23 November 2016

A Bright Side to Brexit

While there is a lot of talk about wealth being lost, for the overwhelming majority of the British public, there is very little wealth to be lost, and Theresa May's plans to deal with the fallout involving the end of the stupid and self destructive austerity program:
When the initiative to take the United Kingdom out of the European Union was being debated, many people, including many economists, predicted the country would be hit with a severe recession. It didn't happen. The economy seems to be moving along fine, with no recession in sight, although the London real estate market is not looking very good. Of course the UK has not left the European Union yet, or even developed a plan to do so, but it is unlikely that many would want to place much money on that recession bet today.

Apparently, the conservative government has now abandoned its plans for further austerity and a balanced budget. It is expected to spend an additional $187 billion over the next five years (roughly 1.0 percent of GDP) to boost the economy and create jobs. According to the NYT, this spending is a direct response to concerns over the plight of working class people who voted for Brexit in large numbers.

This outcome is worth noting, because the boost to the economy from additional spending is likely to be larger than any drag on growth as a result of leaving the European Union. This would mean that the net effect of Brexit on growth would be positive. Of course the UK government could have abandoned its austerity path without Brexit, but probably would not have done so. Given the political context, working class voters who wanted to see more jobs and a stronger welfare state likely made the right vote by supporting Brexit. This doesn't excuse the racist sentiments that motivated many Brexit supporters, but it is important to recognize the economic story here.
If this continues, the wealthy may take a hit, but the bottom 99% might do quite a bit better.


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