Leave aside for the moment who you’d like to see as next PM. Leave aside as well who you think would make a good PM. Meaning that we can put aside Boris’ ability to do detail, Gove’s to rally the troops and all that. Think for a moment solely about Brexit policy, the existential question being faced currently. Gove’s idea of waiting until – or up until if necessary – late 2020 to gain a deal is taking all of the pain and getting none of the gain.
For what kills economies is uncertainty.[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””]Michael Gove tells Cabinet ministers he is prepared to delay Brexit until late 2020[/perfectpullquote]
No, that’s a really bad idea:[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””] Michael Gove has told Cabinet ministers he is prepared to delay Brexit until late 2020 rather than leave without a deal on October 31, The Telegraph has learned. The Environment Secretary has told colleagues that a no-deal Brexit in October risks triggering a General Election that will put Jeremy Corbyn in Downing Street. His position puts him directly at odds with other Brexiteer leadership candidates including Boris Johnson, the former foreign secretary, who have committed to leaving on time with or without a deal. [/perfectpullquote]
Note that it’s a really bad idea even if you think that Brexit shouldn’t happen at all. The uncertainty over the when and what terms is so damaging that it’s better we make the decision now, whatever that decision is.
In the theory, the largest variable by far in GDP is business investment. In turn this is driven by Keynes’ animal spirits of businessmen. It is uncertainty about the future which kills such investment. Note that uncertainty is different from probability. It’s not that we think there’s a 50/50 chance of our new investment working. It’s that we don’t and can’t know what the environment it’ll be working in is. So we can’t even calculate the risks.
We don’t know if we’re leaving – we’re pretty sure we will be in name but little more than that- we don’t know the terms and we don’t know when. So, most investment will be put on hold until we know more.
And, yes, large falls in business investment are quite enough to cause a recession all on their lonesome.
We’v even got a practical example here. British Steel went bust because of Brexit. Buyers didn’t know whether their orders would need to pay import tariffs or not upon delivery in x months time. It was impossible to gain a firm and fixed price. Therefore they went and ordered elsewhere. B Steel goes bust through lack of orders. The lack of orders being a result of simple uncertainty.
Whatever the Brexit outcome would have been better than that. Some customs union, single market, whatever deal, no tariffs, all is good. Hard exit to WTO, tariffs. Oh my. But WTO terms is a significant change in the terms of trade for the country as a whole. Sterling will fall. A fall in sterling prices B Steel back into the market – a bit to a lot at least – against those tariffs. In an uncertain world sterling has only fallen a bit.
It’s uncertainty that kills a business, an economy.
Sure, I’m hugely biased here, I don’t think we should ever have joined the EU, I don’t think anyone ever should have done. I’m adamant that we should leave and that so should everyone else.
But leave all that aside. Delaying the whether Brexit, the terms of Brexit, to late 2020 is the worst of all worlds. It’s the worst policy on the subject possible. Whatever the decision actually is we should do it now. I think hard and to WTO – you may disagree. But we still need to be doing whatever it is right now before the economy crumbles under that uncertainty.