Brexit and the waning days of the United Kingdom

[Zanza]

I guess the damage to Britain's democracy far outweighs that to its economy.

I don't see any damage to its democracy.

Britain's inept political class is not a result of Brexit. It has been revealed by the current situation, but that isn't the same thing.

Okay, your perception then differs from mine and that of quite a few commenters in that I and others see a major constitutional crisis in the UK.

[Valmy]

I guess the weird thing is we had not discussed the economy in years in this thread and suddenly Dorsey jumps in with this bombshell THAT WE HAVE ALL BEEN WRONG!!111

Since this subject has not been discussed in so long I am in really no position to address what we are looking at except to say again that Brexit has not occurred and we still do not know on what terms it will occur.

I know there is more to Brexit than trade, but trade seems to be the biggest issue that is getting discussed. That is an economic issue, obviously.

You are right that Brexit hasn't happened, but in neither the financial markets nor GDP data is there a sign that a major disruption is happening or about to happen.

We have not discussed the trade issue in years since we have no idea what trade will look like once Brexit has happened.

How are the financial markets or GDP data supposed to reflect a complete unknown that is about to happen? The trade deals may be left in place or be totally disrupted or someplace in between, nobody knows.

So when you swoop in and claim that there will be no major economic disruption you might be completely right. But nobody really has any grounds to claim this, or claim otherwise, until we know what exactly Brexit means and what will happen. I know we are supposedly just days away but nobody knows that I can see.

So your big contrarian point is not really contrarian to anything substantial anybody has talked about in quite some time.

[alfred russel]

We have not discussed the trade issue in years since we have no idea what trade will look like once Brexit has happened.

Well this is languish in 2019...nothing of any substance gets discussed much. But this isn't true. I'll find an example if you disagree.

How are the financial markets or GDP data supposed to reflect a complete unknown that is about to happen? The trade deals may be left in place or be totally disrupted or someplace in between, nobody knows.

Generally:

1) uncertainty depresses prices, and
2) theoretically "the market" includes available public information to estimate future returns.

So when you swoop in and claim that there will be no major economic disruption you might be completely right. But nobody really has any grounds to claim this, or claim otherwise, until we know what exactly Brexit means and what will happen.

Okay. But languish has been filled with opinions of Brexit being terrible for years (an own goal scored by the british public). I don't see a lot of people (such as yourself) contesting this saying, "hey we don't have grounds to claim this. it may not be bad at all."

[Valmy]

Well this is languish in 2019...nothing of any substance gets discussed much.

Well I disagree completely. If anything it has gotten way too heavy around here, the goofy stuff that used to go one has kind of dried up. But hey feel free to find that substantive place elsewhere.

But this isn't true. I'll find an example if you disagree.

I think people have been saying a no-deal Brexit would be bad but not necessarily that we are certain to have a bad outcome at this juncture. Feel free to find an example.

Okay. But languish has been filled with opinions of Brexit being terrible for years (an own goal scored by the british public). I don't see a lot of people (such as yourself) contesting this saying, "hey we don't have grounds to claim this. it may not be bad at all."

Brexit is terrible. Either 1. it leaves Britain's economic situation in tact but removes much of its power over its own affairs or 2. it is very disruptive from a trade perspective and puts it in a weak position to rebuild it. And then I think I have plenty of grounds to claim that the political trouble brewing up in Ireland are a big cause of concern.

But the economy might rock along through it...depending on how it goes down.

Generally:

1) uncertainty depresses prices, and
2) theoretically "the market" includes available public information to estimate future returns.

Ok but we are talking about something specific. Does "the market" know something nobody else does?

[alfred russel]

Valmy--if you want to see a specific example of a discussion on trade related impacts of Brexit, see the pallet related posts around #8371.

[viper37]

Generally:

1) uncertainty depresses prices, and
2) theoretically "the market" includes available public information to estimate future returns.

Absolutely true.  But in this case the market still expects a soft Brexit. The uncertainty is not yet quantified.  It will be once there is no more solution than the worst.  Markets are quite often more hopeful than pessimistic (see US markets with the election of Donald Trump and the subsequent mini crash).  That is why there are corrections on the market.

[Iormlund]

The biggest impact I see so far is in Britain's public image.

I'm bombarded by ads from Scotland trying to distance itself from its southern neighbors, so it must be a widespread perception.

[Josquius]

Generally:

1) uncertainty depresses prices, and
2) theoretically "the market" includes available public information to estimate future returns.

