Brexit macroeconomics

2 July, 2016 at 17:11 | Posted in Economics | 6 Comments


I’ve received several thoughtful responses from economists I respect, all making a particular argument about the effects of Brexit-induced uncertainty. It goes like this: right now, firms don’t know how closely Britain will be tied to Europe, so it makes sense for them to postpone investments until the situation clarifies …

Doesn’t this argument suggest essentially the same effects from any policy negotiation whose end result isn’t known? Why don’t we say that the possibilities of TPP or TTIP are contractionary, because firms have an incentive to postpone investment decisions until they know whether these agreements actually happen? Somehow, though I’ve never heard anyone argue for the depressing effects of pending trade liberalisation …

Could I be wrong about all of this? Of course! But everyone really should ask where the consensus about Brexit macro is coming from.

Paul Krugman



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  1. I love it!

    “… everyone really should ask where the consensus about Brexit macro is coming from.” — PK

    “… every tiny little bit of televised reaction to the successful “Brexit” vote was horror and the prediction of catastrophe… I wonder which side scripted that news.” — Arthurian

    The EU is less than 25 years old. The world’s media move as one to the view that we cannot unwind a 23-year-old mistake.

  2. You’ll enjoy Krugman’s review of Mervyn King’s book in the NYRB.. King is a chapter 12 adherer; it appears.

  3. NAW NAW: thats not Krugman’s point. An intentional misreading.

  4. Pulling the rug of the whole Brexit fearmongering consensus in one small blog post.

  5. (Not) Funny when one knows how utterly political opportunistic Krugman himself was in his attack on Sander’s economic plan. – Goes to show that political ‘values’ should be kept out of economic analysis. Or, as Weber said, how values undermine every analysis, everytime they interact.

    • For me the demise of the EU would be a tragedy. Given the rise of Trump and events in the Middle East the EU is a major force for tolerance and social justice that is needed more than ever. The regrettable result in the UK I think was a rejection of the social-democratic consensus of the 1990s which pretty much all neo-classical economists support (apart from a few Chicago die-hards on the right and some heterodox economists on the left). While immigration was important as an issue in certain areas, it was more fundamentally anti-globalisation and a rejection of the direction the country the political class has been taking the country over the last three to four decades. It had very little to do with the EU or Europe in particular; it was an anti-establishment vote. This should be a warning for many other EU countries as well as for Clinton-Krugman. The big losses for Remain were in traditional labour heartlands – areas where there was once a concentration of heavy industry. The growth of financial services in London has not compensated for the decline of this industry as neo-classical theory says it should.

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