<p>Brexit economic forecasts usually assume that Brexit will happen and nothing more than Brexit. In other words forecasters will not assume other changes which may be pro-growth. For example they will not likely assume the "Singapore on the Thames" outcome because we do not know if it is politically feasible or realistic. </p>

<p>All else equal, countries tend to trade near rather than far so Brexit may be a welfare reducing event.  </p>

<p><a href="https://en.wikipedia.org/wiki/Gravity_model_of_trade" rel="nofollow noreferrer">Link to Wikipedia on the so called gravity model of trade.</a></p>

<p>This is why a post-Brexit forecast of GDP in 2030 will tend to be less than the non-Brexit forecast.</p>

<p>Of course in the very long run the tendency to trade near rather than far becomes less significant. More trade will occur over greater distances because of decreasing transportation costs and convergence in cultures and convergence in per capita incomes between countries, even distant ones. </p>

<p>Between now and say, the year 2030, transportation and culture will probably still matter a significant amount so the proximity and cultural similarities with the EU suggest GDP will be higher in the "remain" scenario. If the Brexit scenario has less trade, as is likely, then you have an explanation for an adverse GDP forecast. </p>

<p><a href="https://www.city.ac.uk/__data/assets/pdf_file/0005/356558/CPRMay2017.pdf" rel="nofollow noreferrer">Link to a description of Singapore on the Thames.</a></p>

CC BY-SA 4.0
2019-06-20T02:00:57.690Z
2019-07-02T16:51:26.800Z
2019-07-02T16:51:26.800Z
H2ONaCl
<p>Maybe someone can get into more details, but <a href="https://www.lse.ac.uk/europeanInstitute/LSE-Commission/Hearing-11---The-impact-of-Brexit-on-jobs-and-economic-growth-sumary.pdf" rel="nofollow noreferrer">generally speaking</a></p>

<blockquote>
  <p>The range of estimates is large, from a loss of GDP of nearly ten percentage points (in the least
  attractive trade and inward investment scenarios modelled by the Treasury, NIESR and the Centre
  for Economic Performance at LSE)
  1
  to a gain of four points (Minford, for Economists for Brexit
  – a
  clear outlier) – see figure 1.</p>
  
  <p><a href="https://i.sstatic.net/dPj19.png" rel="nofollow noreferrer"><img src="https://i.sstatic.net/dPj19.png" alt="enter image description here"></a></p>
  
  <p>The main reason for the differences lies in the assumptions made about shifting from the
  current access that the UK has to the EU single market to a new regime in which the UK
  faces restrictions. </p>
</blockquote>

<p>Those were from 2016 estimates/papers.</p>

<p>Also, economists were not terribly good at predicting Brexit-related effects insofar, at least short term; see <a href="https://economics.stackexchange.com/a/27492/6210">https://economics.stackexchange.com/a/27492/6210</a> While the gloom and doom may have been overstated, some effects are apparent already, in <a href="https://www.bloomberg.com/opinion/articles/2019-01-14/the-economic-damage-of-brexit-in-charts" rel="nofollow noreferrer">some analyses</a>:</p>

<p><a href="https://i.sstatic.net/6V2fM.png" rel="nofollow noreferrer"><img src="https://i.sstatic.net/6V2fM.png" alt="enter image description here"></a></p>

<p>Apparently the chilling effect of Brexit on investments may have been a real thing (but that assumes the counterfactual dotted trend was a sure thing).</p>

<hr>

<p>As a sort of an update, some days ago (Sep 3, 2019) UNCTAD has posted <a href="https://unctad.org/en/pages/newsdetails.aspx?OriginalVersionID=2176" rel="nofollow noreferrer">an article</a> on the narrower issue of potential UK losses in a "no deal" scenario due to continuity trade agreements with other countries not yet agreed.</p>

<blockquote>
  <p>In relation to exports to countries with which the UK has not yet secured the continuation of preferential access, the UK could face substantially higher MFN tariffs, especially on agricultural products. For example, processed food products could face an average increase in tariffs of about 17 percent. Similarly, apparel, textiles and motor vehicles would also face substantially higher tariffs. In value, most of the losses would be concentrated in motor vehicles (about USD\$750 million) and in chemicals (USD\$200 million).</p>
  
