Risking the world economy for a flight of fancy

Brexit got a special box all of its own in the latest OECD Economic Outlook. The report identified it as a major geopolitical risk, not just to the UK but to the entire world economy. The shock to the UK and EU economies would, says the OECD, cause a spillover effect across the world.

Screen Shot 2016-06-03 at 16.59.29

OECD economists say that Ireland, the Netherlands, Luxembourg, Switzerland and Norway (the Europe High group on this chart) are also highly exposed to the UK economy and would be severely hit by the slowdown in the UK. The shock would be nearly as bad in other European countries, all of which the OECD reckons would be 1% of GDP worse than where they would otherwise have been by 2018.  (See Box 1.1 on page 31 of the Economic Outlook.)

Given the OECD’s already dismal forecasts for the developed economies, anything that might lower the rate of GDP growth even further is a serious concern. The world economy is heading for the doldrums again. It is already slowing down of its own accord. The last thing it needs is another sheet anchor in the form of Britain leaving the EU.

For whatever reasons, the world has not bounced back from the downturn in the way it did after previous recessions. We don’t know the cause of the disease but the UK’s symptoms are particularly severe. Two years ago, at the time of the Scottish independence referendum, I wrote a couple of posts on why breaking up the UK would be a really silly idea for everyone given the fragile state of the economy. Since then, the outlook has got worse. This really isn’t the time for launching into the unknown based on a flight of fancy.

Almost everyone who has done any serious analysis of the likely impact of Brexit has concluded that the results will be bad. Their estimates range from merely unpleasant to utterly dire. No-one on the Leave side has come up with anything credible to show the opposite. Their usual response is to say that economic forecasts are never right. This is true, of course, in that they are never spot on but that doesn’t mean they are not broadly right.

As the FT’s Giles Wilkes quipped:

The projections may end up being some way off but it is extremely unlikely that the UK can extricate itself from arrangements that have been the basis of a sizeable chunk of its trade for the last few decades without some damage to its economy.

And for what? Some blather about red tape, which, given that the UK is one of the least regulated countries in the world, has precious little impact on the UK economy. Then there is the vague promise to ‘control our borders’ which is a way of encouraging people to think you mean significantly reducing immigration while knowing full well that nothing of the sort will happen.

Were there a danger of something really bad coming from our membership of the EU, it might just be worth taking the risk but there isn’t. Any of the nasty things which might happen in Europe, like a collapse of the Euro, would stuff the UK economy regardless of whether we were members of the EU. In fact, it would stuff the entire world economy for similar reasons to the Brexit spillover effect outlined by the OECD.

With the world economy heading for a period of stagnation, leaving the EU would be an act of pure self-indulgence, based on some vague and incoherent identity politics. If, in doing so, we only damaged our own country, the rest of the world might be less concerned. But with the world economy being ever more connected, leaving the EU is like lighting a fire in a terraced house. It is bound to affect our neighbours too. If, in our fit of pique with the EU, we mess up the rest of the world’s economy too, it might take them a while to forgive us.

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29 Responses to Risking the world economy for a flight of fancy

  1. Pingback: Risking the world economy for a flight of fancy | Flip Chart Fairy Tales #BREXIT | sdbast

  2. Jim says:

    Thats a poor analogy.

    Brexit is more like living in a row of terraced housing and all working in the same factory, then one person leaving the factory and getting a job elsewhere (maybe with more money, maybe with less money but better prospects, whatever).The only reason why things can’t continue on the street as they were before, with all the same socialising and neighbourliness is if the other people in the street cut up rough over one person going a different way, and cut them out of their lives, and refuse to socialise and co-operate with them any more.

    This is the basic Remain argument – ‘The Rest of Europe are such nasty pieces of work, if we leave they’ll do all they can to make our life miserable, even to the extent of doing themselves down in the process’. Remainers are effectively calling the rest of Europe a bunch of physopaths who are holding us hostage ‘Do what we say, or we’ll crash the European economy!’

