Economists are Divided over Brexit

Yves here. Even those economists that think Brexit is a disastrous idea differ on how severe the downside would be. Note that more recent polls give Remain a slight edge, and bookies, who were more accurate on the Scottish referendum that the pollsters, are very confident Remain will prevail. But the Financial Times show 44 to 44, meaning 12% still not decided. My contacts think the undecideds will break heavily towards voting for the status quo. We’ll see soon enough.

By Lynn Parramore, Senior Research Analyst, Institute for New Economic Thinking. Originally published at the Institute for New Economic Thinking website

As uncertainty and tension mount with a divided British electorate due to vote on June 23 over whether to leave the European Union (EU), economists within the Institute for New Economic Thinking’s networks hold a range of different views on the consequences of a “Brexit.”

Some predict a British vote to leave the EU would bring nothing short of a global crisis, while others see cause for concern but don’t predict catastrophe. And there are those who argue that a vote to remain in the 28-member bloc will consolidate the authority of anti-democratic elites and may not offer the prospect of alleviating the grievances of many ordinary citizens. Then there’s the question of the credibility of economists in the minds of the voting public, given their failed track record of forecasting — despite the dire warnings of economists about the consequences of leaving the EU, polls show the “leave” campaign as being in the lead going into the final week before the vote.

Economist Anatole Kaletsky, former Chairman of the Institute for New Economic Thinking and currently a member of its governing board, warns that Britain’s exit from the EU will likely produce dire consequences for the world economy — on a scale well beyond what the country’s 2.4 percent share of global GDP might suggest. By ignoring the counsel of business leaders, mainstream politicians, and expert economists, he warns, voters may “endanger the gradual restoration of prosperity by upending the status quo.” Kalestky expresses concern that if the U.K. goes its own way, “financial markets will amplify economic anxiety, breeding more anti-establishment anger and fueling still-higher expectations of political revolt.” He predicts that the result could be another global crisis.

David Vines, Professor of Economics and Fellow of Balliol College, University of Oxford, also concludes that a Brexit would be calamitous. He notes that it would potentially exclude the U.K. from the continent’s single market and raise the prospect of aggressive pressure from the rest of Europe to remove the center of the European financial system from London to Frankfurt. Vines adds that many productive firms in the U.K. may lose out from diminished integration with Europe, citing recent reports of Rolls-Royce suspending judgment on investment decisions. Vines further points out that “the university system would lose 40 percent of the funding for research” and notes that “along with finance, academic research is a comparative advantage of the U.K., and the funding and collaboration with researchers in Europe that EU membership is of very great value” and could be lost. He also has grave concerns about political turmoil and lack of leadership that could result from a Brexit vote.

According to Vines, Europe may also face serious negative consequences if the “leave” camp wins, emphasizing that Britain’s presence within the EU is extremely important for shaping the future of the union and balancing its competing tendencies. “The German passion for implementing rules is particularly damaging,” he warns, “as is the French determination to centralize power in Brussels.” He fears that the absence of a British engagement may lead to bad outcomes. In the run up to the Napoleonic Wars Britain was preoccupied with its empire; immediately before the first World War Britain was preoccupied with Northern Ireland. “Look what happened then,” he said.

Less alarmed is Malcolm Sawyer, Professor of Economics at the University of Leeds, who sees the narrow economic effects of a Brexit as negative but not catastrophic. He sees the worst effects arising from the change in trade relations between the U.K. and the EU if Britain leaves the single market. However, he believes estimates emanating from government and research organizations of economic losses amounting to as much as 4 or 5 percent of GDP may be overly alarmist. Sawyer notes that on Monday, Paul Krugman put the potential loss at 2 percent in the New York Times. “In the short term,” Sawyer observes, “I’d expect there would be some losses through uncertainty and the postponement of investment, and a possible large exchange rate fall (bearing in mind that UK now has a 7 percent of GDP current account deficit).”

In Sawyer’s view, those who stand to lose from a Brexit include educated workers in the U.K. who currently gain from the ability to work abroad and interact on the international level. He warns that if the political right comes into power as a result of a Brexit victory, “attacks on workers’ rights (under the heading of de-regulation) are highly likely” and notes that the political right would probably be more pro-austerity and more in favor of privatization of the National Health Service. In that case, Sawyer notes that the biggest losers might in fact be working class voters — the very people who tend to support the “leave” campaign.

Not all economic experts favor remaining in the EU, however. Steve Keen, Head of the School of Economics, Politics & History at Kingston University, London, thinks that Britain would be better off outside of the union.