  <p>[...]</p>
  
  <p>Among the countries which currently grant preferences to the EU but for which the UK has not yet reached an agreement to grant continued preferential market access, Turkey, South Africa, Canada,  Mexico, Japan, Egypt and Morocco are the markets where the UK is expected to have larger export losses. In particular, the UK is expected to lose about USD\$500 million  of exports in the Turkey market, about 5 percent of its exports to Turkey. In South Africa, the UK is expected to lose about USD\$240 million, equivalent to about 9 percent of its exports to South Africa.</p>
</blockquote>

<p>There's an update to the update as well. On Sep 11, the UK has <a href="https://www.bbc.com/news/uk-47213842" rel="nofollow noreferrer">announced</a> an "agreement in principle" with South Africa and with a few other, smaller countries from Africa.</p>

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2019-06-02T21:56:18.153Z
Are any of these predictions? Or is there a semantic difference between a prediction and a projection?
52d6c6af
CC BY-SA 4.0
2019-06-02T21:58:27.473Z
@Ben: There isn't one.
fantastic peace and prosperity
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2019-06-02T22:03:40.210Z
I’m not sure about that: https://www.abs.gov.au/websitedbs/a3121120.nsf/home/statistical+language+-+estimate+and+projection
52d6c6af
CC BY-SA 4.0
2019-06-02T22:09:44.300Z
@Ben: maybe you should ask a separate question about that distinction, then.  I have a feeling it might depend on the author.
fantastic peace and prosperity
CC BY-SA 4.0
2019-06-02T23:16:04.313Z
@Ben: The distinction according to that page is that projections (unlike forecasts) may be based on assumptions one does not commit to as being realistic. In the case of those Brexit projections I'm not sure any of those were made with that level of dissociation. I mean why bother projecting something you think unlikely to happen...
fantastic peace and prosperity
CC BY-SA 4.0
2019-06-03T00:06:45.350Z
That’s easy: politics. I have an inkling the distinction is important in economics because I vaguely recall being made aware of it by an economist I spoke to. Of course non-economists (and economists!) probably then play on the general public’s assumption that a projection is a prediction in order to “accidentally” construct a false narrative. Maybe.
52d6c6af
CC BY-SA 4.0
2019-06-03T00:44:19.260Z
@Ben To the best of my knowledge, when ABS uses the term "projection" it's generally (maybe always?) in the context of demographic data. We try to avoid getting into the forecasting business; economic forecasting is usually done by other agencies e.g. Treasury and by NGOs, although ABS data is a major input into their forecasts. So I would not necessarily assume that an economist talking about "projection" is using the term in the same way that ABS defines it in that document. Even within a single agency, consistency of terminology is hard to achieve!
G_B
CC BY-SA 4.0
2019-06-18T07:42:17.757Z
This a minor issue, but the last graphic in your answer (from Bloomberg) is very bad. One can easily eyeball the dashed trendline and tell it is overly optimistic - continuing it to the left would not intersect the historical data at all. This is of course not your fault in any way.
Giskard
CC BY-SA 4.0
2019-06-02T21:39:50.453Z
2019-09-15T22:39:48.297Z
2019-09-15T22:39:48.297Z
fantastic peace and prosperity
<p>How much is sovereignty worth? </p>

<p>This should be balanced against potential short-term costs of Brexit. </p>

<p>Among other things, one will retain the ability to purchase "champagne" from its region of tradition, cultivation and origin in France (but only "sparkling wine" if produced outside of that region). But, will be assured of access to a veggie "burger" and also to grains and pulses reformulated into "fake meat". </p>

<p>A negative long-term forecast would be largely due to assumptions inherent in many economic models that the world after a specified change will function identically to the world before the specified change, with the exception of the one or handful of changes specifically modelled. It is one thing to change a 0 to a 0.09 (9%) in an existing model. But reality may evolve differently than what can be readily modelled empirically using economic theory. </p>

CC BY-SA 4.0
2019-06-27T19:44:50.057Z
2019-06-27T19:44:50.057Z
nathanwww
<p>Here's one way to look at it: The NPV of a rapid X% hit to GDP exceeds the NPV of a rapid increase of +X% some years in the future, given a constant discount rate.  </p>

<p>Let's say the additional one-time increase to GDP needed to get Britain back on its current growth path is Y%. So just to break even on Brexit, you need to believe that growth on the scale of X+Y% will happen, ideally quickly (the longer this takes, the bigger Y% will have to be).</p>

<p>On top of that, global growth is Z%, which in the current pessimistic environment, is not expected to be large.</p>

<p>So if X is large (and it's expected to be), and if Y is large (because it will probably take a while for Britain's economy to reorganize itself), then a positive outlook requires believing that Britain will experience a very large surge to GDP in an environment where overall growth rate forecasts are pessimistic.</p>