    I don’t happen to have such a nasty view of our European neighbours, at least not the people of those countries. The European political class who can see their cushy numbers disappearing down the plughole, yes, they are twisted enough to sell their populations down the river to try and save their own backsides, but thats hardly an argument for staying part of the club.

    • Person_XYZ says:

      ‘We should leave the EU because if we left the EU, other countries wouldn’t like us and would say we smell behind our backs.’

      That is totally daft. If Britain turns it’s back on the EU, then the rest of the EU has no further obligation to the UK beyond what is required by international law. They have every right to suit themselves, especially if Brexit imposes costs on their economies.

      • Jim says:

        “If Britain turns it’s back on the EU, then the rest of the EU has no further obligation to the UK beyond what is required by international law. They have every right to suit themselves, especially if Brexit imposes costs on their economies.”

        Thats not what we’re being told. I have no problem with the rest of the EU operating under rational self interest, thats totally sensible. But we are told they will do things to do Britain down, even if it causes them more trouble than doing nothing. Ie they will be so blinded with making sure the UK gets it in the neck they won’t care about themselves in the process. Thats irrational, and rather insulting to those you are saying will behave that way.

  3. Neo-Pelagius says:

    Let’s just leave, put everybody out of their misery and deal with the consequences now instead of when the whole thing implodes anyway. The British people are hardly alone in their disillusionment, look at what’s going on in France at the moment. The whole debate is focused upon immigration and the ‘business case’ with very little attention on the anti-democratic expansionist nature of the EU. Look at their dealings with the Ukraine, Turkey and Greece: particularly vicious example of the arrogance of the EU that we should be distancing ourselves from.

  4. Jim says:

    In a nutshell, any club that threatens you with dire consequences if you leave is not one you want to be a part of in the first place.

  5. I think you’re underestimating the degree to which people want to kick out at what they consider to be an unsympathetic economy and associated political settlement.

    Some Leavers are quite up-front that the reason they’ll vote out is “because we can”, and a growing frisson of excitement that Cameron et al may have miscalculated by holding a referendum. Brexit probably won’t materially affect sovereignty or immigration, as some Leavers concede, but many seem to think there’s no harm in trying.

    The issue is less self-indulgence than glibness, but you have to ask what has brought this about. Project Fear may be objectively right, but the Remainers’ tone is consistent with 40 years of politicians and economists telling us that we cannot buck the market.

  6. P Hearn says:

    Another Remain article predicated on the fact ‘bad things will happen if we leave’.

    Leaving is such a leap into the unknown that Remain can tell us we’ll be exactly £4,300 worse off. Challenge this spurious accuracy and it turns out these numbers are a big guess, or ‘forecast’ as economists euphemistically call it. So Remain has no more idea what’ll happen than Leave – they just do better graphs.

    Leaving will take many years, so let’s Vote Leave and get the process started. If it’s such a disaster and World War 3 does indeed start as Remain predicts, we can always call it off or have another referendum in true EU style.

    There’s always the chance that these economists might be a teeny bit, ahem, wrong, like they were on the Euro, the whole 2008 crash, this quarter’s GDP – pretty much everything, in fact.

    Leave and it may become clear free trade doesn’t require much of any mechanism at all; just governments to get out of the way and let people buy and sell. Who knew?

    • Andries Hoekema says:

      “If we don’t like it, we’ll just vote to get back in and they’ll gladly take us back”. The original Boris Johnson argument. Boris is an overgrown child without future generations to think of (maybe there is a half-recognised love child somewhere, but I don’t read the daily mail). He can afford to think tactically – if all goes wrong with his gamble to become PM he will still get his yearly £250k from his Telegraph column. What about you and your children? Brexit is not just for Christmas – it’s forever.
      What gets me is that for some reason, even though (or because?) it is so obviously a bad decision economically, somehow Remain are not allowed to talk about this. So here are a few positive arguments:
      – live/work/travel anywhere in Europe without restrictions, whilst keeping your UK social security
      – lower prices, better consumer protection: buy from any internet shop in Europe and get the lowest price and the same consumer protection as you do in the UK. No import duties.
      – safety: cross-border coordination is stopping terrorist threats every day. Just because Belgium and France have had attacks recently, does not mean that 7/7 in London can just be forgotten to show “how risky” Europe is.
      – environment: can only be dealt with supranationally. The EU is doing that for us, through fishing policies that ensure our children can enjoy cod and herring in the fugure, and in many more areas.

