized. The truth is though commercial incentives relating to both financial and physical flows, think labor and supply chains, are about to be severely disrupted.
Let's take the conservative example: 2% drop in GDP. That's no catastrophic but what does that economic contraction look like exactly though? Some industries are going to benefit from Brexit while others suffer. Modeling 2% is probably smoothing over massive blight in certain sectors of the economy. Automobile manufacturing comes to mind. Entire towns might be decimated.
Quite obviously, these inequities have consequences. In the parlance of economics they cause multipliers. A closed autoplant is going to hurt stores and real estate and restaurants and retail. That's before we ever discuss a product entering or leaving a customs station. Like I said, BoE is pessimistic but essentially correct. Maybe the economy will bounce back more robustly than their predictions but really... how much?
Why they would bother to tell anyone about their prediction on the other hand is a complete mystery.
8
"What’s puzzling about the scenarios shown in Figure 1 is that they show these disruptions going on for multiple years, with barely any abatement... Would it really have that much trouble hiring customs inspectors and installing computers to recover from an 8 or 10 percent drop in GDP?"
Perhaps the great recession is a useful comparison. So the BoE posits a short-term exogenous shock the reduces GDP by ~10%. Compare that to the great recession in the US, which was a short term exogenous shock (demand reduction from the end of mortgage equity withdrawal + short term damage to financial system) that reduced US GDP by ~6%, and, crucially, led to a dramatic rise in unemployment to the order of ~10%. Within a year or so the US financial system was largely back on its feet (the analog of hiring customs inspectors)...but 10% unemployment (and, to be fair, the end of MEW) led to a shock to demand, the recovery from which has taken a decade...the demand<-->hiring virtuous circle seems to have a speed limit in the US of about 250k jobs/month. If the shock to the UK economy were to lead to similar or higher elevated levels of unemployment, a similar rate-limit on hiring<--> demand in the UK would make the BoE estimates understandable.
This analysis does suggest that the UK would be very wise to simply open its borders in the event of a disorderly exit...that would eliminate import disruption...but exports?
8
The most pertinent question comes at the end: "What has the UK government been doing?" What, indeed. And for two whole years.
The answer is: not much, except assuming or hoping (or getting drunk on their own rhetoric) that somehow the EU would splinter, could be divided, would give in. Somehow the continental industries doing business in the UK would get their reluctant governments to cave in.
None of these things happened. The "Four Freedoms" (free movement of goods, services, capital, people) could not be divided to suit the UK. The EU is based on these four essential freedoms, and picking one or two of them, as the UK saw fit, could not work. The Northern Ireland situation: no solution was even remotely suggested by the UK. The Swiss model: nope, the UK did not want this model. The Norwegian model: nope, not that one either. The Canadian model: nope, this ain't it.
Cherry picking does not work when the lowest common denominator for your 27 partners is maintaining the status quo, PLUS the incentive that leaving the EU cannot mean that the UK will end up in a privileged situation, with more rights than before. Europe united...
All of this seems to be as clear as the sun, and yet the UK government did not react. The first plan offered by May, almost 1.5 years into the negotiations, was nothing short of delusional. Not gonna happen, not with the EU commission, not with the EU parliament, not with its 27 remaining members.
The UK lived in a dream world. Happy awakening.
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Excellent summary. I've been following Brexit quite closely and what astonishes me most is how reality keeps taking the British by surprise.
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@Michael - Theresa May is going down in history as the most incompetent PM ever. Not only did she not do anything of substance to prepare the UK for Brexit for two whole years, but she always sought to downplay the risks and hide the truth from her citizens.
All this while hoping that the EU would fracture by itself and cave in to "British might". Such a display of hubris, arrogance and malevolence towards its historical allies and friends has left many with sour feelings about the UK. I hear many disparaging comments about the British these days, from people who would have been enthusiastic anglophiles until a couple of years ago. The Europeans won't forget the insulting behavior of May's government for a long time.
3
Man are you misguided....This is about sovereignty and freedom. The EU is ineffective and failing. There is no economic equality. There is no social cohesion. The UK is wise to try to get out of this dysfunctional marriage between people who don't agree on many of the things which lead to cohesion. These articles are scare tactics designed to rob the people of England of their right to self determination. And they are tired of the rulers in Brussels who do not care about them.
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@Lucifer
What additional sovereignty or freedom will this Brexit give the UK? What will England be able to do alone that it couldn't already do within the framework of the EU?
Such nonsense! The same kind of nonsense conservatives in the U.S. have successfully sold their voters and still sell as they strip the nation clean of its resources and wealth...
