Brexit and the waning days of the United Kingdom

[Valmy]

Brexit. Has. Not. Happened. Yet.

Why is that so hard to understand.

It's not.

Why is it so hard to understand that people plan for the future?  Do you think that company CEOs are sitting in their offices wondering "golly, will Brexit actually happen?"  And then when it does, that they'll say "gosh, didn't see that coming, better do something about it?"

I get that but nobody knows what Brexit will look like yet so how could they possibly put together a plan? Do they think that whether or not we have a deal or not matters absolutely not at all? Is that, in your opinion, true?

[frunk]

Why is it so hard to understand that people plan for the future?  Do you think that company CEOs are sitting in their offices wondering "golly, will Brexit actually happen?"  And then when it does, that they'll say "gosh, didn't see that coming, better do something about it?"

I think most are expecting no Brexit or very soft Brexit.  A no deal Brexit is a different order of problems that could be quite serious, considering how close to that possibility we are.  If it happens with little warning (negotiations fail in the eleventh hour) it could be crippling in the short term.  The way the negotiations have been going on it's almost impossible to predict exactly what will happen, so most companies are waiting and seeing.

[crazy canuck]

Brexit. Has. Not. Happened. Yet.

Why is that so hard to understand.

It's not.

Why is it so hard to understand that people plan for the future?  Do you think that company CEOs are sitting in their offices wondering "golly, will Brexit actually happen?"  And then when it does, that they'll say "gosh, didn't see that coming, better do something about it?"

And why do some have such a hard time understanding that the uncertainty of the horrible hypothetical of a hard brexit is already having a negative effect on investment within Britain?

[alfred russel]

I get that but nobody knows what Brexit will look like yet so how could they possibly put together a plan? Do they think that whether or not we have a deal or not matters absolutely not at all? Is that, in your opinion, true?

I'm sure there are all sorts of contingency plans put together, but that isn't the point. In the face of significant uncertainty and with a high potential for disaster, I'd expect to see markets pull back. Instead they have been advancing. I don't think that brexit is a positive by any stretch, but markets don't seem to be pricing in a high risk of catastrophe.

[alfred russel]

And why do some have such a hard time understanding that the uncertainty of the horrible hypothetical of a hard brexit is already having a negative effect on investment within Britain?

Yi can speak up if he agrees or disagrees, but my point of view is that brexit has had a negative effect on investment within Britain. I think the evidence points to brexit having a negative, though muted, impact on investment in the country.

[crazy canuck]

And why do some have such a hard time understanding that the uncertainty of the horrible hypothetical of a hard brexit is already having a negative effect on investment within Britain?

Yi can speak up if he agrees or disagrees, but my point of view is that brexit has had a negative effect on investment within Britain. I think the evidence points to brexit having a negative, though muted, impact on investment in the country.

Then you are simply choosing to disregard the data referred to in the Harvard research I linked when we started this conversation - the one that found a decrease in investment due to the uncertainties.

edit: for others who may have missed it the first time

https://hbr.org/2019/03/brexit-is-already-affecting-uk-businesses-heres-how

Brexit has already reduced investment and employment growth
To estimate the impact of Brexit we analyzed the change in investment and employment for firms more and less exposed to Brexit via both uncertainty and expected sales impacts. There could be effects through both channels, but to the extent it is possible to distinguish between them using our survey data, we find that the strongest effects so far have come through uncertainty. The next chart shows that firms that see Brexit as being an important source of uncertainty have typically had lower investment growth since the referendum than those who see Brexit uncertainty as less important.

We use a difference-in-difference regression analysis of the post referendum survey data combined with accounts data for earlier years to quantify the effect that Brexit uncertainty has had on the growth of investment and employment by firms. Based on that we estimate that Brexit uncertainty was associated with around 6% lower investment in the first year after the Brexit referendum (between July 2016 and June 2017). We also estimate that employment has been around 1.5 percentage points lower with the effect being larger in the second year after Brexit (July 2017 and June 2018) than in the first.

