Comments due by May 5 , 2016
ON JUNE 23rd Britons will vote on whether their country should stay in the European Union. They face a bewildering range of estimates of the potential economic effects of a Brexit. By 2030 Britain’s GDP could be as little as a fraction of a percentage point below the level it would otherwise reach, or as much as 9.5 percentage points lower, depending on just whom you ask and what they assume about the future. While such analyses are useful (particularly in their clarifying agreement that Brexit would do at least some damage to the British economy over the next 15 years), they are also guilty of providing a spurious sense of precision. When attempting to predict the fate of the British economy after Brexit, it is useful to keep two rules of thumb in mind. The first broad principle should hearten the Brexiteers: over long periods, GDP per person in Britain has risen surprisingly steadily (see top chart). It has usually taken a war to cause that growth to deviate much from the underlying trend—although there was a long and painful slowdown during the 1920s and early 1930s, when Britain stuck doggedly to a contractionary monetary policy. As soon as Britain abandoned the gold standard in 1931, it was off again on a long streak of steady growth (briefly interrupted by the disruptions of the second world war). Indeed, stable growth in output per person continued until the financial crisis of 200708. Joining the EU in 1973 does not seem to have accelerated it much, just as crashing out of Europe’s system of pegged exchange rates in 1992 did not slow it down. Other seminal events— the loss of Britain’s empire in the postwar years, or its balance of payments crisis and IMF bailout in 1976—also seem to have had no impact on the trend. Past performance is no guarantee of future returns, but Britain’s history suggests that the costs of Brexit will probably not be as large or as lasting as the more dire prognostications maintain. As the Remain campaign often points out, membership of the European Union has not prevented Britain being one of the most flexible, and least regulation bound economies in the rich world. That flexibility would help Britain adjust to the shock of Brexit, as would the demand boosting drop in the pound that would almost certainly follow a vote to leave. However, a modest cost is still a cost. Moreover, whether a member of the EU or not, Britain is a European country, deeply and irrevocably linked to the fortunes of the continent. As annoying as it must be to the Leave campaign, only 21 miles (33km) of the English Channel separate Britain from France (and there is no distance at all between Northern Ireland and the Republic of Ireland, or Gibraltar and Spain). From Paris, Brussels and Amsterdam, it is a far shorter train journey to London than to Berlin. Britain is thoroughly, helplessly European, and always has been, since its first prehistoric settlers blundered over the land bridge from the continent. The European connection has big implications. Trade with far off countries is costly, in terms of money and time. A paper published in 2012 by David Hummels of Purdue University and Georg Schaur of the University of Tennessee finds that every day goods are in transit adds a cost equivalent to a tariff of between 0.6% and 2.1%. Countries therefore trade most heavily with close neighbours. More than 50 years ago Jan Tinbergen, a Dutch economist, observed that trade seemed to follow a “gravity model”, meaning that trade flows were a function of both the distance between trading partners and their size (or economic “mass”). They were Britain’s dominant trading partners three centuries ago, when Europe accounted for 75% of British trade. And they are Britain’s dominant trading partners now, accounting for roughly 50% of its trade, despite the fact that the rest of the world accounts for a much bigger share of global economic activity now than it did in the 18th century (see bottom chart). In fact, trade between Britain and the rest of the EU is larger than geography alone would predict, according to a recent analysis by the Centre for European Reform, a thinktank. It calculates that the flow of goods and services across the Channel is 55% greater than distance and economic mass alone would imply. What is more, that extra activity is a genuine bonus. It is almost entirely made up of new economic activity that would not otherwise take place, rather than exchanges diverted from partners outside the EU by the single market’s external tariff. The integration fostered by European institutions nurtures crossborder supply chains and trade in services—a British speciality. Britain’s exports of services to the EU are larger than those to North America, Japan and the BRICs combined. The EU, in effect, shrinks the distance between European economies even further. Tilting at geography In other words, the push for Brexit is quixotic. However close the cultural affinities between Britain and its partners in the Anglosphere, the contribution of their trade to British output is much smaller than the EU’s, as are the contributions of the world’s big emerging economies. A Brexit would not delink Britain’s economy from the rest of Europe; it would merely worsen the terms on which trade is conducted and reduce Britain’s influence in European affairs. History suggests that the choice to leave the EU would probably not prove a calamitous one in economic terms. That does not mean it would be astute.
This piece encapsulates the difficulties, implications, and benefits trade has on the global economy and how that is interpreted in the context of the nationalistic framework.
ReplyDeleteBrexit is one of the best examples of nationalism and trade, especially for an economy that is doing well. What is crucial to understand in Brexit, and something that this piece underscores, is how cultural associations can be isolationist. Britain does not feel they are culturally aligned with the EU, which may pushes the Brexit agenda. While that may or may not be true, it would be beneficial to be in the EU to any limitations placed on trade behaviors between Britain and the EU should Britain elect to leave.