<p>You can certainly have that outlook, but I'd be interested in hearing how you think it will happen.  :)</p>

CC BY-SA 4.0
2019-09-17T15:14:43.390Z
2019-09-17T15:14:43.390Z
heh
<p>I decided to edit the post to bring it in line with my area of expertise.</p>

<p>The question is, why the UK will be worse off after a no deal Brexit.  Why could it not be economically favorable?</p>

<p>The answer is simple: by leaving the EU, the cost of doing business will rise in all cases and lower in none.  The default tariffs are higher than existing tariffs.  They are a sales tax.  The loss of cooperative agreements in service industries is the functional equivalent to tariffs and are probably more damaging.</p>

<p>You may ask, “why could we not just create a new trade deal?”  You can, but trade deals are very slow things to construct.  It is miraculous that Theresa May’s government had anything at all to show Parliament.</p>

<p>All major global firms run optimization routines, and they will shift those routines by the amount of the new tariffs.  It is a mistake to look at the average tariff rates.  They do not matter.  For some types of goods, the tariffs are not going to matter, but for others, it is likely the entire flow will stop. The UK will have the default tariffs, and everyone trading with the UK will be required to use the generic tariffs. They are item specific. It is incredibly dangerous to speak in terms of average tariffs. That is a meaningless number.</p>

<p>If I wore the average clothing required in most cities in temperate zones around the world, I would freeze to death or die of heat exhaustion in many of them. The issue is variability, not the central tendency. The question is how much of a percentage shift in tariffs will happen minus the effect of added transport costs and the impact of changes in rental spaces for warehousing.</p>

<p>What will happen is that the entire world will be kicked out of equilibrium. The UK will have to compensate for the higher costs by cutting other costs such as wages. In other words, there will be more lower paying jobs to compensate for the added costs created by Brexit. There also could be shifts in interest rates, but it isn't clear without a model as to which way it would go.</p>

<p>For the UK to expand in real terms, rather than nominal terms, it will have to create technologies not present anywhere else. That will require an increase in immigration. All cities of large size require constant immigration. For geographically large countries like the United States and China, much of the immigration comes from within the country. They are also constantly suffering from emigration out as people are constantly moving to new places once they are no longer in the city of best fit. It is why there is so much fight in the heavily populated places in the US against the Trump administration. The lifeblood of all major cities is the constant movement of people in and out to make the city relevant. God save you if you are Detroit USA, and you only have outflows.</p>

<p>The problem is that what most people want are high skilled workers, but that is costly. It costs a lot to hire a general when there are many privates who can eventually be trained to be generals. Plus, high skill immigrants often prefer to live in communities with people of their country of origin. Genius is randomly and uniformly distributed in any population group and is independent of parental income. Also, if you hire someone who has already developed technologies, it is unlikely the marginal gain to the UK will be much as that marginal gain was likely captured by prior employers. For the UK to grow, it is going to need robust immigration at all levels of skill.</p>

<p>For the UK to grow in real terms, it needs to negotiate trade deals after the equilibrium shifts. Imagine, for example, all sheep herding in the UK ends due to tariffs. Imagine it shifts to France, Germany, and Austria. Those three countries will not allow a trade agreement which will take away their newfound income. It isn't possible to enact trade deals until someone sees which industries in the UK go away forever and the low wage workers created from the former high wage workers expand an industry that previously was not that important. It may be that furniture making will increase, though I doubt it.</p>

<p>The UK will need to enculturate innovation. The UK needs to make sure that it is the destination for the new industry, whatever it may be. The UK is likely to have a cadre of highly trained former bankers running around. With a pay cut, all that skill is going to be useful to someone.</p>

<p>In short, Brexit with no deal has no upside for the UK.  There will be a handful of individuals who will be better off, some may be much better off, but most will be worse off.  The UK has historical competitive advantages, on a comparative basis, in several industries.  The changes are going to knock those out, and the UK will need to rebuild.  </p>

<p>To use an American analogy, the UK needs to learn to play baseball and give up the advantages of playing basketball.  Basketball is a cooperative game.  If one viewed the other European countries as members of the team, then in basketball, you gain the strengths of the other members.  That is surrendered.  Baseball requires everyone to execute their skills with excellence at every point in time.  It doesn’t require any cooperation and requires an enormous amount of autonomy.  </p>

<p>The UK will need to execute with excellence.  It will have to find ways to excel on its own and it will have to find a way to do so without slowing down.</p>

