An FB friend of mine skeptical that Brexit will have much of a negative economic impact has put up a post entitled "Brexit-Schmexit!" To this I say, "Details-Schmetails!" because the widely varying possible impacts of details of that exit have induced a massive increase in uncertainty over the future around much of the world that itself can cause considerable economic harm. Just for the US alone, Jim Hamilton atEconbrowser documents the sharpest increase in measured policy uncertainty since the debt ceiling crisis of 2013 (also linked to by Mark Thoma at Economists View), and this is the leading complaint by most EU leaders against the plan by David Cameron (and Boris Johnson too apparently, as well as many in the UK hoping for an eventual Remain outcome) to delay invoking Article 50 of the Lisbon Treaty that would trigger the two year divorce negotiations, even as I sympathize with those in the UK hoping such a delay might lead to no Brexit at all in the end. The Europeans want the negotiations to start sooner so as to end the uncertainty sooner, which they see as hanging over the heads of their economies and damaging them, which seems a fair point.…
In any case, whether declining foreign direct investment tanking the UK economy has a greater impact than some gain in import competition and exports due to a devaluing pound, it looks from most in the EU that the greatest damage to their economies and the British one, as well as others around the world, will arise from the uncertainty associated with how all this will work itself out and how long it will take. In this regard I agree with the Europeans: whether or not the Brexit vote by the British was wise or not, they must minimize the damage of it to the rest of the world and get out ASAP to reduce all this world economy wrecking uncertainty.Business and finance hate "uncertainty," by which they mean risk that cannot be measured. This is an issue with policy uncertainty.
Econospeak
Details-Schmetails!: Brexit And Uncertainty
J. Barkley Rosser | Professor of Economics and Business Administration James Madison University
See also
Econobrowser
Policy Uncertainty (in America) in the Wake of Brexit
Menzie Chinn
Business and finance hate "uncertainty," by which they mean risk that cannot be measured. This is an issue with policy uncertainty.
ReplyDeleteExactly. Which is why the future cannot be predicted on the probability distribution of the past, which all the neo-liberal economic models attempt to do as if economics is some hard science. (Ditto the climate models, which is why they can’t predict diddly. Meteorological experts can only forecast out 10 days--because of atmospheric flows, etc--and and the lousy ones even get that wrong.)
Risk is for stable times (because as Keynes said, risk is like a deck of cards, variable but measurable). Uncertainty is for disruptive times when you have absolutely no basis to know what will happen in 10 years (things like war, price of oil).