Cultural associations should not be neglected as they are foundational to national identity - but to use that as a reason to leave the EU would be unwise considering Europe is Britain's largest trading partner as the article notes.
Cultural dissociation could perhaps be an internal issue to Britain and to externalize it via Brexit my not be very wise in the long run.
In this article, it makes me think of the political drag on the economy that empire builders create. And all the talk of Brexit proves that political machinations, meant to keep alive the divisions of yesterday are alive and kicking.
ReplyDeleteDivisions exploited, re-designed by special interest to create an economic advantage. So is the talk of dissolving the European Union but a reaction to Euro-negative rates that are meant to create a dis-advantage for the Pound. Or is it a family feud thing.
Seems to me from reading this article that there is no special advantage to separation of Britain from the EU. However, I would think there is a fueling need to do so. And if I am interpreting the article correctly, although there will be complications regarding trading when separating, Britain is still self sufficient enough to be on it’s own. If the fueling need is national identification as it’s own entity, maybe there could be a benefit to that. I may be wrong though.
ReplyDeleteFurther, they have all their financial history bonded to that of the EU, which would mean, at least from an audit perspective, there would be a lot of carving out from the EU financials on a governmental level, which in turn can become a huge cost for them. So that’s another burden they must be prepared for. This reminds me of other instances where I wonder what the benefit is based on national identity. Example, how I cam to the understanding that Puerto Rico wanted to be considered a state, or on a more local level, how LI wanted to be a borough of NYC, or how Brooklyn is a borough but used to be a city on it’s own.
The Brexit does not seem to have any real, definite advantages or disadvantages. After separation from the EU, there will undoubtedly be complications with trade but I do not think it would be detrimental to the economy in the UK. The British do not identify as Europeans and therefore I understand wanting to remove themselves from the EU. But I do not see identity concerns as a valid reason to leave the EU, considering the many complications that may be faced in the event that Britons choose to leave.
ReplyDeleteBritain exiting the EU has no forecasted downfall, the possibility is the Pound falling slightly because of the possible trade changes between other European nations and the U.K. Britain has already tried to remove themselves from the EU by using the Pound as a currency rather than the Euro. It is a risk to Britain's financial stability to remove themselves from the EU, so why 'fix something thats not broke?' Support for Brexit is balanced at the moment with a vote likely to take place in 2017.
ReplyDeleteBasing my comments solely on this article, what I got out of it is that Britain has not been negatively affected by its entering the EU. As the Remain campaigners say being a part of the EU hasn't altered Britain's minimally regulated economy. Seeing that the trends of growth are not related to its membership to the EU, one should then focus on which of the two options would be riskier for Britain. As trade relations, and other important affairs, are facilitated by being an EU member, a strong argument can be made in favor of staying a member. I personally do not find that nationalistic drive should force countries to take actions but they should rather look at what will benefit the economy and the life quality of its middle class. However, Britain's is a strong independent power as well, and a Brexit would not have as severe an effect as it would to other European candidates for an exit from the EU, such as Greece.
ReplyDeleteOn June 23rd Britain will vote for a Brexit. But will Britain in fact gain an advantage from exiting the European Union? This articles provides both arguments for and against the Brexit. On one hand studies say that in the long run Britain's GDP growth will suffer from this change. On the other hand Britain has been showing a constant growth in GDP per capita and without the EU regulations restraining Britain's flexibility it might strive thanks to the Brexit. Regardless of the result of Brexit Britain will still be economically integrated with Europe. It is connected geographically to major economic centers and it accounts for 50% of Europe's trade. Since Britain's trade is still dependent from the EU it is unwise to adhere to Brexit. Britain would just loose its influence on the EU and, although still trading with the EU, the terms of trade would worsen
ReplyDeleteJack Salisbury | ECO-360
ReplyDeleteThis issue has been of particular interest to me as of late, in large part due to the fact that I am a British citizen. That said, I firmly believe that the UK should remain in the EU.
Much of the argument to leave the EU revolves around job loss to migrants, securities fears due especially to the acceptance of refugees and immigration, and the cost associated with being part of the EU. In my opinion, the line of argument regarding immigration and refugees is largely fear mongering and nothing more. There is no such suggestion that leaving the EU would result in a substantial decrease in immigration or a refusal by the UK to accept refugees. The idea put forth by the "out" campaign that leaving the EU would result in a safer UK and more job opportunities for it's citizens has no basis in fact and it patently false.
The argument that the cost of remaining in the EU is one that is less disingenuous. Though, while the concern is more sincere it still fails to consider the "net cost" of EU membership after accounting for the benefits the UK receives.
