BREXIT

The big surprise in England was the recent voting in support of divestiture with the European Union.   It was a complete surprise.   All of the tipsters had it down as a shoo-in for retaining the present arrangement.   Since the voting was a referendum, it meant that the government was out of touch with the electorate.   That is a serious matter. But it will probably not bring on a recession or depression.

The economy of Britain is currently brisk.  There appears to be little risk of a recession. Thus, the period of negotiation will move ahead with a stable background, no emergencies, no untoward circumstances. But how often have we said this, and then, whammo,

The wining party, the Conservatives, promises to cut taxes, and to cut social benefits That and other changes in compensation and incentives are supposed to make British companies more competitive.

Brexit also brings up the issue of mobility of workers.  One of the benefits that was promised workers at the time of joining together of the European Union was that workers would be free to find employment throughout the Union.  No other benefit was as valuable as this one.  Brexit was the safe harbor..  In recent times this job insurance has appeared much fainter than before.

Then there is the matter of trustworthiness.  The English have a long history of taking their own way on big issues like trade.  Brexit will likely be successful, because It will give more power of decision to English management as well as workers.

Brexit will have major impact on the economy of Britain, but this will be in the long term.  It will come from the greater use of incentives, and downsizing production.  It will also be deflationary

In the meantime British trade will find its way.   Brokers will quickly learn the ways of the new era.

Notes from a talk at the Palo Alto Club on Thursday, July 14, 2016

T.G. Herrick

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