Wednesday, November 02, 2016

Sam Bowman on why both Brexiteers and Remainers need to "sober up"

One of the most balanced articles I have seen about the aftermath of the referendum came from Sam Bowman, executive director of the Adam Smith Institute, today and it is called

"Brexiteers are drunk on victory, Remainers are drowning their sorrows – both need to sober up."

As he points out

"One of the easiest ways to figure out if someone supported or opposed Brexit is to ask them whether they think the fall in the pound is a good thing. Compared to the dollar it has fallen by 20% over the past year, making it one of the worst-performing currencies of the year – among large economies only the Argentine peso, the Venezuelan bolivar and the Nigerian naira have done worse.

Remainers are horrified; Leavers are more sanguine, saying it will boost exports. Both are partially correct, but for the most part the Remainers have it right."

Sam proceeds to give a very clear and well written summary of the things which can drive currencies up and down, and of the good and bad things which can result.

All Brexit supporter who have been telling everybody what a good thing the fall in the pound is should be required to read this article. However, Remainers who have been arguing that it proves the leave vote to be an unmitigated disaster would also learn something from it.

The article concludes as follows:

" Much of the weakness of the pound reflects market expectations: the market's best guess about what will happen in British politics, and in terms of Britain's trading relationship with Europe.

We shouldn't dismiss the market's judgements as irrational – if we thought it was, we could make a lot of money by investing rationally and waiting – but we shouldn't take its judgements as holy writ, either.

A lot is up in the air. If we get a close, Single Market-like trade deal with the EU the pound will strengthen. If we get deep, comprehensive free trade deals with the United States, Mercosur in South America, the Commonwealth states and China it will do the same.

The biggest rewards might be at home, in areas not directly related to the EU: if we can use the shock of Brexit as a chance to cut through entrenched interests and reform our labour regulation, tax, and land-use planning systems, markets may judge that the future of investment in Britain is even better than it was while we were inside the EU.

Both sides are letting their emotions cloud their judgement. Leavers are drunk on victory, and Remainers are still drinking away their sorrows. Eventually both will need to sober up. That means understanding what the fall in the pound really means: a bad prognosis for Brexit, but one that with the right policies we can overcome."

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