One of the odd things about the Brexit debate before the referendum was the lack of a cost-benefit analysis. One side provided us with the costs. The other with the benefits. But I don’t recall much of a calculation which included both.
That’s partly because any such an analysis is impossible when the outcome of Brexit is still so ill defined. Not that estimates of what the EU would get up to have proven spot on either. In particular, we didn’t know what direction the country would take after leaving the EU.
As the pandemic showed rather conclusively, we didn’t have the slightest clue what’d happen in the end. And yet, even the pandemic failed to deliver on many of Project Fear’s predictions…
Secondly, we cannot agree on what a good or bad outcome is anyway. So it would’ve been a brave person to try and tally up the debits and credits in the nation’s name. As a certain someone called Boris tried to do in a vague way…
For each of us as individuals, however, the exercise was of course important. We each know what we value and want. And so we know how to vote. But still, there was a great deal of uncertainty tied to both outcomes.
This reveals a great deal about the political situation in the UK. The media and the political elites were so blindsided by the referendum vote when it came because they’re so out of touch with what people value and want. But that’s another story.
Today, I want to point out how the foggy future of post-Brexit is becoming rather clearer. And it’s not bad at all, once you keep something important in mind.
But, before we get to that, I’d like to point out that some sort of calculation may well be possible some day. A comparison of the UK within and without the EU. Because we will know what the EU continued on to become. And we’ll know what the UK goes on to become.
Of course, a perfect comparison won’t be possible, because you never know the counterfactual – what would’ve happened if the UK remained. But still, the comparison, as best we can make it, will be more accurate than most. And it will be rather interesting.
Back to what you need to keep in mind, in any such analysis…
Life is about choosing between alternatives and trade-offs. Brexit may only be marginally better than remaining in the EU. And it may take a long time to reveal this divergence.
To explain my point, consider this: I sort of doubt that UK politicians rank dramatically higher than EU politicians in the eyes of the public. And still, that small difference may matter.
Similarly, the UK hasn’t embraced the sorts of policies which will deliver all the benefits Brexit puts on offer for us. But it has adopted some of them.
Enough theory though – today’s message is that the benefits of Brexit are already emerging. The evidence is coming in. And it is adding up.
The first example comes from the OECD, which expects the UK to be the fastest growing economy in the G7 in 2021 – the year of Brexit!
It’s performing so well that, “Bank of England First Among Major Central Banks to Raise Rates” reported Barrons.
Notice the word “major” there. Those who see the UK as a “little England” that cannot compete on the global stage… well, why can our central bank be called “major” then?
But that’s not the point here. The point is that the UK economy recovered faster than others, requiring tighter monetary policy to rein in its recovery earlier than others. Or, as the International Monetary Fund (IMF) warned, “demand was too strong in the economy”.
And that divergence is set to continue. The IMF and Goldman Sachs have the UK outgrowing the G7 and other developed economies around the world, and the broader EU too, in 2022.
In fact, it’s set to grow faster than China. It’s also set to grow faster than US President Joe Biden’s stimulus flooded United States, not to mention faster than the euro area.
It’s no wonder an Ipsos MORI poll had rejoiner sentiment at just 24%, with 34% believing that Brexit had been the right choice.
But the Financial Times has a very different angle:
The UK will trail other developed countries in its economic recovery from the pandemic in 2022, with economists polled for a Financial Times survey predicting that it will be held back by political uncertainty and the lingering after-effects of Brexit.
Of almost 100 economists, a majority said that UK living standards would worsen in the year ahead, with poorer households hit hardest by soaring inflation and higher taxes.
That pretty much settles it, for me. If the majority of economists say that the UK is in trouble, then we’re in for a boom.
The key narrative for the economists polled were Brexit disruptions, but also the withdrawal of fiscal stimulus ahead of other nations. This would lead to sub-par growth. After all, if the government doesn’t grow the economy, who will?
Or perhaps the government is withdrawing stimulus because of a decent economic growth outlook. Or perhaps the economic growth outlook is good because government is finally getting out the way.
You can get whatever narrative you like, in economics. Governments have bandied them all about in the last century, after all.
But all governments do still struggle with the maths, which is harder to fudge. Back in October, the OECD warned “World Faces Fiscal Problems Much Worse Than Those From Covid”. You’d think that the first nations to scale back spending would be best placed to face such problems. And the UK is one such nation. Which is ironically why economists expect it to underperform in a poll.
As I mentioned above, all this is a question of relative terms. It’s not as if our vaccine rollout was flawless – it’s just that we were faster than the EU, for example.
And that nature is back on display during this energy crisis. A hullaballoo has broken out inside the EU over whether nuclear energy and gas is to be considered green under the EU taxonomy. The debate was already delayed once. But it’s back on now.
If ever there was an ironic name, it is “The EU taxonomy for sustainable activities”. No doubt Nigel Farage would pronounce it “Tax-on-me” if he were still leading the largest political party in the European Parliament.
The debate is between the newly elected German Greens party and the pro-nuclear French. Well, between their lobbyists, anyway.
Then there’s the EU’s version of the fiscal issue I just mentioned. The Europeans are looking to reform the fiscal constraints imposed on national governments. Good luck sorting that out.
Meanwhile, the UK is free to go its own way, not needing to agree with a very long list of nations with divergent interests. It can get policy done… for better or worse… probably both.
But what if Brexit is going too well? What if our boom triggers the UK to raise interest rates too far too fast? What if the bust begins here too?
Historically speaking, tighter monetary policy eventually pops the bubble which the preceding looser monetary created. It’s only a matter of time.
I will have more to say on that tomorrow.
Editor, Fortune & Freedom
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