No time to organize thoughts, so here are a few synaptic firings.
–I was disappointed by the outcome but not surprised. As I’ve written, this was in no small part a referendum on immigration, and the timing of the vote interacted with rising anger about this and other impacts of globalization.
–The structure of the EU–a common market with free flow of people and goods–has a great deal to recommend it, especially given Europe’s bellicose history. But the incomplete architecture–the absence of a fiscal and banking union–along with gross mismanagement–fiscal austerity, punitive actions by Brussels and Germany, non-management of immigrant flows–surely led “Leave” voters to discount the benefits of EU membership.
–I highly discount all the economic predictions in terms of the cost of the Brexit in terms of GDP, jobs, etc., except the following:
a) volatile financial markets over the next few days and large losses to the value of the pound, euro, and yen relative to the dollar;
b) the Fed may further flatten its “normalization” path.
–What about growth effects? The reason I discount the predictions is that such predictions must be based on the past and we’ve got no record to forecast off of. Moreover:
–The political economy of the Brexit impact is really tricky. At one level, I’d like the EU to avoid negative growth impacts by smoothly renegotiating the UK’s reentry into the common European market. But, as many pundits have argued, that would be firmly against Brussels’ interests, as it would signal to other potential leavers that leaving is costless.
–However, there’s a deeper problem than that. The UK can’t possibly get back in without accepting at least some, and likely most, of the conditions 52 percent of the voting electorate just rejected. EG, how could EU authorities possibly say, “we’ll give you back full, no-tarriff trading privileges with no requirements on freedom of movement for EU citizens?” That’s not a matter of disciplining other potential leavers; it’s part of the fundamental structure of the EU.
–I predict Scotland with be anxious to leave the UK as they will want to rejoin the EU. Look for another referendum before too long.
–Finally, I saw this WaPo headline: “Stop underestimating Trump. ‘Brexit’ vote shows why he can win.” I get–and bemoan–the Trumpian dimensions of the outcome, but here’s the thing. I believe that to the median Leave voter who might share some Trump sentiments–anti-immigration, anti-globalization, turn back the clock, insulate–the downside of leaving the EU looks a lot less scary than a Trump presidency. To be clear, I’m obviously not talking about die-hard Trump supporters. I’m talking about a US voter who’s unhappy with her choices from either party, yet she sympathizes with some of the anti-establishment sentiments fueling the Trump phenomenon. I would not assume that she views the consequences of leaving the EU as seriously potentially damaging as a Trump presidency.