“My perspective is to some degree more political than economic,” notes Keen. “Courtesy largely of the Euro, the EU is a failed institution that is achieving the opposite of its aims to unify and strengthen Europe.” As Keen sees it, the EU’s most influential treaties, such as Maastricht and Lisbon, have been used to subvert democratic governments and to impose the will of “Ordoliberal bureaucrats” upon electorates that are attempting to end Neoliberalism. [“Ordoliberal” refers to a German strain of liberalism that emphasizes maximizing the potential of the free market to solve economic problems.]. Keen observes that “a ‘remain’ vote will strengthen the power of this anti-democratic elite and do nothing to tame the forces of racist nationalism that have arisen in reaction to their failed economic policies.” Keen will be voting for the U.K. to leave the EU.

For her part, Shelia Dow, Emeritus Professor of Economics at the University of Stirling, remarks that when it comes to predictions, economists have not always played the most helpful role in the Brexit debate. She is not surprised that economists’ forecasts of the likely effects of Brexit are being widely discounted, because model-based forecasts are typically presented as definitive without any acknowledgement of their limitations, and often turn out to be wrong. “These limitations are severe when analyzing constitutional change, which involves complex, unpredictable structural change,” observes Dow. “Economic arguments, of course, can and should be made about likely outcomes, building narratives drawing on analysis of history, institutions, etc., as well as theory and data. But there needs to be more modesty, not least about quantification.”

If a Brexit occurs, liberals in the U.K. may have nobody to blame but themselves. Businessman Clive Cowdery, majority owner of Prospect Magazine and a member of the Institute’s Global Partners Council, describes the possibility of leaving the EU as a “black eye for us liberals, a self-inflicted wound resulting from a failure to address the concerns of ordinary people who have understandable fears and legit grievances.”

Print Friendly, PDF & Email


  1. digi_owl

    This seems to be the last echo of the Thatcher era’s breaking of the UK industrial base.

    Said industry is perhaps better served by protectionism, as it means that the pound stays circulating within the nation.

    On the other hand the City of London and all its banks and traders are better served by open borders, as then they can leverage their special status while doing business on the continent.

    1. jabawocky

      City traders like the status quo, indeed. But they also fear being regulated by the EU, and fear the EU attempt to impose transaction taxes.

    2. vlade

      The “Britain has been deindustrialised” meme is extremely hard to fight, but entirely wrong. Industry in the UK makes more (as part of GDP, 24%) than in France (22%), and not massively less than what people think as industrial powerhouse Germany (28)

      Thatcher killed the coal (and partially steel, although Cameron was better at killing steel). Lots of UK heavy industry committed suicide – just look at how good were the cars from British Leyland (apart from some high-end cars and the Mini). Look at Sinclair or Armstrad.. British were extremely good at inventing things (computer, jet engine, some car stuff), but very very poor at turning it into a good business.

  2. jabawocky

    The economic implications of brexit for the UK are unknowable until the post-brexit settlement with the rest of europe would become clearer. But basically you have to scratch around to find an economist that thinks its a good idea. Exit from the single market would worry me, and uncertainty is delaying investment. The convenience of tarif-free trade adds a lot of efficiencies.

    I am no friend of the EU institutions but the political ramifications of brexit are to put the Old White Men, playing Dambusters theme tunes, promoting right wing anti-tolerance politics, and with economic views further to the right than the EU, in charge of the country. The one thing clearly worse than the EU is a far-right jamboree spreading across the continent.

    1. diptherio

      That far-right nationalism is flourishing despite (perhaps because of) those country’s memberships in the EU. So I don’t see how, logically, you can claim that staying in is somehow going to weaken the right-wingers. That’s appears to be what Keen is saying, and if I’ve got to choose an economist to side with, he’s certainly one.

      It sounds a lot like battered-spouse syndrome: “I know I’ve hurt you, but don’t leave! If you leave it will be even worse for you! I promise, I’ll make your life hell if you leave! Can’t you see I love you!?!”

      1. William C

        What is your evidence for suggesting that the UK is like a battered wife? It has suffered none of the problems associated with membership of the Eurozone because of course it is not a member. Of course, there have been problems since the crash but those have been above all the result of the UK government’s own policies.

        Arguments that the UK should leave the EU because of the way Greece has been treated are pretty much beside the point. Greece was given the treatment it was because it was in the EZ. The UK is not and will not be part of the EZ at any stage probably in either of our lifetimes (unless you are very young).