      One final thing: “Free trade will sort out the world’s problems” as you suggest. Maybe you’re right, but then why leave the biggest free trade zon in the world? tThe UK already has free trade for 50% of its exports, shhouldn’t you be pushing with a powerful block of countries to increase that percentage? Rather than opening up to China and the US on their terms?

      • P Hearn says:

        I’m not saying we’ll just vote to get back in if we don’t like it in the real world, merely pointing out that the EU normally has a re-run of any referenda that don’t give it the result it wants before anyone leaves in the first place. Check Google – the EU has form on this.

        Taking your positive points:

        Live/work/travel in Europe and keep your NI number. For 99% of people, this is a “non-feature”, and for the 1%, perhaps they should realise they can also work in Australia, NZ, Canada, even the great Satan the USA too. There are many other examples. Why so parochial, sticking to the little patch of earth called Europe? All the aforementioned countries can be visited for holidays without visas and with the minimum of fuss. For the unskilled worker, freedom to live and work anywhere in Europe probably means an eastern European will do his job for less than he’s prepared to. Some benefit.

        Lower prices – now I know you’re joking! The whole point of the EU is that it keeps prices high by imposing tariffs on cheaper producers beyond its borders. (Not Chinese steel, obviously). Those same tariffs we’re told that will kill us if/when we leave by making our goods prohibitively expensive. The entire Remain argument, in other words. Remember?

        Consumer protection – good luck with returning that malfunctioning camera you bought from a web site based in Portugal, or slippery Luxembourg. I’m sure you’ll find their grasp of English less than perfect when you mention your EU consumer rights. Caveat Emptor (a.k.a. get it from Amazon).

        You say we should ignore terrorist attacks in Belgium and France, and focus instead on the great cross-border intelligence that’s stopping attacks in places like, er, Belgium and France. Eh? It’s obviously not a benefit that terrorists can run round the Schengen area at will. And nobody’s forgetting London 7/7. Not ever. We already share secret intelligence amongst with the “five eyes” countries, (UK, Canada, USA, Australia and NZ), rather proving the EU is not necessary for cross-border work.

        Fishing – you couldn’t pick a worse example of environmental protection. Until that TV chef chappie kicked up a fuss, fishermen were throwing perfectly good dead fish into the sea, whilst Russian factory trawlers hoovered up anything with a pulse. Now fishermen land the “excess” fish, and they go to landfill. You couldn’t make it up. The CAP directly hurts African farmers and keeps them poor, a quite disgusting and wholly intentional effect of agricultural protectionism Brussels-style.

        If those are your EU positives, Lord knows what the negatives look like.

        You further misquote me by suggesting I said “free trade will sort out the world’s problems”. I didn’t say that, but I did suggest it doesn’t require tens of thousands of overpaid spongers in Brussels to have free trade in Europe. You compound your error by stating that 50% of our exports go to the EU, when the accepted figure is 44%, and falling, (as it should when there’s a big and growing world market out there to tap).

        We can’t increase our trade with the EU by much because they’re in a Hell of an economic and social mess and are currently a stagnating trade bloc. There are 500m people in Europe, over 6bn outside Europe, yet you consider there’s a bigger opportunity with the smaller, stagnating market we’ve been in for years rather than the faster growing world beyond the EU that’s largely virgin territory. Interesting perspective.

