At the Tattersall’s race meeting at Eagle Farm today, I was fortunate to run into Morgans Chief Economist Michael Knox, and we had a good chat about, unsurprisingly, what everyone else is talking about, Brexit. Michael reminded me that he wrote a note on the topic back in April, which I read when I got home, and have posted a link to below, as I think it is one of the best pieces on Brexit I have read:
After the financial markets settle down over the next week or so, after there is a realisation about the extent of the over-reaction, attention will focus on exactly how Britain will extract itself from the EU, which is the crucial issue, as argued by Michael in his note. Michael wisely observed:
“The economic damage done by Brexit would be determined not by Brexit itself, but by the kind of deal that Britain does with the European Union after it leaves. Britain is the second largest economy in Europe. It is strong enough to get almost any kind of deal that it wants.
The more restrictive on trade and immigration the deal is, the greater the damage would be. The real problem is that the populists who might rule the British economy after it leaves the European Union might negotiate restrictive deals on both trade and immigration. They might manage to shoot themselves in both feet.”
This is certainly true, and there is the prospect of a reactionary clamp down on immigration, as it appears that one of the factors behind the successful leave campaign was dissatisfaction with high levels of immigration. This is regrettable because, at appropriate levels, immigration is good for the economy and society. That said, immigration does not necessarily benefit every member of the community in the short-term, and immigration can depress the wages of some domestic workers through increases in labour supply. Over the long-run, the beneficial impacts of immigration through expanding the economy should, hopefully, offset any short-term absorption problems. But, in the long-run, as Maynard Keynes said, we are all dead. Many British people are obviously unhappy with the present consequences of open borders in the EU and have consequently voted for Brexit. It is a most extraordinary result. The weeks and months ahead will give us a clearer idea of how greatly we should be concerned about its ultimate consequences.
A very important message in these uncertain times