Must-Reads: Special Brexit Edition

Posted on by Brad DeLong

Should Reads:

Must-Read: Paul Krugman: Brexit: The Morning After

Posted on by Brad DeLong

Must-Read: I disagree with Paul Krugman: not “Brexit just brings to a head an abscess that would have burst fairly soon in any case…” but rather: Brexit evolves antibiotic-resistant bacteria and brings to a head an abscess that would probably have drained itself gradually–and could still have been treated…

Paul Krugman: Brexit: The Morning After: “A number of people deserve vast condemnation here, from David Cameron…

…who may go down in history as the man who risked wrecking Europe and his own nation for the sake of a momentary political advantage, to the seriously evil editors of Britain’s tabloids, who fed the public a steady diet of lies. That said, I’m finding myself less horrified by Brexit… than I myself expected. The economic consequences will be bad, but not, I’d argue, as bad as many are claiming…. Brexit will make Britain poorer. It’s hard to put a number on the trade effects of leaving the EU, but it will be substantial…. Assurance of market access has a big effect in encouraging long-term investments aimed at selling across borders; revoking that assurance will, over time, erode trade even if there isn’t any kind of trade war. And Britain will become less productive as a result.

But right now all the talk is about financial repercussions–plunging markets, recession in Britain and maybe around the world, and so on. I still don’t see it. It’s true that the pound has fallen by a lot compared with normal daily fluctuations. But for those of us who cut our teeth on emerging-market crises, the fall isn’t that big…. This is not a world-class shock. Furthermore, Britain is a nation that borrows in its own currency….

Now, it’s true that world stock markets are down; so are interest rates around the world, presumably reflecting fears of economic weakness that will force central banks to keep monetary policy very loose. Why these fears? One answer is that uncertainty might depress investment. We don’t know how the process of Brexit plays out, and I could see CEOs choosing to delay spending until matter clarify. A bigger issue might be fears of very bad political consequences, both in Europe and within the UK…. The European project… is in deep, deep trouble [with] Brexit… probably just the beginning…. Lots of people are now very pessimistic about Europe’s future, and I share their worries. But those worries wouldn’t have gone away even if Remain had won…. At the European level… I would argue that Brexit just brings to a head an abscess that would have burst fairly soon in any case. Where I think there has been real additional damage done, damage that wouldn’t have happened but for Cameron’s policy malfeasance, is within the UK itself…. So calm down about the short-run macroeconomics; grieve for Europe, but you should have been doing that already; worry about Britain.

Must-Read: Felix Salmon: Little England Just Screwed Us All

Posted on by Brad DeLong

Must-Read: Felix Salmon: Little England Just Screwed Us All: “The world’s bond markets (and, even more, its foreign-exchange markets) tell you everything you need to know…

…Recession in the UK, quite possibly recession in Europe, and extremely nasty spillover effects in the rest of the world, including the U.S. The small-minded burghers of rural England have managed to destroy trillions of dollars of value globally, including to their own investments, pension plans, and housing values. And things will get worse before they get worse: it’s going to take a while for all the subsequent shoes to drop. Make no mistake, the forces set in motion by this vote will not end here. France and Spain will want their own referendums; so will Scotland. Northern Ireland… will request and probably receive a referendum on whether it should just rejoin the Republic of Ireland, and Europe. Britain has been in many ways the most unambiguous winner of the European project: it received all the advantages of free trade with an enormous economic bloc, while also having a floating currency instead of one which was pegged mercilessly to how things were going in Germany….

This vote is also the grimmest of reminders of the power still held by the older generation, not only in the UK but around the world. Young Britons—the multicultural generation which grew up in and of Europe, the people who have only ever known European passports—voted overwhelmingly to remain. They’re the generation that just lost its future. Meanwhile, Britons over the age of 65, fed a diet of lies by a sensationalist UK press, voted by a large margin to leave. Most of them did so out of a misplaced belief that doing so might reduce immigration, or make them better off, or save them from meddling bureaucrats. In a couple of decades, most of those voters will be dead. But the consequences of their actions will resonate far beyond the grave….