Absolutely true.  But in this case the market still expects a soft Brexit. The uncertainty is not yet quantified.  It will be once there is no more solution than the worst.  Markets are quite often more hopeful than pessimistic (see US markets with the election of Donald Trump and the subsequent mini crash).  That is why there are corrections on the market.

Yes, its interesting really. Over the past 3 years the market has reacted sharply to any developments in Brexit.
Lately though... they're pretty stable at a soft brexit level.

[Valmy]

Valmy--if you want to see a specific example of a discussion on trade related impacts of Brexit, see the pallet related posts around #8371.

Ok. I see a bunch of posts discussing difficulties around trade regulations. Which might or might be a problem.

[The Minsky Moment]

Country         2018 GDP Growth Rate               Q4 2018 GDP Growth Rate          2018 Per Capita GDP (USD)
UK                1.4%                                              0.2%                                       $42,593
Germany      1.4%                                               0.0%                                       $48,300
France         1.5%                                               0.3%                                       $41,451
Spain           2.6%                                               0.6%                                       $30,534
Italy             0.9%                                               -0.1%                                     $34,247
Canada         1.8%                                              0.1%                                       $45,095
USA              2.9%                                              0.5%                                       $62,887

Not sure what this is supposed to prove . . .
Eurozone grew at 2.4% in 2017 as opposed to 1.8% in the UK.  Eurozone at 1.8% in 2018 as opposed to 1.4% for the UK.

If you use those numbers as opposed to listing some individual countries, you would estimate the Brexit cost at 0.5% of GDP annually, which would amount to $12-15 billion per year (US$).  Perhaps not quite a DISASTER but not loose change either.

Of course, it doesn't really work that way - there could be any number of reasons for that differential, some of which have nothing to do with Brexit.  It could be the Brexit effects are worse but there are counterveiling effects in Britain's favor or it could be that the Brexit effects are less than that but there are additional headwinds.

There also is the simple fact that Brexit hasn't happened yet, and the GDP numbers could reflect different and even conflicting assumptions by private actors about how it will play out.

There isn't any hard mathematical way to quantify impact, especially before it happens.  My own sense is that Britain should have a natural, built-in growth advantage because it has its own currency and independent monetary policy - thus, one would expect all else equal that the UK would be outgrowing the EZ.  That advantage has been somewhat counteracted in recent years by a more pro-growth attitude from the ECB.  Nonetheless the GDP lag in 2018-8, while not conclusive proof of anything, is not a good sign.

[Admiral Yi]

I'm with you Fredo.

[alfred russel]

Not sure what this is supposed to prove . . .
Eurozone grew at 2.4% in 2017 as opposed to 1.8% in the UK.  Eurozone at 1.8% in 2018 as opposed to 1.4% for the UK.

Eurozone is not as bad as the EU in this regard, but there are less developed markets in the zone that presumably should grow faster than the UK.

If you use those numbers as opposed to listing some individual countries, you would estimate the Brexit cost at 0.5% of GDP annually, which would amount to $12-15 billion per year (US$).  Perhaps not quite a DISASTER but not loose change either.

I agree that 0.5% of GDP is not loose change, but this thread is over 9,000 posts. It didn't get that long because of a discussion that brexit is resulting in slightly lower growth than the Eurozone overall but still slightly better than Italy.

[The Minsky Moment]

I don't think that the 9000 posts were principally motivated by the economic impact.  In fact, the focus on economics was a key failing of the Remain campaign.
Brexit is first and foremost a political project.  And as a political project, the early returns are extremely bad.  It is clear there is no consensus on what it is supposed to mean, exactly what is supposed to be achieved besides some theoretical end state where the UK is not a formal member of the EU ("Brexit means Brexit"), and no clue whatsoever how to get to the non-existent objective point. It has exposed grotesque incompetency in both major parties. It has raised some doubt about the future of the UK government's greatest achievement in the last 25 years - helping bring peace to Ireland. It has re-irritated the Scottish question.  It obviously has done little benefit to the UK's most significant diplomatic relationship - the EU.  It has sucked up political oxygen and taken all focus away from other priorities.

To the extent Brexit means anything it all, it appears to mean making it harder for other Euro residents to enter the UK.  That is both ugly politics and lousy economics. A shame to see a great nation tie itself into knots for 3 years just to pander to furriner bashing.

[Valmy]

I agree that 0.5% of GDP is not loose change, but this thread is over 9,000 posts. It didn't get that long because of a discussion that brexit is resulting in slightly lower growth than the Eurozone overall but still slightly better than Italy.

Man you are just going to keep beating that strawman to death no matter how obvious nonsense it is.

[Valmy]

I'm with you Fredo.

Ok so what am I missing then?