      • H says:

        Boris has five children by his wife, and one acknowledged “love child”. It was easy enough to find that out, and you couldn’t manage it – why should we believe anything else you say?

  7. Patricia Leighton says:

    If we vote to leave the EU because of whole lot of blatant lies from the OUTERS, I, my family and many other professional people I know are leaving the UK. Not because of economics but because the OUT campaign is narrow-minded, inward-looking bigoted and racist campaign, disguised by vague terms like ‘sovreignty’,’control’ ‘red tape etc etc. It is all complete rubbish and is simply pandering to Little Englanders’, mainly men who look back with tears in their eyes at the Good Old Days when they pushed everybody else around. Its about time they grew up and learnt about really important words like ‘support’ ‘ and ‘co-operation’

    • Florence says:

      I too know many well informed people who have said they would leave the UK if Brexit did win. These are professionals and small business owners, teachers, the retired, and all are well educated. They simply cannot see anything worth while coming from a UK run by the far right sociopaths like Patel, Hunt, Gove, IDS. People who have no greater ambition than to punish the working class and their underclassmen of useless eaters – the sick, disabled, elderly, and the children of the working class. My prediction for post-Brexit UK is that the immigration numbers will plummet, as the standard of living for the bottom 25%- 35% is worsened by lack of employment protection, and the decimation of the safety net benefits system, there will be nothing worth coming to. The NHS will no longer need large numbers of staff as it will cover only a few with insurance. Manufacturing will be decimated as import controls and tariffs are abolished, and significant numbers will be homeless, existing in caravan parks or barrack-like new workhouses. Those who can leave with, like the Syrians heading this way atm, 50% of whom are well educated professional people.

      • David says:

        I was just wondering what exactly the two of you mean by “many” and if these “many” must go then please , well , go ! Especially the publicly employed ones .
        And exactly 50% of the Syrians are “well educated professionals” ? Goodness , with ‘facts’ like that you’ll be rivalling dear Rik and charming us with more colourful pie charts .
        Love the distopean vision though !

        • Florence says:

          The 50% was taken from a detailed journalistic piece in either the Grauniad or Indy I can’t find them on my phone or I would possibly be able to show the source. The Syrians who are seeking Uk settlement are those who have good English through study and the 50% is the proportion that have higher education qualifications. The discussions about refugees, and I’m not talking economic migrants, has failed to inform people that those seeking refuge include many educated people. So among the “many” in the Uk are in fact in my own social circle – older, well educated, many with private pensions who have been deprived of state pension, who are left leaning. If you want us to go, then be careful what you wish for, because the precondition is that there is Brexit. If you want my to draw nice bar charts etc, then you’d have to be more gracious for me to oblige, but as someone with a PhD in science, who used and taught more statistical analysis than you will find on these pages, this is another warning to be careful what you wish for. Rik charms us by reporting facts other produce. He is as you say, colourful and informative. Your “dystopian vision” throw away is actually the forward projection of many financial and economic and political analysts. The reason those among us of a certain age are making plans to escape us because we have already lived through Thatcherism, Blairite and the neocon Etonians. We can see the writing on the wall. It is not a dystopian vision. It is a realistic outlook. Some of us unfortunate enough to suffer the degenerative and disabling illnesses have been living in the hell that the UK has become for any “useless eater”. You may persuade yourself it won’t happen in the future, but your blinkered tunnel vision seems to have stopped you from seeing that it isn’t the future, it is already the present for those of us who will leave. Your high handed attitude about dystopia is empty rhetoric if you see pretty coloured charts but fail to understand that when translated into real life become people dying before their time, hungry faced children on your own street, and people like myself fearing for a very real future of want and neglect and early death, or even suicide because life is unbearable. Be very careful what you wish for, if you want us to “be gone”.