The forces of narrow-minded nationalism have tasted a major victory; they will want more, much more. The economic malaise that has beset all of Europe for the past decade will work in their favor, as will the growing inequality that can be seen in almost every country worldwide. International institutions like the European Union, born of an idealistic belief in peace and prosperity, have become avatars of unaccountable power, and are much loathed by the suffering European middle classes. The result is that we are now entering a world in retreat from progress, a world of atavistic nationalisms and mutual distrust, a world in which we demonize foreigners and prefer walls to bridges. In November, the U.S. will have its own plebiscite, and will likely vote along similar lines to Britain. The cities, and the young, will vote for progress, inclusion, and unity. Meanwhile, the white, rural areas and the old will vote for a sepia-tinged dream of a past in which equality was something only straight white men really qualified for. Before the Brexit vote, I didn’t believe it could happen here. But Britain is significantly more cosmopolitan than America, and we managed to shoot ourselves (and all of Europe) straight through the heart.

So, be afraid.

Must-Read: Charlie Stross: “Tomorrow Belongs to Me”

Posted on by Brad DeLong

Must-Read: Brexit Edition. The very sharp Charlie Stross writes from Caledonia:

Charlie Stross: “Tomorrow Belongs to Me”: “Okay, so the idiots did it; they broke the UK…

…The Brexit referendum was initially a red herring; a proxy struggle for control of the Conservative Party, with Boris Johnson suddenly turning his coat to march in front of the Leave campaign because it offered his best–arguably his only — chance of winkling David Cameron out of Downing Street before his scheduled retirement in 2020…. But in the process of squabbling over their own party the euroskeptic Conservatives opened the door to the goose-stepping hate-filled morons of the extreme right. The results include the first assassination of an MP–unconnected with the Irish independence struggle–in nearly two centuries, an upsurge in racist attacks on minorities and the disabled, and finally a demented protest vote by the elderly (voters under 25 broke 75% for remain; the over-60s voted over 66% for leave)….

Sterling has tanked to its lowest level in 31 years, the stock market has crashed by 10% already, and we’re likely to see international repercussions as all the sovereign wealth funds that had invested in the London property market see 30% wiped off their investments in a matter of days. Longer term, this may well be the beginning of the end for the UK as a nation. (Watch who’s standing on the sidelines praising the result: Donald Trump, Vladimir Zhirinovsky, Marine le Pen — a who’s who of international fascismus.)… Scotland voted by a 62%/38% margin to remain in the EU and is being dragged out against its will…. The enabling legislation for IndyRef 2 is apparently already being drafted in Holyrood…. It’s likely that in 2-5 years Scotland will have split from the UK and applied to re-admission to the EU. As for Northern Ireland there will be urgent negotiations for some sort of federal arrangement with the Republic that allows them to retain EU access (the Republic of Ireland being an EU member and Northern Ireland having voted to remain in the EU by a significant margin).

What happens to England and Wales now? Short version: economic turmoil caused by the uncertainty. An upswing in right-wing xenophobia as the utterly odious crypto-fascist Nigel Farage makes hay while the Sun shines on his project…. The Brexiters have been selling a lie: that they’d get a no-fault divorce and keep the house. Reality is somewhat less convenient…. We’re back in the Scottish Political Singularity, with a disturbing undercurrent of violent jingoistic xenophobia down south…

Must-Read: Martin Wolf: David Cameron, the Ex-Prime Minister, Took a Huge Gamble and Lost

Posted on by Brad DeLong

Must-Read: The very sharp Martin Wolf sees structural recession in Britain’s near future.

People minimizing risk are going to leave Britain. People who would otherwise locate in Britain and are risk-shy are going to pause and wait and see. The Bank of England needs to drop the value of the pound by enough to try to maintain full employment in Britain–but not by so much as to make investors feel that investments in Britain are unsafe and so lose the pound its exorbitant privilege.

As Keynes wrote at the beginning of his Tract on Monetary Reform back in 1923:

I dedicate this book, humbly and without permission, to the Governors and Court of the Bank of England, who now and for the future has a much more difficult and anxious task entrusted to them than in former days…

Martin Wolf: Brexit: David Cameron, the Ex-Prime Minister, Took a Huge Gamble and Lost: “The fearmongering of Boris Johnson, Michael Gove, Nigel Farage, The Sun and the Daily Mail has won…

…The UK, Europe, the west and the world are, this morning, damaged. The UK is diminished and will, quite possibly, end up divided. Europe has lost its second-biggest and most outward-looking power. The hinge between the EU and the English-speaking powers has been snapped…. It is, above all, a victory of the disappointed and fearful…. The geography of the outcome reveals that this has also been a revolt of the provinces against a prosperous and globalised London. It is also a revolt against the establishment…. The UK might not be the last country to suffer such an earthquake….