[mongers]

And why do some have such a hard time understanding that the uncertainty of the horrible hypothetical of a hard brexit is already having a negative effect on investment within Britain?

Yi can speak up if he agrees or disagrees, but my point of view is that brexit has had a negative effect on investment within Britain. I think the evidence points to brexit having a negative, though muted, impact on investment in the country.

AR more than a trillion dollars of financial assets have left the UK due to Brexit or the uncertainty of it. Is that 'muted'?

[alfred russel]

And why do some have such a hard time understanding that the uncertainty of the horrible hypothetical of a hard brexit is already having a negative effect on investment within Britain?

Yi can speak up if he agrees or disagrees, but my point of view is that brexit has had a negative effect on investment within Britain. I think the evidence points to brexit having a negative, though muted, impact on investment in the country.

Then you are simply choosing to disregard the data referred to in the Harvard research I linked when we started this conversation - the one that found a decrease in investment due to the uncertainties.

edit: for others who may have missed it the first time

https://hbr.org/2019/03/brexit-is-already-affecting-uk-businesses-heres-how

Brexit has already reduced investment and employment growth
To estimate the impact of Brexit we analyzed the change in investment and employment for firms more and less exposed to Brexit via both uncertainty and expected sales impacts. There could be effects through both channels, but to the extent it is possible to distinguish between them using our survey data, we find that the strongest effects so far have come through uncertainty. The next chart shows that firms that see Brexit as being an important source of uncertainty have typically had lower investment growth since the referendum than those who see Brexit uncertainty as less important.

We use a difference-in-difference regression analysis of the post referendum survey data combined with accounts data for earlier years to quantify the effect that Brexit uncertainty has had on the growth of investment and employment by firms. Based on that we estimate that Brexit uncertainty was associated with around 6% lower investment in the first year after the Brexit referendum (between July 2016 and June 2017). We also estimate that employment has been around 1.5 percentage points lower with the effect being larger in the second year after Brexit (July 2017 and June 2018) than in the first.

That doesn't contradict anything I said...

[alfred russel]

And why do some have such a hard time understanding that the uncertainty of the horrible hypothetical of a hard brexit is already having a negative effect on investment within Britain?

Yi can speak up if he agrees or disagrees, but my point of view is that brexit has had a negative effect on investment within Britain. I think the evidence points to brexit having a negative, though muted, impact on investment in the country.

AR more than a trillion dollars of financial assets have left the UK due to Brexit or the uncertainty of it. Is that 'muted'?

Possibly. The total wealth of Briton is about $14 trillion.

https://en.wikipedia.org/wiki/List_of_countries_by_total_wealth

That figure will include funds overseas, but will be more than offset by funds invested from overseas. It also includes non financial assets, but I don't think that is so relevant. Also, the total assets in the UK will be significantly higher because that $14 trillion figure is net of debt.

The takeway is that only a small percentage of assets previously in Britain have left the country.

[crazy canuck]

I guess it depends on what you consider muted to mean

[The Minsky Moment]

Right . . . another thing I learned is that French GDP increased in 1915 and 1916. I suppose one could argue from that plunging into a murderous world conflict and losing a large swath of territory to foreign occupation is not a disaster economically because the short term economic effects were muted.  There sure wasn't an unemployment problem . . .

The reality is that advanced OECD economies with strong institutions are very difficult to wreck, particularly if they retain macro policy control. As long as the Bank of England still operates and the British people don't lose all their accumulated know how and human capital it's virtually impossible for politicians to completely screw up the economy in the near term, no matter how strenuously they try.

One response to this reality is to conclude policy doesn't really matter - you could nationalize the banks like Mitterand did in 1981 and it doesn't matter because GDP will still grow (it did). You can impose price controls - Nixon did it and the US survived OK. You can raise taxes to 80% likes the Swedes used to do. Free college for all - why not? the US has widly deficit spent before and lived to tell the tale.

I don't buy that line of argument,  The fact that a policy doesn't leave smoldering economic ruins everywhere is not a defense.

