The experts strike back!

[Pelle Svanslös]

he Brexit debate is an endless source of mirth for anyone with a dark
sense of humour. My favourite quote is from Michael Gove, Britain’s
environment secretary.

Just before the EU referendum in June last year, Gove, then justice
secretary in David Cameron’s government, dismissed the all-but-unanimous
view of economists and others that a decision to leave the EU would
deeply damage the British economy. “People in this country have had
enough of experts,” Gove testily explained, referring to “experts from
organisations with acronyms, saying they know what is best and getting
it consistently wrong”.

The early post-referendum evidence suggested, to the surprise of many –
or at least to many of the experts – that Gove was right and they were
wrong.

To explain this, observers pointed to the big post-referendum
depreciation of the pound, which promised to make British exports more
competitive. They suggested a UK freed of burdensome EU regulations
could offer a more business-friendly environment and lower corporate tax
rates, and thus become a magnet for foreign investment.

Most provocatively, they questioned predictions that the uncertainty
surrounding Brexit would have a profoundly adverse impact on economic
performance. Economists cannot measure uncertainty directly, they
reminded us, while proxies, like the frequency with which the term
appears in the financial press, do a poor job of capturing its effects.

ndeed, we economists have had little success at reliably predicting when
and why uncertainty arises. And there is little agreement on the
severity of its impact. Maybe we would be better off placing less weight
on the effects of uncertainty when making forecasts in general, and in
the case of Brexit in particular.

But this view looks rather less compelling with the passage of a couple
of additional quarters. British consumer confidence is down, with
spending in the second quarter of this year falling to its lowest level
in four years. The Bank forecasts a whopping 20% decline in business
investment in the coming years; Brexit’s champions predicted the opposite.

The only surprise is that it took so long for the consequences to
materialise. It evidently took more time than expected for the
implications to sink in – to understand that “Brexit means Brexit,” as
May’s pithy tautology put it. It took time to realise that there would
be no smooth break with the EU and that negotiations would not be
wrapped up in two years. There might be no free-trade agreement, no
passporting rights for British banks seeking to do business in the EU,
and not even an agreement on landing rights for British aircraft on the
continent.

And now the chickens are coming home to roost with a vengeance (if
chickens could be vengeful). Consumers, seeing the pound depreciate,
front-loaded their spending in the second half of last year, because
they understood that import prices would rise. Having incurred
additional debt, they are in no position to continue spending at that
earlier pace.

Sterling’s substantial depreciation, moreover, augurs a significant rise
in inflation, which means the Bank will have to start raising interest
rates sooner rather than later. The consequences for growth will not be
pretty. The Bank will no longer be the Brexiter’s friend.

What the late, great MIT economist Rudi Dornbusch – that most expert of
experts – said about Mexico’s peso crisis in the 1990s applies to the
damage from Brexit as well. A crisis, he noted, “takes a much longer
time coming than you think, and then it happens much faster than you
would have thought”.

https://www.theguardian.com/business/2017/aug/10/experts-strike-back-how-economists-proved-right-on-brexit

[calim...@gmx.de]

OK, we will gave to send CARE packages to the UK in a few years.
Maybe even Borussia Mönchengladbach will be able to buy some Chelsea players under favorable conditions ... ?


Max