          • David says:

            ok ok , you’ve convinced this “remainer” , although your manner doesn’t prevent me from pointing out that it was you who was threatening (?) to leave and not me that was wishing you’d do so . However , now that you’ve offered , in the event that we shoot ourselves in the foot , cut our noses off etc etc and vote leave , absolutely no offence intended, but why not ? Once settled, perhaps you would keep in touch so that the rest of us could (worst nightmare?) follow and enjoy this shangri la .
            On the other hand we could vote to stay …..and Jeremy Corbyn . Then I spose I’d have to leave
            Surely a thought to cheer you…….

        • Florence says:

          Those I know who are formulating the escape plan are indeed mainly Corbyn supporters, I don’t know why you’ve suddenly conflated those who do not wish to live in a far-right dominated UK with being “Brexiters”. Indeed if you looked up from your myopic stance you would actually find organised groups of older JC supporters who are working their socks off to get a Remain vote, followed by a JC4PM realised.

          You also confuse (I suppose for the sake of dramatic flourish) escaping from a right-wing hell hole to better as being “shangri-la”. I do hope you grow up at some point, you could be useful for the Remain campaign if you were capable of listening and joining in the debate on an adult level. Because we have to counter the right wing dominance of the Brexit debate that will mean we lose all human rights (not just working one, but those covering the rights of children, disabled, right to life, dignity and housing and food, etc), they’ve already got their cabinet lined up in this coup, and have said they will introduce payment for access to NHS services, care, prescriptions, loss of pension, having to work for all benefits including pension (no help for those totally useless eaters). What part of hell hole for the elderly do you not understand? If you were faced with the prospect of dying from neglect as far too many are doing now, and you still had the strength to move, why would you argue against it?

  8. Steve says:

    The argument that if the single currency collapses we are stuffed anyway even if we are outside the EU to me is not enough to dissuade me from voting to leave for the following reasons:

    1) if the currency collapses (I think there is a reasonable chance of this in 10 years or so) there will be a full blown POLITICAL crisis. There will be a lot of finger pointing by desperate heads of state – things will get ugly. We need to disentangle ourselves from the EU before this happens. We need to get off a sinking ship.

    2) The collapse of the currency may be inevitable anyway. If this is the case then maybe it is better that it happens sooner rather than later so that the PIIGS countries can break free from their economic straitjackets, rebuild and get their lost generation of young people back to work. Brexit may spark this collapse and although extremely painful in the short-run will ultimately be a good thing – and it is better we start the process now.

    3) A Brexit would force our govt to begin the process of diversifying our economy away from Europe and increasing trade with countries outside the EU. Growth is declining in the EU and they have a demographic problem which may make it worse. Focusing on trading with countries outside the EU now will cushion us from the impact of a Euro collapse later. I wonder how many of the economic models factored this in???

    • Florence says:

      How sad for your rock solid convictions that the only economist to support Brexit could only make it work for some of the UK population, but not the 2.4 million that would be unemployed when UK manufacturing is wiped out by having to lower tariffs to keep trade going. The Tories haven’t actually got an industrial policy, and a Brexit vote isn’t going to change that. Incredibly, many economic forecasters did factor that in, and discovered the Tory post Brexit plans will crash the economy.

  9. Jim says:

    “People dying before their time, hungry faced children on your own street, and people like myself fearing for a very real future of want and neglect and early death, or even suicide because life is unbearable.”

    Yes because these things are seen everyday in countries that are not part of supra-national governing bodies, countries like Switzerland, Norway, Australia, New Zealand, Canada, Japan, the USA etc.

    Listen to yourself, for goodness sake.