[alfred russel]

Right . . . another thing I learned is that French GDP increased in 1915 and 1916. I suppose one could argue from that plunging into a murderous world conflict and losing a large swath of territory to foreign occupation is not a disaster economically because the short term economic effects were muted.  There sure wasn't an unemployment problem . . .

You can easily see that France was troubled in 1915 and 1916 through national statistics. Maybe it doesn't show up in GDP growth and unemployment numbers, but it does show up in military casualty statistics and the percentage of territory under foreign occupation.

The reality is that advanced OECD economies with strong institutions are very difficult to wreck, particularly if they retain macro policy control. As long as the Bank of England still operates and the British people don't lose all their accumulated know how and human capital it's virtually impossible for politicians to completely screw up the economy in the near term, no matter how strenuously they try.

One response to this reality is to conclude policy doesn't really matter - you could nationalize the banks like Mitterand did in 1981 and it doesn't matter because GDP will still grow (it did). You can impose price controls - Nixon did it and the US survived OK. You can raise taxes to 80% likes the Swedes used to do. Free college for all - why not? the US has widly deficit spent before and lived to tell the tale.

I don't buy that line of argument,  The fact that a policy doesn't leave smoldering economic ruins everywhere is not a defense.

I don't think the policies you name were necessarily disastrous either.

I think what you and CC are struggling with is that I've said from the start that Brexit is a poor decision. I'm not defending it.

But compare the economic impact of Brexit on the average Briton to the economic impact of the Bush administration allowing the bankruptcy of Lehman Brothers. There is a reasonable case to be made that the latter has been more impactful.

[The Minsky Moment]

Right . . . another thing I learned is that French GDP increased in 1915 and 1916. I suppose one could argue from that plunging into a murderous world conflict and losing a large swath of territory to foreign occupation is not a disaster economically because the short term economic effects were muted.  There sure wasn't an unemployment problem . . .

You can easily see that France was troubled in 1915 and 1916 through national statistics. Maybe it doesn't show up in GDP growth and unemployment numbers, but it does show up in military casualty statistics and the percentage of territory under foreign occupation.

But compare the economic impact of Brexit on the average Briton to the economic impact of the Bush administration allowing the bankruptcy of Lehman Brothers. There is a reasonable case to be made that the latter has been more impactful.

Only if you assume that had Lehman been rescued, it would have completely transformed the fundamentals that caused the 08-09 recession.  That's a heroic assumption along the lines of arguing that putting a breathing apparatus on the canary in the coal mine will save the miners.

Fact is under your standard there is no policy decision in the last century in an advanced economy that would qualify as a disaster.  Even the firebombing of Japan and Germany in WW2 only did temporary damage and arguably set the seeds for the subsequent vigorous recovery.

By setting a standard that is virtually impossible to satisfy, you make it meaningless to compare events against that standard.

[celedhring]

Yesterday I witnessed the first real life usage of Brexitear. We were at a party, somebody said goodbye to everybody (hugs and all) saying he had to leave because stuff, but then he stayed on for like an hour more, and people started joking he was "brexiting us".

[alfred russel]

Only if you assume that had Lehman been rescued, it would have completely transformed the fundamentals that caused the 08-09 recession.  That's a heroic assumption along the lines of arguing that putting a breathing apparatus on the canary in the coal mine will save the miners.

Fact is under your standard there is no policy decision in the last century in an advanced economy that would qualify as a disaster.  Even the firebombing of Japan and Germany in WW2 only did temporary damage and arguably set the seeds for the subsequent vigorous recovery.

By setting a standard that is virtually impossible to satisfy, you make it meaningless to compare events against that standard.

Vigorously disagree. Decisions that led to major wars were disastrous. Decisions that enabled major financial crises were disastrous (we can quibble regarding what those were). Argentina was at one time one of the wealthiest countries on earth per capita: no longer: the decisions to get there were disastrous. There are numerous examples I'd consider to be disastrous.

But if the negative results cause you just to fall to the 24th country in the world in per capita income and your growth is at the lower end of the range in europe? Meh...