The UK is now at the beginning of an extended period of uncertainty that, in overwhelming probability, foreshadows a diminished future. The Conservatives… will have to do what the Brexiters failed so egregiously to do during their mendacious campaign, namely, map out a strategy and tactics for unravelling the UK’s connections with the EU. This will probably consume the energies of that government and its successors over many years. It will also involve making some huge decisions… [abandon] membership of the single market. At best, the UK might participate in a free trade area in goods. Meanwhile, the rest of the EU, already burdened with so many difficulties, will have to work out its own negotiating positions. I expect them to be tough ones….

The UK economy is going to be reconfigured. Those businesses that have set up in the UK to serve the entire EU market from within must reconsider their position…. Manufacturers… will have to consider how to readjust…. Many will ultimately wish to relocate. Businesses who depend on their ability to employ European nationals must also reshape their operations…. In the short term, however, it will be difficult for businesses to make such decisions sensibly…. This uncertainty has always been the most obvious result of a vote to leave….

The UK’s decision to join the EU was taken for sound reasons. Its decision to leave was not. It is likely to be welcomed by Ms Le Pen, Mr Trump and Vladimir Putin. It is a decision by the UK to turn its back on the great European effort to heal its divisions. It is, for me, among the saddest of hours.

Weekend reading: “Heading for the Brexits” edition

Posted on by Nick Bunker

This is a weekly post we publish on Fridays with links to articles that touch on economic inequality and growth. The first section is a round-up of what Equitable Growth has published this week and the second is work we’re highlighting from elsewhere. We won’t be the first to share these articles, but we hope by taking a look back at the whole week, we can put them in context. 

Equitable Growth round-up

The ideas of turn-of-the-last century Swedish economist Knut Wicksell have suddenly become quite relevant for monetary policy. The Fed is currently thinking through how high interest rates have to go before they can stop hiking. Figuring out the natural rate of interest is key to that endeavor.

The last several years have seen a rethinking in the benefits of free capital flows between countries. They may play a role in inflating speculative bubbles and push down short-term natural interest rates. In other words, it may contribute to secular stagnation.

The share of prime-age men in the United States with a job or actively searching for one has been on the decline for more than 50 years. What’s behind the decline? Evidence points to a decline in demand for labor from less-educated men.

Programs such as unemployment insurance are designed to insure workers against some of the pains of losing a job. But unemployment insurance and other so called automatic stabilizers also help boost economic growth during downturns by putting money in the hands of those who will spend it most readily.

Increased consolidation of health care providers has been touted as a way to increase efficiency in the health care industry. But there are downside as well, Nisha Chikhale writes, including higher prices.

Links from around the web

The Great Recession ended seven years ago this month and yet portions of the United States still have not recovered to the employment rates they had in 2007. And these areas of the country don’t seem likely to reach that level for years. Ana Swanson writes about a paper by economist Danny Yagan at the University of California-Berkeley on this troubling trend. [wonkblog]

What’s behind the rise in wealth inequality? Scottish economist and Nobel Laureate James Mirrlees argues that the random nature of investment returns is a significant cause. And that this fact supports the notion that policymakers might want to tax very high rates of returns on capital to reduce wealth inequality. [contemporary economic policy]

Twenty years ago. U.S. policymakers radically reformed the federal welfare system, then known as Aid for Families with Dependent Children. After two decades with the new Temporary Assistance for Needy Families program in operation, has the replacement program been a success? Dylan Matthews investigates. [vox]

Does slower productivity growth in the United States mean that the interest rates will necessarily be low in the future? The former chief economist at the International Monetary Fund, Olivier Blanchard, says no. [piie]

A strange discrepancy in data series about job openings—the U.S. government-created Job Openings and Labor Turnover Survey and the Conference Board Help Wanted Online series – has appeared in recent months. Given that the Conference Board’s data goes into a Federal Reserve measure of the labor market, this divergence matters. And it seems to be, in part, because Craigslist has been raising prices. [fed notes]