    • Florence says:

      “For goodness sake” I’m not at the moment interested in other countries, we’re discussing the UK, now. Are you actually saying that there are no premature deaths, as (the ONS and the govt agree that there were 40,000 excess deaths in 2014-15, and although the majority were in winter, but not seen before is that death rates are up across the who;e year, and for a much wider age range. . Are you saying there are no hungry children, when 1.25 million people, including 200,000 children were estimated to be destitute last year according to the Joseph Rowntree Trust (JRT), and up to 1.5 million were using food banks. Or are you contesting that there is no mass hunger? Or are you outraged at the suggestion that people are committing suicide because of their treatment by the govt, despite their own admission, and the warning of coroners and the estimation that moving the sick from IB to ESA had caused up to 59- deaths and 272,000 cases of mental illness in a three year period? All thse are facts, not fancy. Your attempt to do a Lynton Crosby dead cat trick with a diversion around the developed world is not based in fact. The fact that there is a huge loss of life and suffering under this govt.

      Listen to yourself for goodness sake.

      • Jim says:

        So if all these bad things are happening in the UK now, having been in the EU for 40+ years, why are you convinced they will only get worse if we leave?

        After all a Remain vote is a vote for the status quo, which you don’t seem to be very happy with…………………..

        • Florence says:

          A Remain vote is to avoid the far right claiming a mandate to do worse.

          • Jim says:

            You do realise that In or Out the electorate is the same? If the UK wishes to vote far right (as you call it) it can do regardless of whether its in the EU? The UK public isn’t going to change suddenly overnight from whatever it is now to a rabid mob. The EU hasn’t stopped the Tories doing all the evil things you think they’ve done, and it wouldn’t be able to stop UKIP winning an election if enough people vote for them. Thats called democracy,

            In fact a Leave vote would probably marginalise UKIP and the ‘far right’, as their one USP (Europe and controlling immigration) would be gone, and the usual parties would get back to arguing on more centre ground, over the economy and other such mainstream issues. In fact continuing on the path we are now is designed to stimulate growth in right wing parties, which we see all across Europe. By ignoring the issues that many people (not all of course) have strong views about the mainstream parties allowed others to come in and articulate those views. Pretending they aren’t there won’t make them go away.

          • Florence says:

            Jim, there is a massive swing across Europe to the extremes, and that is also apparent in the UK. The UK is indeed held hostage by a handful of individuals who control the media, too. I don’t pretend they’re not there. I and many others are engaged in the struggle to reshape the debate. The right wing growth in support in the UK is not a forgone conclusion. That was a mistake Churchill made. And BTW, I don’t “think” the Tories have done the “bad hings”, as a disabled pension age woman, I know them to be done, because I actually use the network of opposition groups and the NAO and IFS, the IMF, and the JRT to name but a few. So the proof is there, not as you try to insinuate in my mind. What I do see are the irrefutable announcements from the right about their plans to make boundary changes to keep them in power for another generation. Their think tanks have also floated suggestions, well received by IDS and Patel that voting should be limited to those with employment, and other far right moves that are far from fantasy. We’ve seen what they have already done. So in or out does make a difference. An in vote will not provide the far right of the Brexiters the mandate they crave.

  10. Tols says:

    Eating a pound of butter a day won’t make you fatter if it replacea sugary drinks and excessive carbs.

    I know it is a trivial statement but goes go show how mainstream science (in this case nutrition) has no clue about very basic and obvious facts (fat doesn’t make you fat or give you heart attacks. Stress does. Look at France for evidence)

    Same with Economics – many a country forged an amazing niche of being outside a union but with close links – Switzerland, Liechtenstein, Taiwan, Hong Kong. UK is in a unique position to do just that but people are just living.in 20th century mindset where trade tariffs means anything.

    Btw – as an eastern European immigrant to UK, I got the passport and moved to Denmark at first opportunity as found England literally unlivable. For a young person without a rich family or a 6 figure plus salary, london is a hellhole.

    • Florence says:

      Told where do you get the idea that “science…..has no use”? It’s not science that us bad, it’s people making rubbish from the scientific data. “Science” cannot “do” anything, anymore than engineering or dog walking. It’s an activity.

  11. Pingback: Best of the Web: 16-06-07 nr 1458 | Best of the Web

  12. H says:

    Well, if Brexit is going to be so painful, they should have tried a bit harder to accommodate us.

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