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@Lucifer. Every time I see somebody use the word "England" as if it is a synonym for "United Kingdom" I grit my teeth. If you cannot grasp that the U.K. is not "England" then don't tell someone else they are misguided.
If, in fact, "the people of England" are truly looking for "their right to self determination" they will probably get it. What that means is the demise of the United Kingdom. Either Ireland will consolidate with Northern Ireland over that entire island and Scotland will splinter off to become another small member of the EU, or Ulster will link up with Scotland in a new country that will become another member of the EU.
As Rima asks in this thread: what will "England" be able to do alone that it is not currently able to do? Be specific please, no generalities allowed.
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@Lucifer
The EU is so ineffective that it's GDP is second only to the US.
Don't underestimate the power of money. Most of the populist/right leaning EU members receive more money from Brussels than they pay in (think red states in the US). Do you think they are ready to go it alone, negotiating with the giants of the world? At the moment they want it both ways: self determination and the fat checks. It looks like Britain will have to play by EU rules without any input if they want a trade deal which will be less favourable than the one they have now. The election of Trump was a wake up call for the EU that its rules have to be more equitable and sustainable; so thank you for that. By the way, listen to Fareed Zakaria's recent interview with Macron and tell me about strategic planning and leadership. Zero-sum negotiating brinkmanship is a losing gamble that results in broken alliances and broken economies.
Talking about scare tactics and lies, what happened to all the money the UK paid in to the EU that was going to fund their healthcare system? Where are all the favourable trade deals that would roll in before the year end? Sovereignty does not pay the bills.
19
I mean, it seems like a big part of the reason the GDP will tank so hard for so long is because the rest of the world is jumping on the protectionist bandwagon, so the idea that a newly independent Britain would just walk into favorable trade deals after leaving the EU stops holding water.
Trump might like Brexit because he heard the dog whistles, but that doesn't mean he's going to tell Lighthizer to put the kid's gloves on for Britain after. Canada will want a better deal than what they have with the EU, and Britain has no leverage there. Nobody's going to play nice.
19
They who entangle can disentangle. See: Free To Choose.
3
Mr Krugman. With respect, your hopes for pragmatism on trade are overinflated. The British, contrary to popular belief, are anything but phlegmatic. The question of Brexit goes far beyond reason, and the enemy is not external, as in WWII. It is mythical, as in Empire versus the current lowly isolated island status of a former and never to be again, world power.
Hari kiri is on the agenda, and it has every chance of being of bring ratified.
#RIPUK
78
@Andy. First they leave India and now they leave Europe. They lose Scotland and Ulster will be untenable. They’ll end up a North Atlantic iceberg.
5
@Andy
"Hari kiri is on the agenda, and it has every chance of being of bring ratified."
Every chance, eh? Maybe a name change will eventuate: the Federated Communities of the British Isles (FCBI). Ireland, Ireland ... my kingdom for an ire-land?
1
A lot of corporations have already announced they're pulling out. That has to be disruptive in and of itself.
The damage done by Margaret Thatcher wasn't completely resolved by the time May became PM. The damage May is doing, including Brexit, will take decades to fix. That damage includes the very same things the Trump-Koch administration has been doing since January 20, 2017: destroying institutions that were erected for the common good, from healthcare, to education, trade, and everything in between. So long as the Tories are in charge, I don't imagine any effort will be invested in hiring hundreds, much less thousands of customs inspectors and, the economies of the region having grown the way they have, Britain will be left out in the cold. Britain's losses will be long-lasting.
The left, on both sides of the pond, had better fix themselves and get ready for the catastrophes that are coming. Post-May in the UK and post-Trump in the U.S., we can expect a depression. Here, at home, the Fed that Trump now maligns daily, isn't anywhere near ready to deal with a new recession, much less a full on depression. With a split Congress, a recession or depression before 2020 means that stimulus of the magnitude and reach that will be needed will likely not be arrived at.
Tough times and way more misery await as greed and corruption continue to inflict its damage unabated and unchecked.
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Things Trump Did While You Weren’t Looking https://wp.me/p2KJ3H-2ZW
53
@Rima Regas To be sure, Teresa May had to play with an impossible deck of cards, while the real perpetrators, former PM Cameron, Boris Johnson, Nigel Farage and UKIP, have simply refused to take any repsonsibility.
Between a rock and a hard place does not even begin to describe her dilemma. There are the hard rock conservatives who hated the EU since Edward Heath and his government joined it a generation ago. Then there are the Labour politicians, who smell victory right after the impending disaster. AND she doesn't even have a nominal majority in the House of Commons.
