Last week at this time, if one is to believe the popular press, the world economy was heading towards Armageddon; and blissfully unaware of it. To hear the popular narrative, one would think that the stupid voters in the UK, singlehandedly, in the course of an evening, managed to wipe out 20 centuries of Western civilizational progress. There has been talk that voters should be allowed the opportunity to correct their ‘mistake’, that the vote should be ignored, that the government should, by hook or by crook, by any means necessary, find a way to avoid doing what the British people voted for last Thursday.
The howling that has been done from various quarters, such as declarations by singers, actors, and other celebrities that the British people were ‘stupid’, and ‘throwing away prosperity’, or were ‘xenophobic’ says more about those people making the assertions than it does about the voters themselves. Most, if not all, of these celebrities lack training in economics or mass psychology and have no basis for their opinions. They are just parroting what they hear ‘experts’ saying. The experts could be right, or they could be wrong. For example, in 1981 Margaret Thatcher’s economic policies were denounced by 364 economic experts who stated in a letter that, among other things, that her policies would “threaten Britain’s social and political stability”. Certainly the belief that she and her supporters were “stupid” and “throwing away prosperity” was widespread. But history has proven Thatcher correct.
That is not to say that the critics of the Brexit vote are not right today. It is just that a consensus of the experts was wrong then, even though they were convinced otherwise. The saying that “economists have predicted 9 out of the last 4 recessions” is not a testament to their reputation for accuracy
So are they wrong? It is impossible to say right now. In the short run, there is bound to be some uncertainty, especially once negotiations over the “divorce settlement” with the E.U. start. And as the elite were entirely against the Brexit, look for every economic ‘hiccup’ to be blamed on those ‘stupid’ voters. But the idea that the world economy is going to collapse and that we are about to descend into an economic “dark age” is completely without merit for the following reasons:
1.) The United Kingdom is the world’s 5th largest economy.
Much of the commentary has focused on the idea that in punishment, Europe will stop trading with the U.K. The image proffered is one where the EU slaps Iran-like sanctions on Britain destroying its economy in the process. Maybe. But as the world’s 5th largest economy, many countries around the world will be will to trade with the U.K., even if the EU were not. No longer being part of the EU will allow Britain to form its own bi-lateral trade agreements with various countries, instead of being bound by EU rules which may not be beneficial for Britain. Whether future trade agreements are better or worse for Britain than what they currently have will be based on a variety of factors (terms of trade, negotiating skill, etc.). But they need not necessarily be worse. As the world’s 5th largest economy, Britain can’t simply be ignored.
2.) The big EU countries are running trade surpluses with Britain.
This means that big EU economies (Germany, Italy, and France, among others) are exporting to Britain than they are importing from Britain. In other words, cutting Britain off from their markets in ‘punishment’ is likely to hurt them more than it will hurt Britain. This means that a Brexit trade meltdown where Britain is cast out into the cold economic world is not likely to happen. And certainly won’t happen if Germany, Italy, and France oppose it.
3.) The largest British trade surpluses are with non-EU countries.
Of the 10 markets where Britain exports more than it imports, only 1 is an EU country (Ireland at #5). This indicates that Britain is dependent on non-EU countries for the bulk of its export sector. The British export sector is not going to shrivel up and die because of retaliatory EU action.
4.) The EU regulatory regime is not necessarily the optimal one for Britain.
As part of the EU, Britain has been forced to submit to a regulatory regime that has been produced by negotiations with 27 other countries. The idea that this regulatory regime is optimal for any single one of them is ludicrous. Being free of the EU will allow Britain the ability to craft a regulatory regime more optimal for its specific situation. Whether this turns out to be better or worse than the current arrangement will depend on the skill of policymakers. But policymakers concerned only with the U.K. are likely to come up with a more optimal regulatory regime for Britain than policymakers who have to take 27 other countries into account.
None of this means that the Brexit naysayers won’t ultimately be proven correct. There is a lot nobody really knows. Currently, the idea that the Brexit will be a bad thing for Britain (and that voters were stupid to vote for it) is taken as an unassailable fact. However, that celebrities and other know-nothings parrot what they have heard experts saying doesn’t make it so. And if experts, central bankers, politicians, and prognosticators were truly a bunch of folks who always get it right, then we would not have had the financial crisis and sluggish economic growth over the last 8 years. There are reasons why Britain might be better off out of the EU.
That there will be losers from the Brexit is a certainty. There will also be some winners as well. The howling from the elite indicates that they are pretty sure that the losers will be them.