        Immigration is the issue which has put wind in the sails of the Brexit camp, who did not make a good case economically for departure. There has been a lot of emotional, scaremongering campaigning on this issue by the Brexiteers which has at times been downright dishonest (e.g. on the chances of Turkey joining the EU any time in the foreseeable future) and even contemptible (using the plight of the Syrian refugees to scare people).

        Brexit is being driven by the right wing of British politics – already far too powerful -so they obviously think that leaving will strengthen them. So, to take issue with Keen’s arguments, in the UK, a leave vote would strengthen the power of the undemocratic elite, whatever it might do elsewhere in the EU. As for its effect on racist nationalism – that is what Brexit has become : an expression of racist nationalism. I am surprised Keen cannot see this. To be fair, as an Australian he probably does not really understand British politics.

  3. craazyman

    it seems hard to believe economists would disagree on something this fundamental. isn’t economics a science that relies on evidence and rigorous method? It’s like saying “Scientists disagree over weight of boulder in field. Estimates range from 1599 pounds to 1902 pounds.”

    It doesn’t seem plausible. It may be that fake economists are slipping in here and making predictions.

    The real economists all agree, exactly, on what”s what. But the fake economists’ just guess all over the place. How do you know the fakes from the real thing? That’s hard. You need another social scientist to figure it out, but you need a real one, not a fake who guesses, and you get yourself into an infinite loop of confusion over who’s real and who’s a fraud.

  4. PlutoniumKun

    In the run up to the Napoleonic Wars Britain was preoccupied with its empire; immediately before the first World War Britain was preoccupied with Northern Ireland.

    Given that Northern Ireland as an entity didn’t exist until 4 years after the end of the first World War, this doesn’t speak well of Prof. Vines knowledge of history.

    But on the general point – I don’t think economists have covered themselves with glory over the vote. There are simply too many unknowns – most of which are on the ‘down’ side. As an obvious issue, sterling would almost certainly fall significantly, but by how much, and how much influence this will have on debt owned on other currencies is very hard to predict. It could provide a massive boost to the economy – or it could result in a major financial crisis. The other ‘unknown’ is the response of other EU countries. There would be a major internal battle between those who would want to ‘punish’ the UK for leaving for political reasons (probably the French and northern Europeans), and others (such as Ireland and maybe eastern European countries), which would want to minimise the impacts.

    Brexit seems to me to be a very high risk economic option, most likely on the downside, but I don’t think its possible to say with any certainty what the long term impacts could be.

    1. a different chris

      >There would be a major internal battle

      If there is any intelligence at all in those nation’s capitals, it should be everybody against Germany. Because if Brexit doesn’t completely starve the county, the other countries get leverage they don’t have now.

      So in-the-EU might be a better option for everybody (including GB) in the best case, but you can’t get to anywhere near the best case without leverage.

      Looks like Remain will win, too bad I really think this is the “early rounds” where the big, favored guy isn’t quite ready and you need to get him. Once the EU fights off this only realistic (only country w/out the Euro) challenge they can go full neo-lib and there will be nothing anybody can do about it.

  5. jabawocky

    Pluto, I think this is pretty much on the button. Large number of unknowns to which models are (or should be) highly sensitive.

  6. ChrisAtRU

    See also Bill Mitchell today:

    “Tomorrow, Britain gets to cast a vote on its continued membership in the European Union, although it is unclear how binding such a vote would be on the Government. Probably not binding at all. The latest opinion polls are giving it 51 per cent remain to 49 per cent leave. The bookie odds are in favour of the remain camp. I am guessing the remain vote will win. It shouldn’t. The debate has been asinine to say the least. The public deception has reached unbelievable heights. My own profession has been wheeled out or wheeled themselves out in grand statements about how catastrophic exit would be. I don’t believe much of it at all. I provided my opinion on the topic in this February 23, 2016 blog – If I was in Britain I would not want to be in the EU. I will not repeat the analysis here. But in the research I have been doing on how the Left has become neo-liberal, there was a lot of overlap in how the Left became, to their detriment, pro-Europe. Here is some points on that. I hope the Exit wins.”

    1. john ollerenshaw

      i think the eu law professor’s view on the consequences of brexit,set out in the link below,are worth considering before jumping on the farage/gove/blojo bandwagon.