Frankly, nobody can look good under these circumstances. Which absolves her, to some degree, politically. But not with regard to the utter lack of preparations for the moment when the unthinkable happens.
22
“the kind of country that history shows can cope well with huge natural disasters, and even wars.”
Er ,,, a few months back KFC ran out of chicken in the UK and the police were receiving emergency calls to complain
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@Darran
Well, of Course they're gonna call the Constabulary -- ever sat on hold at KFC Corporate, waiting, with utmost patience, to register your complaint re: no chicken?
"You are caller number 191. Your call is Very Important to us. Goodbye."
7
I fear Professor Krugman here underestimates the shear level of disruption that the UK would face in the event of a disruptive Brexit. The Mexico example cited doesn't really do justice to the level of integration between the UK and EU27 and the damage that would occur in the event of a sudden stop.
In a true no-deal Brexit - as modelled by the BoE - the following are just some of the examples that would occur (beyond the need to just 'build a few more customs posts):
- UK truck drivers would lose the right to drive in the EU needing a permit that are available in limited numbers. Around 90% wouldn't get this permit. Given the amount of trade that comes in via RoRo ferries/train, this would seize up trade hugely;
- The UK would be out of the single energy market; Northern Ireland may find itself unable to purchase electricity from RoI, leading to blackouts;
- UK airlines wouldn't conform to EASA standards, leaving them uninsurable and unable to fly to the EU;
- The UK would be out of EURATOM, leaving it potentially unable to purchase isotopes for medical use such as X-rays and cancer radiotherapy
- Huge amounts of UK manufacturing (e.g. Airbus) is based on just-in-time deliveries - this is *not* like NAFTA where customs delays are built into supply chains.
I'm a massive fan of Krugman but here I think he needs to do more research on just how catastrophic no deal would be in the medium term
163
@Ben
No one ever likes to wait on line. Any trucker who is not transporting goods every minute is wasting time and money. No likes to waste money. the truckers will find better uses for their time and fuel.
The Brexit border means much higher costs for transport of imports and exports. The goods will go elsewhere.
10
@Ben
I had written a less informed comment raising the same issues before seeing this one. Thank you.
9
@Ben
Competition for British business means Airbus and Boeing will join with British and EU airlines and keep identical riules and ships.
Traffic controls and licenses will meet each group's standards too. Simply put, Britain and EU are not about to get a divorce where profits are concerned.
But the :City" can no longer serve as international banking center, right? But what would make a center in Munich unresponsive to investments now based in London's bourse?
Education and the ability to work and live anywhere in Europe may suffer, but legislation in each group of states can erase these difficulties. In a couple of years, UK won't seem very different from this week. After 2 very expensive years, 2-4% worse GDP, large expenses for infrastructure, and some higher costs for lots of imported things, and a vote for a parliament with brains, and :jolly old England" will "muddle through" - and so will the EU. The market place always wins. Not so the taxpayers of the UK. Ignorance has great costs.
10
When trying to understand what seems to be utterly irrational decision by an nation-states always ask, who benefits( qui bono?).
The American South voluntarily seceeded from the union with full knowledge of the probable disasterous future consequences. Whatever the consequences, no risk and no price was too high to bear to preserve and extend slavery.
So, one may ask, who benefits from any sort of immanent
Brexit ? No pundit I have heard on the issue rationally believes either the E.U. or the U.K. can predict any sort of Brexit , hard or soft, will produce positive long term benefits that exceed the extraordinary risks of disaster.
I am left to conclude that as Barbara Tuchman illustrated a generation ago in her “March of Folly” that nation-states led by fallible leaders often deceive themselves and foolishly pursue policies based on self-delusion. Consumed by the passion of their own fantasies these leaders forget the law of unintended consequences. Ultimately, their nation and occassionly the world suffer those consequences.
Future pundits will not debate who was responsible for the unintended Brexit disaster. Rather, they will dissect how rational leaders in the U.K. and E.U. failed to anticipate and avoid the disaster they themselves precipitated. Folly has once again trumped reason.
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@Thomas
Artificial intelligent machines and algorithms would never also Brexit to proceed. Only foolhardy and fallible humans.
2
@Thomas
This comment appears to be based on a false premise:
That the leaders who precipitated the disaster were rational.
Also, a foreign adversary: Vladimir Putin, deliberately and clandestinely worked to sabotage the referendum. Perhaps future historians will take note of this.
16
@Thomas
"Folly has once again trumped reason."
