Beyond the economic impact, students should understand how voting behaviour allows for unexpected results, argues a student.
Last
Thursday, more than 17.4 million Britons voted to leave the European
Union. Since then, leading economists have conjectured many consequences
of the Brexit vote. While there are disagreements about how Brexit will
affect market activity, economic policy, currency wars and credit
spreads throughout Europe, there is a general consensus among leading
economists that because of Brexit, we’re faced with volatile markets,
considerable international uncertainties and increased political
friction around issues of trade, investment and labour mobility.
Significant growth deterioration, currency instability
and credit crunches are substantial if not serious risks. Britain could
even experience a recession beginning in the next 12 months. On the
positive end, there will be increased liquidity, a more competitive
currency, room and reason for increased government spending, and the
potential for substantial policy measures (fiscal more so than monetary,
as the Bank of England has already cut the interest rate as much as
possible).
When I spoke to Kenneth Kuttner, distinguished professor
of economics at Williams College, he noted that Brexit in essence means
that beyond a decrease in the efficiency of labour markets – which
allow workers to go where their services are in greatest demand –
“England will now have to start from scratch in terms of negotiating
trade arrangements. How all of this will play out is uncertain, but for
sure leaving the EU will at a minimum introduce a lot of friction in
trade between countries.”
Not only does this impact the principle of comparative advantage that motivates international trade; it also leads to a general decline in productivity and efficiency for Britain.
For the US, this likely means reduced demand for
exports, increased pessimism and loss of confidence in the pound, which,
combined with other factors, could lead to an increase in borrowing
costs for England.
In short, the aftermath of Brexit is bad – but just how
bad things will be in months to come is hard to say. No one knows how
things will play out, so nobody wants to make any economic commitments –
such as investing in English assets.
When I talked to Robert Shiller, Sterling professor of economics at Yale University,
about what he thought every college student should understand about
Brexit, he pointed out that: “The vote may be a reflection of a basic
incentive problem [in voting]: no one thinks they have any chance to be
the ‘deciding vote’, and so they don’t have the proper incentive to vote
what they think should happen. Voters didn’t feel that they were
pulling the trigger on the EU when they voted for Brexit, since they
knew the polls were saying it would lose. So they squelched their doubts
about Brexit and voted in an emotional or dramatic way.”
In fact, this point is largely reflected in the second thoughts being voiced by many after the vote in Britain.
Regarding consequences, Shiller told me that he was very
worried because he sees this defection as “a first in a cascade” within
the EU.
Eric Maskin, an economist and Nobel laureate at Harvard University,
shared similar concerns, arguing that “the political consequences may
be worse than the economic ones, dealing a setback to the project of
unifying Europe and possibly inducing further disintegration”.
For a problem such as this – won, unfortunately, by a
simple majority – there is no easy set of prescriptive solutions. But
from what I gather, there will be an important lesson that my generation
– particularly those of us in college – may take from Brexit: there is a
constant risk of mental error whenever you play for high stakes under
great pressure. We can always regret what occurs, but we should actively
resist allowing that regret to get in the way of the hunger for a
better world that drives us, the hunger that we channel constructively
to address the many problems we face as a society.
Declines in economic growth and development can have
depressing effects, especially for college graduates going into the
world looking for jobs, many of whom also have to worry about student
loans. Sitting with the notion of uncertainty can be an unenjoyable
learning experience. Right now, even though policy experts have the job
of thinking through viable strategies, no one has any solutions or
answers that satisfy the needs of all parties involved.
There are no guarantees, no point estimations for
next-day outcomes in the market or in the world, and so much of what
happens in the coming months depends on political decisions – government
spending, recovery measures, multilateral negotiation and the like.
The state of economies in Europe a month from now is
even more uncertain, but, if we think about it, so are each of our
futures. In that sense, the takeaway for me (beyond any story the data
tell) has little to do with economic outcomes and everything to do with
uncertainty and how we deal with it and keep moving forward.
Perhaps one way is to ensure that every critical decision you make is as well informed as possible.
0 comments:
Post a Comment