Should-Read: Barry Eichengreen: Revenge of the Experts

Should-Read: Barry Eichengreen: Revenge of the Experts: “The Brexit debate is an endless source of mirth for anyone with a dark sense of humor…

…My own favorite quote is from Michael Gove, currently Britain’s environment secretary…. “People in this country have had enough of experts,” Gove testily explained…. Indeed, we economists have had little success at reliably predicting when and why uncertainty spikes. And there is little agreement on the severity of its impact. Maybe we would be better off placing less weight on the effects of uncertainty when making forecasts in general, and in the case of Brexit in particular. But this view looks rather less compelling with the passage of a couple of additional quarters….

The drop in confidence, some might object, reflects an inconclusive general election and a hung parliament, not the Brexit vote. Or worsening conditions can be blamed on the government’s less-than-stellar negotiating strategy and the appearance that it is entering discussions with its EU partners unprepared. But the inconclusive election reflects the schizophrenia of both the Conservative and Labour parties…. Some argue that if the government adopted a more coherent negotiating strategy the damage would be less. But the fact is that there is no coherent negotiating strategy. May’s objectives–restriction of immigration from the EU while maintaining full access to the European single market–are fundamentally incompatible. The only surprise is that it took so long for the consequences to materialize….

What the late, great MIT economist Rudi Dornbusch–that most expert of experts–said about Mexico’s peso crisis in the 1990s applies to the damage from Brexit as well. A crisis, Dornbusch noted, “takes a much longer time coming than you think, and then it happens much faster than you would have thought.”

August 10, 2017


Brad DeLong
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