What’s Up Wednesday 8/21/19

Brexit and Economics

Seen Boris Johnson lately?  He sure looks harried, and with good reason.  Brexit looms as a (potentially) stark event for the U.K.  If it goes badly (what appears from arm’s length to be increasingly possible), Brexit could be a serious economic blow to the rest of the world.

In case you haven’t been following the Brexit debacle, here it is.  Johnson, the newest U.K. prime minister after its past two PMs lost their positions over clumsy Brexit strategy, has mandated a date of October 31 as the end – on that date, deal with the EU (European Union) or no deal with the EU, England will be withdrawing from the EU.  Simple as that.  It’s going to happen because the law to make it happen has been passed.  Opposing lawmakers are trying to stop this of course; the majority in Parliament want a deal with the EU to precede Brexit.  As the calendar days pass with the precision of a Rolex time piece, it becomes harder and harder to see how Brexit doesn’t happen on October 31 (the October 31 date was imposed by Johnson’s government; without it, there is no date established for Brexit, there is no time table in existence that brings Brexit about – theoretically Brexit could be delayed for years, perhaps indefinitely if sentiment was against it).

There are concerns about what happens on November 1 if October 31 happens.  Leaked documents (it looks like they were probably leaked by a high-level minister in the British government at Boris Johnson’s deliberate expense) suggest that, absent a deal with the EU, the government actually believes Brexit could produce shortages of medicine and non-luxury health-related items, gasoline (or petrol as the Brits say), even certain kinds of foods – this fear conjures up images of the United States in the late 1970s when the gas crisis struck (fortunately missed that one myself; remember it was out of that disrupted environment that Republican legend, Ronald Reagan emerged).  With these documents available for public scrutiny for the first time, if a person was a UK citizen, he or she would probably be a little nervous.  The same person will undoubtedly become more fidgety as October 31 nears.  At this juncture, there has been enough uncertainty surrounding the Brexit process so that even with a deal between Britain and the EU, no British citizen is liable to rest peacefully until the thing has happened and the following morning finds the nation still standing.

Someone said that if a re-vote of Brexit could occur today, the referendum would undoubtedly fail resoundingly.  This is likely so.  As this article is being written, the British Parliament’s Labour Party leader (Jeremy Corbyn he’s called) is seeking a vote of “no confidence” against Prime Minister, Boris Johnson – if successful, this maneuver could trigger a new election (its success is a longshot as many questions linger about the extent of Corbyn’s political juice), and there’s talk already that, even if a vote of “no confidence” went against him, Johnson could use the UK courts the way that Trump has used the court system here, to kick the ugly can down the road far enough and long enough so that whatever’s inside it can’t do harm anymore – in Johnson’s case, he only needs to kick the Brexit can past October 31 to do what he set out to do.

Did I mention that there are concerns about what happens on November 1 if October 31 happens.  It’s hard to know for certain without conducting a survey of experts, but conventional thinking at this point seems to be that, with EU deal in hand, Brexit is likely to unroll in a manner akin to the unveiling of the Affordable Care Act here (even the ACS’s ardent supporters will generally agree now that its introduction was a disaster).  Without an EU deal, most U.K.-watchers appear to think Brexit will create chaos across Europe, economically harming all members of the EU community, harming England economically the most.  It’s true that when Brexit was passed by U.K. voters in 2016, we weren’t confronting a worldwide economic slowdown – at the time, the prospects for all parties involved to endure Brexit unscathed were low but considerably better than now.  The ability of the world economy to absorb Brexit with just controllable hick-ups was also better then.  This event today could plunge all of Europe (European economies right now are moving like tortoises) into a full-blown recession.

There are those who dismiss Brexit, regardless how it eventually occurs or what effect it has on the British and other European economies, as a significant threat to the U.S. – they point instead to the United States-China trade impasse as the elephant in the room.  This thinking ignores the current fundamentals of the U.S. economy, which are problematic.  All that stands between us and a recession is generous consumer spending, and in the past consumer spending has proven to be a fickle and tenuous support for the overall economy (almost like walking across a tall chasm on a circus wire; the tiniest sudden breeze, a ripple in the air, can change fortune, on a dime, without warning).  So there is sure to be rising economic unease here too as October 31 stares us down.

It’s funny.  Apparently over in England, Boris Johnson is considered way better than 50-50 to lose his tenure as Prime Minister, to see it end, in a matter of months (the normal term for a British PM is five years, and it can go beyond that; Margaret Thatcher served as PM for a record eleven years).  When you consider that he was one of Britain’s vocal Brexit champions, a consistent cheerleader of the cause, perhaps he deserves to have his fate tied directly to this event – and it’s going to be immense, the world’s going to be observing it with wide eyes (in the past couple of decades in particular, various U.S. states have threatened to leave, to secede from the United States for one reason or another – I believe that this will happen, a state will leave, and probably sooner than we think – having said that, those states considering it should keep their eyes on Brexit as the sort of diagram they’d be following; if Brexit shocks everybody and goes good (Johnson’s government claims that after three years, it’s never been more ready for this event to happen) talk in those U.S. states about secession will be more emboldened).

Corbyn may yet get someplace with his vote of “no confidence”.  Whether he does or he doesn’t, it can’t and won’t change the inevitable.  One way or another, whether or not there is a deal in place with the EU, there will be a Brexit.  It will transpire on October 31.  Johnson’s tenure as British Prime Minister will probably be brief however Brexit is judged by history.  Nevertheless, it’s fair to say that Johnson will have done what Johnson was elected by his party to do – force Brexit to reality.

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