  7. Niels H. Bünemann

    It’s true that the European Union suffers from a democratic deficit, owing to the patchwork of institutions built over time, one stone on the previous one. But it’s unfair to talk about the “authority of anti-democratic elites”. The values of the EU are easily the most democratic and human-rights-oriented of any federation/association of states on the planet. To live these values in full requires a fundamental reform of the EU, and in that process we certainly need the UK, one of the oldest democracies in the world. But the UK needs the EU just as much, it would fare very badly if the reigns are handed over to brexiteers such as Boris Johnson and Nigel Farage. Especially for young Brits it would be a tragic outcome. They are clearly more cosmopolitan than their parents’ generation and will therefore vote “Remain” by a large majority.
    By the way, I’m a Danish citizen, live in Germany and consider myself a European more than any national affiliation.

    1. TheCatSaid

      A number of years ago I agreed with you. Now I don’t. The structural design of the EU is anti-democratic by design. It cannot and will not be reformed–because the EU was designed to keep power well away from European citizens.

  8. john ollerenshaw

    An EU law professor’s disparaging take on the conduct of the Brexit debate and an outline of the necessary steps to be taken in the event of a win for the leave vote.

  9. Noonan

    Barack Obama, Jacob Rothschild, and George Soros have all warned against Brexit. Were I a citizen of the UK, this fact alone would secure my vote to leave.

    1. PlutoniumKun

      And Michael Gove, Boris Johnson, Marine Le Pen, and Nigel Farage have warned against Remain….. just sayin’

  10. fresno dan

    If the criteria is GDP alone, I suspect that GDP might decline – but these are pretty variable and nebulous numbers anyway, and I suspect any result would be extremely marginal. Maybe austerity has more of an affect. But as usual, a vast iron curtain has descended across the land that cuts off any discussion of the distribution of any “extra” GDP that could be attributed to being in the EU. But as I’ve said, if the 1% reap all the benefits of the EU, why exactly should the vast majority maintain a status quo that benefits the few at the expense of the many???
    It seems incredible to me that people espouse EU membership when it has shown tremendous incompetency with regard to Greece and all the other countries in the southern tier.

  11. Frenchman in Bavaria

    And there are those who argue that a vote to remain in the 28-member bloc will consolidate the authority of anti-democratic elites

    I don’t really have a strong opinion on the Brexit but this sentence caught my eye. The EUs democracy deficit certainly is something worth discussion but when the criticism in coming from the UK, it’s a bit of a joke.

    The UK is arguably the most anti-democratic “democracy” in the EU, with their plurailty voting system, their head of state being a monarch and with one of the two parliamentary chambers being made up of “life peers” appointed by the monarch.

    It’s true that the EU is administered by robotic technocrats but the political, social and media elite of the UK consists of sneering Masonic paedos 200 years overdue for mass expropriation and slaughter. When it comes to “anti-democratic elites”, I consider the former preferable to the latter.

  12. Barmitt O'Bamney

    Witchdoctors divided in debate over EU membership? Well I am just staggered.

    Raul Ilargi Meijer posted a link to Frederick Forsyth’s excellent take on the EU referendum: The European Union: Government By Deception. Normally one might say Forsysth was indulging in the fallacy of origins. Just because something like the EU began as an explicitly anti-democratic plot to create a superstate that would rule by deception doesn’t mean it has that essential character for all time. Except in this case, it quite consciously set out to do that exactly, and it has stayed skin tight to its original nature. Because it is antidemocratic and deceitful by nature it should be resisted, and if possible pulled down by peaceful means.

    I believe Meijer’s own summary of the issue is complete and sufficient. If you want to know what the EU is all about and whether it is good or bad, just look at what it is doing to Greece. An entire people are being strangled -in the cradle of democracy no less- by an oligarchical cabal of foreign bankers. Their country is being looted of anything of value and then used as a dumping ground for refugees. The EU is the terminal ward for European civilization. The patient loses all power upon admittance and is treated either until fully cured of his humanity or else is deceased.

    Dear Britain: you will never again be offered a bloodless chance to win your freedom after tomorrow. Literally. Never. Don’t be idiots or monsters – take the offer and run like hell.

  13. hemeantwell

    Worth-a-read discussions of Brexit at Jacobin today. Richard Seymour tilts to Exit, but not by much, and is most concerned with how the Remainders gloss over EU oppression.
    Ed Rooksby, in my view, tunnel visions on how Brexit will shift the political culture to the right. Seems to think of Corbynite Labor as a cipher.

  14. Jesper

    The ‘postponement of investment’ argument is quite unbelievable. Demand is flat and/or declining so whether or not there is a Brexit is irrelevant.
    As for uncertainty…. Given how much economists love uncertainty of income for workers I’m quite appalled about how important they see certainty being for companies.
    Liberals seem very much a fan of the enlightened elite ruling without input from the masses – the difference between that and the authoritorian strong-man leader is mostly abour the quality of PR.