Furthermore, the "out" campaign would be in a better position argue their side if David Cameron's new agreement regarding UK EU membership provisions didn't address some of their key points. For example, that agreement has cut the amount of benefits low paid workers from other EU nations can claim when working in the UK, established the UK will never joint the Euro, and put safeguards in place to protect London, England's financial capital, from Eurozone regulations. Additionally, the UK has made it explicitly clear that we do not intend to aid in moving toward a closer union of member states. It is my position, and that of the "in" campaign that this agreement has made irrelevant many of the important and more genuine complaints of the "out" campaign. I believe that when you look critically at the benefits the UK would receive by leaving the EU it is clear that they do not come close to outweighing the benefits we receive by staying in the EU.
This article presents a lot of different viewpoints. I feel like this article is presenting two main points. One is that britains are pretty dam efficient on their own aside from times of war.If they were to leave the european union they would not suffer absurdly. However, all in all this article finds a brexit to be a poor business move. The flow of trade between Britain and other european countries is critical to their economy and a brexit would only slow it down.
ReplyDeletePersonally I feel like if the british feel strong enough about this matter then they should not be afraid to break away. The studies support that the loss would not be catastrophic to their economy. If not, it is only benefiting their flow of trade by staying a part of the euro.
Although their are many benefits associated with being a part of the EU as far as trade is concerned, the costs are indeed high. The UK is 1 of 10 member states that pays more into the EU budget than its receives. They payed 8.8Bn euros in 2014 and 2015, they could put that into their own economy and try to break through their stagnent job growth numbers. Trade benefits are obvious when discussing how close they are to the EU and new trade agreements will be necessary if they were to leave the EU. That being said if a free trade agreement is reached then both parties should benefit because it will be freer flow of capital and goods between them. Additionally, turmoil in the EU is holding back the UK economy because of the additional funds that they have to pay in order to remain a member state. The EU on the other hand may need the UK backing because if they were to leave then an already struggling EU will squeeze its member states even more.
ReplyDeleteIn the UK, the implementation of the Brexit does not have any outweighing pros or cons. If Britain is the leave the European Union, Britain will likely be able to hold its own but there will of course be economic drawbacks. The relationship it will have with the rest of the European nations will probably worsen as Britain focuses on trading with economic powerhouses outside of the European Union. The proximity between these nations creates an inevitable flow of trade and good relationships, however, if Britain leaves the European Union, there will be limited benefits. Overall, without the EU's regulations, Britain may be able to benefit more without being a part of the EU, but will they be able to stand alone as a force in the powerful economic world?
ReplyDeleteLooking through the analysis presented in this article the Brexit does not have any true explicit disadvantages. It seems that The EU and their events have little to no correlation to Britain's economy. Britain was able to demonstrate they are able to operate stronger independently by not adopting the euro, the pound is valued much higher. There is no way to say for certain what the implicit cost that come from the Brexit. There will certianly be tension between with European nations causing more regulations on trade which could hurt Britian in the long run. While Britain will be able to stay strong without the EU and there are no large benifits from staying in, I do not think they will elect in favor of a Brexit.
ReplyDeleteBrexit is a topic of much heated debate for many reasons. Great Britain has been considering leaving the European Union in recent years and it will likely come to fruition as it is currently one of the most flexible economies within the EU already. The reasons for why it should leave are starting to outnumber the reasons for it to stay, and we are seeing poor performance from some countries like Greece, Portugal and Spain harming the British economy by association and proximity. Also, Great Britain is unique in that it hasn't adopted the Euro and has traditionally benefited from a historically strong currency in the pound sterling. Whether or not Great Britain will leave the EU or not is not necessarily an issue of "if" anymore, but "when."
ReplyDeleteAs expressed in the above article, the implementation of Bretix is a sensitive topic during this time. Bretix exhibits nationalism and how it has implications on a trade economy level. Many question whether Great Britain will remain a part of the European Union. The article also notes that Great Britain has been able to perform without adopting the euro currency, and that their pound has held a strong value, demonstrating their ability to be pretty self sufficient.
ReplyDeleteIn addition, the UK has been hit with heavy expenses relating to being a part of the EU and would face expenses when and if they decided to leave. Trade is a huge concern during this time. If the UK decides to disconnect, this will negatively impact the trade economy.
Brexit is an abbreviation of "British exit". It refers to the possibility that Britain will withdraw from the European Union. The country will hold an in-out referendum on its EU membership on June 23. David Cameron announced support for a referendum on Britain's EU membership in 2013. He said that the country would hold the vote before 2017 if the Conservatives were re-elected in the May 2015 general election. They were, and Cameron pursued a renegotiation of the terms of Britain's membership, to be followed by a vote on Brexit.
ReplyDeleteCameron supports the "in" or "remain" side, arguing that the renegotiated terms he secured with European Council President Donald Tusk are favorable to Britain. Skeptics on both sides see the renegotiation as political theater, which Cameron was forced to perform as a result of his prior sympathy to euroskeptic (anti-EU) arguments. They reason that this skepticism was not completely genuine, but at least partly calculated to head off electoral challenges.