Friday figure

Figure from “What’s behind the decline in male labor force participation in the United States?” by Nick Bunker

Must-Reads: June 24, 2016

Posted on by Brad DeLong

Should Reads:

Must-Read: Ria Misra: No, Now This Is Officially the Hottest Earth Has Ever Been [UPDATING]

Posted on by Brad DeLong

Must-Read: Courtesy of Erik Loomis of Lawyers, Guns, and Money: Yes, it is hot. But it’s a dry heat. Why do you ask?:

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Ria Misra: No, Now This Is Officially the Hottest Earth Has Ever Been [UPDATING]: “It’s getting pretty hard to keep track of all the heat records we’ve been breaking recently, isn’t it?…

…Don’t worry, we’re here to help. NOAA’s latest data reveal we just wrapped up the hottest winter the U.S. has ever seen—just like last summer (which also broke its season record), last year (another record-smasher), the year before that, and a whole chain of recent individual hottest months, knocking each out one after the other like dominoes. It’s almost like there’s a pattern in all this, isn’t it? Almost as though our planet was locked into some sort of terrible, human-induced cycle of gradual warming…. Anyway, we’ll be back to update you here next month (or shortly thereafter)….

UPDATE April 19, 2:12 pm: Sorry, February, you thought you were pretty hot, but March laughs at your attempts at hot temperatures. According to NOAA’s latest data, the new hottest month ever was this March, marking the 11th consecutive month in a row that record has been broken…. UPDATE May 18, 1:15 pm: Congratulations, humanity—we did it! (It, in this case, being cooking our planet into a slow rolling boil.) NOAA’s latest climate update reveals that we just wrapped up the hottest April ever recorded. That gives us twelve consecutive months—a full year—in which every single month set a new temperature record. Will next month make thirteen? Probably! See you then, my warm friends. UPDATE June 20, 8:45 am: And here we are at lucky number 13 of the hottest consecutive months ever recorded—if by ‘luck’ you mean an unstoppably rising heat wave, accompanied by an unsavory mix of both droughts and floods. (Note: This is no one’s definition of luck.)

Must-Read: Jamelle Bouie: Is American Really in an Anti-Establishment Rage?

Posted on by Brad DeLong

Must-Read: Jamelle Bouie: Is American Really in an Anti-Establishment Rage?: “The same people who disapprove of Congress will readily re-elect most members to the House and Senate…

…Just 24 percent of Americans described themselves as ‘angry’ about the federal government…. Forty-seven percent said they were dissatisfied, which is similarly low compared with previous surveys…. 85 percent of Americans said they were satisfied [with the economy]…. The number of Americans who say they are personally worse off has taken a sharp decline since the last presidential election…. Layoffs are down… job openings are up; earnings are up…. For all the talk of anger and dissatisfaction in the Democratic primary, it’s also true that a majority of Democrats back the establishment candidate…. And while there’s plenty of evidence for the case that Americans are angry with the political system—in a November survey from NBC News and the Wall Street Journal, 54 percent said the system was ‘stacked’ against them—this doesn’t jibe with the fact that most Democrats are fine with Hillary Clinton as their nominee or that—before Trump won—most Republicans were fine with a conventional candidate as theirs….

Despite this, Americans also insist they’re angry about the political system and dismayed at the country’s direction. And while primary electorates are far from representative of Americans at large, the obvious popularity of figures like Bernie Sanders and Donald Trump speaks to something…. Voters aren’t uniformly frustrated or frustrated in the same ways, and whatever anger and frustration they have doesn’t translate to broad support for either of the candidates who seek to harness it. What we should do, instead, is try to pinpoint the nature of the most salient kinds of anger and frustration. On the right, the most important dynamic is racial resentment and white status anxiety…. On the left, we’re looking at the rumblings of a generation hit hardest by the Great Recession caught in the winds of rising global inequality. And insofar as nonwhites are frustrated with their place in society, it likely owes to moments of highly visible and still consequential discrimination…. But even this complicates the question of discontent. Blacks and Latinos saw the worst of the recession and the recovery: Among Americans, they have the strongest case for disrupting the system. And yet they back Hillary Clinton, who is running for modest gains over the status quo…