  15. vlade

    A couple of points.
    – if anyone thinks that Brexit will turn UK into left-wing paradise, equalising everything, they’d better think again. Johnson and Farage are as lethal to the workers as Cameron is, possibly even more so. The top 1% can move much more easily than the bottom 50% (I’ve seen people where one parent works in HK, the other in NY, and kids are in Sussex boarding school. Main impact of Brexit on them will be cheaper school fees in USD terms).

    – Europe elites, especially France’s and to a lesser extent Germany have massive political interest in the Brexit failing – anything else their likely political death (and not a prolonged one, but a quick and painful).

    – the sovereignty argument is misleading. One can achieve as much sovereignty (or freedom in personal terms), as is relevant to their power vis a vis the rest of the world. Britain alone has neither massive trade, financial, or military power. UK lost most of their sovereignty after WW2 when US basically made it bankrupt (at least partially in order to disgorge the Empire). Moreover, some EU nations (Germany in particular) managed to protect their sovereignty much much better – guess what, because they actually cared. UK didn’t. UK’s European policy was a mess for the last 40 years. UK could succeed outside EU only if it magically somehow got better running diplomacy overnight. Fat chance.

    I dislike Brussels with a passion, and EU is mostly unaccountable bureaucracy. But the option to get out will exists next year, or the year after or two – because it’s still not an autocracy, as some claim. But once you’re out, you’re out. UK IMO would be much better served trying to build a power-block in the EU, but of course that takes time and skill. The first lack the sexiness of the emotive decision making, the second is just, well, lacking.

    1. tempar555510

      Wishful thinking . You can’t say ‘ I dislike Brussels with a passion … ‘ and vote to Remain . That’s just cowardice.

  16. tempar555510

    I am a Brit. I really don’t give a f… what ANY economist thinks would be best for us, or what they think the risks are. The issue is POLITICAL . If we leave our fate – whatever it my be – in the hands of the Junckers and his like, we are doomed . And so I have already cast my vote ( by post ) to LEAVE . Let us live by our wits . As a nation it has served us well for centuries. I think of my children and grandchildren . This World is entering , potentially , a dark age . I love Europe, its Christian heritage, its basic decency, but the EU is larceny writ large . So any Brits reading this I urge you, I implore you VOTE LEAVE tomorrow .

    1. jabawocky

      Yes wouldn’t it be great if the EU broke up, with each country ruled by the populist far right. I think I’ll give your utopia a miss if you don’t mind.

  17. Strategist

    Steve Keen, Head of the School of Economics, Politics & History at Kingston University, London… will be voting for the U.K. to leave the EU.

    Does Aussie Keen get a vote? I thought I’d answer my own question. Here are the eligibility criteria:

    * A British or Irish citizen living in the UK.
    * A Commonwealth citizen living in the UK who has leave to remain or who does not require leave to remain in the UK.
    * A British citizen living overseas who has been registered to vote in the UK in the past 15 years.
    * An Irish citizen living overseas who was born in Northern Ireland and who has been registered to vote in Northern Ireland in the past 15 years.

    I wonder why Commonwealth citizens can vote in this one? ‘Commonwealth’ brings in not only the Aussies, but Canadians, Indians and many others, including Mozambicans (the only Commonwealth country that was never in the British Empire). From the EU itself, it covers the Cypriots and the Maltese. But the many hundreds of thousands of Italians, Spanish, Greeks, French, Germans, Poles etc here don’t get a vote – and are all worried sick.

  18. Gaylord

    Varoufakis advises “remain” with the proviso to democratically reform the EU, a peculiar position in view of his efforts in that direction which only elicited disdain and entrenchment from EU ministers. Sometimes, you have to take a big risk in order to realize a gain, or to get the monkey off your back when you’ve surrendered sovereignty mainly for the benefit of the few — not unlike what the weasel-negotiated TTIP would bring. Great numbers of people are fed up with the ways the system works to their detriment, always demanding more sacrifices. Those who are in control are loathe to respond appropriately to their grievances, and are recalcitrant about protecting peoples’ health and the environment.

  19. Thure

    Economists haven’t been particularly good at predicting anything so why even ask them?

    Of course most of them will favor remaining in the EU, it matches their mindset.

    It’s a cultural and social decision by the people of Great Britain. Economics is just a subset of that.

    Let Britain leave, it will probably be salutary for the whole nation and a clear wakeup call for Europe.

Comments are closed.