The EU: IN or OUT?

Daniel54

BananaRepublic wrote: »

As for the value of the pound, this is one of the best things that has happened to Britain, assuming it stays low.

You are of course entitled to this view,but you might want to read up on capital flight

https://en.wikipedia.org/wiki/Capital_flight

There was also an excellent piece in the Telegraph yesterday by Ben Wright,who is the business editor,which I link to below. It ends as follows

Irwin might argue that a plunging pound is a boon for British exporters and will ameliorate our current account deficit; low yields mean the UK government can borrow at lower rates of interest to invest in economy-boosting infrastructure projects. That’s an eye-catching answer.

But sterling weakness and pancake-flat bond yields also mean that international investors are currently running scared of the UK and the market is betting that the country is heading for a deep recession.



http://www.telegraph.co.uk/business/2016/07/05/the-paradoxes-at-the-heart-of-the-brexit-campaign-make-planning/

bowlhead99

seaspray10 wrote: »

Hi,
As there’s so much uncertainty surrounding our exit from the EU, I was just thinking how good it would be if someone could produce a credit/debit forecast for our EU exit, as it may help to reduce the uncertainty.
Debits would include:
Let’s say 3% tariff on our exports to the EU + the amount of subsidies received from the EU.
Credits would include:
3% tariff on our imports from the EU + the amount presently paid for membership of the EU.
As it’s uncertain as to whether or not Scotland will vote for independence, it would be helpful to also create the above excluding Scotland, as the subsidies received by Scotland from both the UK and the EU would appear in credits and tax presently paid into the UK from Scottish tax payers would appear in debits.
I know this is over simplifying matters but some information has to be better than none.

The problem with simplifying matters too much is that if the analysis is considered imperfect, many people will tell you it was not worth even trying to do it.

For example, Treasury ran some scenarios in models which considered trade, tariffs, likely effect on trade, demand and foreign direct investments, and a variety of other economic factors and interplays more complex than can be explained to a layman with no grounding in economic theory.

The models are complicated- "gravity models" which take into account geographic proximity and historic links rather than just assuming trade flows to wherever the lowest tariffs are. They used external academic results to estimate consequences for productivity from the different levels of trade and foreign direct investment, and then they plug the productivity numbers into global economic models run by national institute of economic and social research to estimate long-run differences in GDP and prosperity.

Depending in the assumptions used on the exit scenarios, the effect on the country's 'GDP per household' by 2030 versus the base case of staying in the EU varied - from a hit of £2.6k under a "Norway, EEA" model to a hit of £5.2k under a "WTO" model. A somewhat "middle ground" option with a negotiated bilateral free-trade-in-goods agreement like Canada, Turkey or Switzerland, came out at £4.3k.

Obviously those are central case scenarios for each model while the models really came up with a percentage range. For example the Norway model was 3.4% to 4-point-something, with the £2.6k soundbite taken from the middle, 3.8%. The WTO low case was a 9.5% loss, but the high case was more like only 5-6%, so they drew the average £5.2k from somewhere in the middle at 7.5%. They have more than one model.

Anyway, we all know what happened when they tried to tell people about the results. The leave campaign screamed that it was scaremongering, because if economic forecasts for only two years ahead frequently fail, then "how can you possibly put a number out there like £4300 in real terms by 2030. How do they know it won't be 4299 or 4301 or even zero or negative. It must be a made-up lie".

Obviously that was a silly mischaracterisation, because it was not a forecast that we would have £4300 less in our pockets than we have today, but an estimate of the difference in possible futures based on different decisions regarding UK's trading relationship.

Like saying if you have a donut and a can of Coke every day till 2030, I don't know what you'll weigh in 2030 because I don't know the rest of your diet or how the Coke recipe will change or what exercise you'll do, but the central case is that you'll be tubbier than if you skip the daily donut, and drink diet coke instead.

Apologies for going over old ground, but basically, trying to do back of an envelope calculation in a debit/credit style as you suggest, with only half the data, is pretty useless - especially when Treasury already tried it with lots of data and got booed and hissed because "it's only a guess, so we can't trust it".

For example, you suggest current level of imports and exports, times a tariff rate, and some subsidies offsetting, etc. But the first thing that happens when a tariff is introduced, is that demand changes. So, people don't have the same level of imports and exports.

E.g. say there are tariffs coming in. 75% of UK manufactured cars are exported. Nissan don't want to build a Micra or Note or Qashqai or whatever in Sunderland and export it across Europe because with a tariff it would cost the European buyers x% more than if they engineered it on the continent.

