November 23, 2016
When the initiative to take the United Kingdom out of the European Union was being debated, many people, including many economists, predicted the country would be hit with a severe recession. It didn’t happen. The economy seems to be moving along fine, with no recession in sight, although the London real estate market is not looking very good. Of course the UK has not left the European Union yet, or even developed a plan to do so, but it is unlikely that many would want to place much money on that recession bet today.
Apparently, the conservative government has now abandoned its plans for further austerity and a balanced budget. It is expected to spend an additional $187 billion over the next five years (roughly 1.0 percent of GDP) to boost the economy and create jobs. According to the NYT, this spending is a direct response to concerns over the plight of working class people who voted for Brexit in large numbers.
This outcome is worth noting, because the boost to the economy from additional spending is likely to be larger than any drag on growth as a result of leaving the European Union. This would mean that the net effect of Brexit on growth would be positive. Of course the UK government could have abandoned its austerity path without Brexit, but probably would not have done so. Given the political context, working class voters who wanted to see more jobs and a stronger welfare state likely made the right vote by supporting Brexit. This doesn’t excuse the racist sentiments that motivated many Brexit supporters, but it is important to recognize the economic story here.
There is a deeper lesson in this story. The elites that derided Brexit were largely content with austerity policies that needlessly kept workers from getting jobs and also weakened the welfare state. Many were willing to push nonsense economic projections of recession in order to advance their political agenda. In this context, it is not surprising that large numbers of working class people would reject their argument that Brexit would be bad for the UK.
We see a similar situation in the United States where trade policies that are designed to redistribute income upward, like the Trans-Pacific Partnership, are foisted on the public by the leadership of both parties. As with Brexit, elite economists are prepared to make absurd predictions of economic disaster if this trade agenda is rejected. Under these circumstances, it is not surprising that large portions of the working class are not willing to go along with the elite’s agenda.
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