Prime Minister Boris Johnson will be remembered for Britain’s exit from the European Union long after the world has forgotten the tousled hair, the quotations in Homeric Greek, the fibs, fabrications and scandals – not to mention the time he got stuck on a zip line while serving as London mayor, sheepishly waving Union Jacks.
When Britain finally left the European Union on Jan. 31, 2020, it took an almost irreversible step away from integration with the continental economy for the sake of greater national sovereignty, including more control over immigration and freedom from some European regulations.
Evaluating Johnson’s legacy really amounts to evaluating Brexit, since his fingerprints were all over the departure. “Johnson’s decision to come out for Brexit in 2016 was one of the pivotal moments in the campaign,” Jonathan Portes, a professor of economics and public policy at King’s College London, told me.
Once Johnson became prime minister in 2019, Portes said, “he cut through the political turmoil and delivered the hardest possible Brexit – doing so by accepting the Northern Ireland solution proposed by the EU, which of course he repudiated after the election.”
So how is Brexit working out? The results are mixed. It has been clearly negative for the British economy, although not as bad as some prognosticators feared. People who think it was wrong to leave outnumber those who think it was right (see the chart below). And there have been a few bright spots, including a zero-tariff deal with the European Union and surprisingly liberal rules for immigration from non-EU nations.
An e-book that Portes edited, “The Economics of Brexit: What Have We Learned?” provides a balanced perspective. It was released last month and was produced and written by two networks of academic economists: UK in a Changing Europe, which is based at King’s College and is made up of British scholars; and the Center for Economic Policy Research, which is Europe-wide.
Some critics of Brexit predicted that the “leave” vote in the Brexit referendum would harm the British economy by rattling confidence, even before the separation occurred. That didn’t happen. “While the pound did indeed fall much as expected, market interest rates did not rise, and neither the equity market nor house prices fell,” Portes wrote in his introduction. “More importantly, after an initial shock to confidence, businesses and consumers largely shrugged off the result. The labor market remained strong, and unemployment actually fell slightly. ”
But now that Brexit has actually happened, things aren’t going so well, the scholars found. “Those areas that voted most heavily for Brexit are the worst affected, while London has escaped largely unscathed, at least so far,” Portes wrote. The recent rise in the cost of living, he added, is “likely not only to hit the poorest hardest, but to be exacerbated by inflation-driven cuts in benefits and public services.”
Food prices rose about 6 percent more in the two years through the end of 2021 than they might have in the absence of Brexit, according to a calculation by Jan David Bakker, an assistant professor at Bocconi University in Milan, and four other authors. While that’s not a huge difference, it defies forecasts by Leave campaigners that Brexit would cause food prices to fall.
About 10 percent of the assets that were in the British banking system have moved abroad, although a far smaller proportion of jobs has been lost, researchers concluded.
Some results are hard to explain. On one hand, British imports from the European Union fell by about 25 percent more than British imports from the rest of the world after the Trade and Cooperation Agreement came into effect in 2021, according to a chapter by Rebecca Freeman of the London School of Economics and three other authors. On the other hand, there’s no evidence in the data that Brexit had any effect on British exports to the European Union. “We plan to study the reasons for this asymmetry in future research,” they write.
Those who believed that Brexit was just a way to keep out foreigners might be surprised to learn that while the new immigration rules restrict immigration from the European Union, they actually liberalize immigration from non-EU nations. “That surprised lots of people, myself included,” Portes said. “The immigration system is quite a liberal one. A lot more liberal than the US ”
Julian Jessop, an independent British economist, offers a somewhat more upbeat analysis of Brexit on his website. In a post last week he wrote: “Of course, it would also be wrong to deny that Brexit has had any negative impacts on the UK economy whatever. Business uncertainty has indeed increased, trade with the EU is more difficult, some workers are harder to find, and inflation may be a little higher too. ”
“However,” he added, “this doesn’t mean that the doomsters are right, either. There is still plenty of room for disagreement about the size and the likely duration of all these effects – and the implications for policy. It is therefore increasingly important that other voices are heard too. ”
Fair enough. But if the best that can be said of Boris Johnson’s crowning achievement is that there’s “still plenty of room for disagreement” about the size of its negative economic effects – maybe he should have stayed up on that zip line, waving his Union Jacks.
The Readers Write
I disagree with your premise that the Federal Reserve is overreacting. The target federal funds rate is still only 1.5 percent to 1.75 percent. This is very low relative to historical rates and still technically, I would argue, a stimulating monetary position. I do agree that the pace of these hikes has been very rapid as they unfortunately need to overcompensate for their slow reaction in 2021. That being said, central banking is a difficult and largely thankless task. For 30-plus years the Fed had a streak of no prolonged bouts of high inflation. They don’t get enough credit for that but I for one am thankful for their diligent efforts and for their determination to nip inflation in the bud this time around.
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