Well, um, probably, BUT the tide is turning so 'trumping' may be too much of a card-game or Us presidential metaphor. It's turning toward a 'People's Consultation/Vote/Referendum' in which the UK and EU peoples are having to learn about each other and slowly revise the rules that govern their nations, tribes, businesses, families, and individuals -- hopefully to more equitable standards.
1
"....relying a lot on effects we can't model seems dubious." Lad, you need much more explanation of this point. For many of us the long drift of economists in the direction of model-based prediction, otherwise known as "artificially-structured wishful thinking", explains why acts of "utter folly" seem to appear so frequently. Taking into account the complexities of managing the Irish border, budget-breaking organizational change, self-serving distortions of various political alliances, and rank uncertainty (such as the case outlined by MS earlier) it is extraordinarily difficult to reduce all this to models. Discounting uncertainty, fuzziness, imponderables, etc because they do not fit a model is the utter folly. Someone somewhere needs to be looking at a cascading series of worst-worst outcomes. The probability of a tsunami provoking a nuclear meltdown in an urban area would seem quite remote but try convincing the Japanese it does not merit consideration. Models may suggest the probable effects of Brexit given parameters A, B. C would be X but what are the implications of 3X or 5X? The United States has ample administrative capacity but that does not stop the Congress from creating tax policies that swell the national debt, threaten the safety net, and further counter-productive concentration of income because its financial backers and influence-peddlers flush with dark money prefer this. Modeling risks substituting process for critical analysis and informed judgment.
33
@usa999 I pretty much agree with you. Models are often "useful decision support systems" but decisions are ultimately made, or should be, by people. Which throws the spotlight on the intelligence and grit of the people making the decisions.
1
The classic Ealing comedy, Passport to Pimlico, showed how rapidly the British government could respond to the Burgundian breach of tight post World War trade controls.
3
For as long as the Tories run the show, there will be no investment in government and that includes hiring thousands of customs inspectors. In that respect, May has been as destructive as the Trump-Koch administration in its dismantlement of institutions meant for the public good, from health,bto education, trade, you name it.
How bad will it be? Worse than the damage caused by Thatcher and much harder to repair, considering that they never really recovered.
This is what we can look forward to from Trump and the GOP's scams, but on a larger scale. Our tax receipts are way down and the Fed, which Trump maligns daily, isn't anywhere near ready to deal with another recession, much less a depression.
The left, on both sides of the pond, had better fix themselves and be ready. Tough, really tough times are coming and we're not ready.
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Things Trump Did While You Weren’t Looking https://wp.me/p2KJ3H-2ZW
16
Every article that you title "wonkish" belies a smugness that always permeates your columns.
Do you think so little of the general populace that we can't discuss some basic GDP and technical figures?
Brexit occurred because the same economists who promoted economic liberalism, and EU membership, as all-win at no cost, were wrong. You even CITE Mexico's sluggish 1990s as an example of their shortcomings.
The BoE is wrong because foreign direct investment seldom goes to job producing enterprises. At best, these investments are for London high rises and after those are completed, nearby rents go up, productive middle-class businesses shutter, and the economy produces for an ever shrinking but richer 1%.
9
@Arturo
Dr. Krugman appends "Wonkish" to what used to be blog posts and now look no different from his op-eds. The difference is that the op-eds are written for a popular press audience and these Wonkish posts are usually heavy on policy and economic theory.
There is nothing smug about the label. This is a petty criticism on your part.
87
"What’s puzzling about the scenarios shown in Figure 1 is that they show these disruptions going on for multiple years, with barely any abatement. Really?" [etc]
Krugman here seems to be assuming that the model suggests one ongoing effect from disruption, rather than a short term effect that has unreversed knock on consequences. (EG, manufacturers and buyers responding to disruption by cutting the UK out of supply chains. then not switching back when the short term disruption abates.)
Is this assumption actually explicit in the BoE model, or one he has made himself?
2
Here's one example of why it might take a decade to resolve the trade frictions: in the event of a hard Brexit, the British Veterinary Association estimates a 325% increase in the number of vets needed to certify meat products for import and export. At the present time, half of the vets in the UK are not British nationals, and would be forced to leave. So you would need to increase the British veterinary work force by 650%, something that takes years of recruitment and formal education to accomplish.
108
@MS
Alternatively, the Brits may lower their imported meat consumption by 2/3 and everything will be fine.
I love this modeling and assumptions game...
2
@MS
Why would the non-British vets be forced to leave? There is immigration from both EU and non-EU currently and for those for whom immigration is important, the point was to be able to control it, not to stop it and deport people.