So, they move production after the current model comes to an end. UK exports drop, the engineers in Sunderland don't have automotive engineering jobs or the same level of income to spend on Volkswagens from Germany so they buy Hyundais from Korea or Czech Republic, and so on. Less money goes to the government from the former engineer, because he pays less income tax and buys fewer biscuits when it's his birthday so he pays less Vat.

Instantly, we are exporting less to Europe, importing less from Germany and more from Czech or Korea, PAYE and vat receipts are down, etc etc.

It's simply not possible to just say exports this times tariffs that, and say, "well, at least it's a start". It is a start but it's so far from the end, that it's not even a rudimentary sense check.

I do approve of people wanting to get to the bottom of this stuff, but we should beware any easy answers done on the back of a fag packet by an anonymous user on an MSE forum. Leave campaign previously said all the economic answers were wrong because they didn't help their cause, so wrote them off as Project Fear. They didn't really have their own answers because what happens next is simply "change", and a bit of a leap of faith.

Now we can put that bickering behind us, it's time to revisit the answers we have been given and read up on assumptions and methodologies already talked about, IMO.



* public service announcement: following 4500 posts over the last 11 years and a week, I'm taking a hiatus for summer and maybe beyond, to focus on the real world for a while. So if you have some views that differ from mine, great, share them here, but I'm not around to reply; in my absence, feel free to assume you're right.

I've tried taking a break/sabbatical before, but generally come back after a few weeks or a month or two - as the forum can be curiously addictive. This time I'll try harder.

Enjoy summer

BananaRepublic

Daniel54 wrote: »

You are of course entitled to this view,but you might want to read up on capital flight

https://en.wikipedia.org/wiki/Capital_flight

There was also an excellent piece in the Telegraph yesterday by Ben Wright,who is the business editor,which I link to below. It ends as follows

Irwin might argue that a plunging pound is a boon for British exporters and will ameliorate our current account deficit; low yields mean the UK government can borrow at lower rates of interest to invest in economy-boosting infrastructure projects. That’s an eye-catching answer.

But sterling weakness and pancake-flat bond yields also mean that international investors are currently running scared of the UK and the market is betting that the country is heading for a deep recession.



http://www.telegraph.co.uk/business/2016/07/05/the-paradoxes-at-the-heart-of-the-brexit-campaign-make-planning/

I've also read articles that say the weaker pound is a boon. One was written by David Smith, the Sunday Times business editor, and note that he opposed Brexit.

magpiecottage

BananaRepublic wrote: »

I've also read articles that say the weaker pound is a boon.

I am (just) old enough to remember Harold Wilson's "pound in your pocket" speech.

That didn't work out well either.

magpiecottage

BananaRepublic wrote: »

If I hear this nonsense one more time I will scream. I know many leavers, none of us have regrets. We all knew what would happen.[/quote}
Plenty have already expressed regret - see here and scream away.

BananaRepublic

magpiecottage wrote: »

I am (just) old enough to remember Harold Wilson's "pound in your pocket" speech.

That didn't work out well either.

You probably remember a huge list of well known economists wrote a letter slamming Thatcher's economics. Today many countries have emulated many of her policies. And most said leaving the ERM would be a disaster. It was the opposite. The IMF slammed Osborne's budgets at the start, but they were proven wrong. And so on. Now this does not prove the point I made earlier, but it does suggest that economics is known as the dismal science for good reason. The only way to decide is to meet again in 5 years time. But it is my suspicion that devaluation will be good.

BucksLady

Good to hear from Theresa May that Brexit is neither a disease or a religion - I was beginning to wonder

TheTracker

BucksLady wrote: »

Good to hear from Theresa May that Brexit is neither a disease or a religion - I was beginning to wonder

It may yet become either.

badger09

@ bowlhead99

Enjoy your summer mini:p break.

jimjames

uk1 wrote: »

For some reason I do not understand, the £1:00 I put into a Virgin personal pension account to open for my wife just before the vote and pending Virgin money laundering checks approval, has increased to £1.03 in a just a few days. I wish I'd put in more.

I'm about 15% up since the result as well as having my winnings. Personally I've done ok in the last couple of weeks but I'm still not convinced it's the best thing for the country although I've done pretty well myself in the very short term.
Euro rate will hit my spending next month. I don't think dollar parity will be good for the UK.