CC BY-SA 4.0
2019-06-02T22:00:26.417Z
Ships (from China etc.) mostly go to Rotterdam; from there stuff is transboarded to smaller ones to the UK or goes by land (tunnel). https://www.economist.com/finance-and-economics/2016/03/19/the-shipping-news
fantastic peace and prosperity
CC BY-SA 4.0
2019-06-02T22:01:07.590Z
The port of London is a 1,375k TEU/annum port vs Rotterdam at 12,892k TEUs/annum.
52d6c6af
CC BY-SA 4.0
2019-06-02T22:05:57.440Z
What are “multiplicative” tariffs?
52d6c6af
CC BY-SA 4.0
2019-06-02T23:04:10.920Z
In the short term there will be economic disruption in a no deal scenario. But my question is about the long term. Brexit was about a fundamental change of UK governance. A major change. A period of disruption is to expected. Over the longer term FTAs will be struck and a new positive status quo will surely emerge. Given this, why are long term economic forecasts uniformly negative?
52d6c6af
CC BY-SA 4.0
2019-06-02T23:59:08.647Z
I did address the long term actually.  The UK will need a cultural change.  No standard model is going to assume mass culture change and a big shift toward immigration when the voters opposed it.  There will need to be large shifts in educational revenues and a shift in thinking on innovation.  The UK, in the long term, has chosen to run a race carrying weights.  It may reduce the weights over time.  It may even get them back to the current level, but it will be behind the rest of the pack when it does that, forever.  It must learn to run faster.  It must learn to run faster than everyone else
Dave Harris
CC BY-SA 4.0
2019-06-03T00:12:46.407Z
How quickly can it reduce the weights to zero and gain strength to progress faster? This all depends on the policy choices the UK makes over the next one, five, ten, twenty years. None of this is knowable. Presumably there are possible futures where the weights are shed rapidly and a positive new status quo achieved. On this basis the widespread dire predictions seem to have a confidence and certainty that is unwarranted.
52d6c6af
CC BY-SA 4.0
2019-06-03T03:13:16.030Z
@Ben I am actually posting for several jobs in the UK, so I do care about the outcome, but this is too short a space to talk about changes in culture and law.  The goal has to be to figure out where the bleeding edge is and not go for it, but instead go past it.  If you are playing hockey, you do not skate toward the puck, you skate to where the puck will be.  There are no simple answers.  The nation has hobbled itself.  It has to turn those restrictions into strengths.
Dave Harris
CC BY-SA 4.0
2019-06-02T21:53:25.857Z
2019-06-02T22:39:03.733Z
2019-06-02T22:39:03.733Z
Dave Harris
<p>A "no deal" Brexit is presented in negative terms.</p>

<p>In such a scenario the UK would set tariff schedules in line with trade strategy and protect domestic industry/agriculture with tariff rate quotas.</p>

<p>The UK would lose tariff-free exports into the EU and the markets with which the EU currently has free trade agreements (the two main ones being Japan and Canada). </p>

<p>The non-weighted average MFN global tariff is <a href="https://www.wto.org/english/thewto_e/20y_e/wto_20_brochure_e.pdf" rel="nofollow noreferrer">9%</a>. The weighted average tariff for UK exports into the EU is estimated to be around <a href="http://www.civitas.org.uk/content/files/potentialpostbrexittariffcostsforeuuktrade.pdf" rel="nofollow noreferrer">4.5%</a> in this scenario. Natural movements in currency value are of this order of magnitude.</p>

<p>There would be increased trade friction for the <a href="https://fullfact.org/europe/uk-eu-trade/" rel="nofollow noreferrer">44%</a> of our exports that are sent to the EU. British exporters would have to follow the customs rules used by other 3rd-country exporters to the EU like China and the USA.</p>

<p>This would be a major change. Most countries export to the EU under these terms. Our reliance on services mean this change would be economically bounded.</p>

<p>The productive base of the UK would re-orient around the new status-quo with some sectors decreasing in competitiveness and diminishing and some increasing and expanding. </p>

<p>The overall success/failure of the new status quo would be determined by the wider economic strategy rather than tariff changes that are mostly small.</p>

<p>Why is a negative long-term forecast necessitated?</p>

<macroeconomics><economic-growth><united-kingdom><european-union><forecasting>
The economics of a "no deal" Brexit
52d6c6af
# The economics of a "no deal" Brexit

(Asked by: username_0 on 2019-06-02)

A "no deal" Brexit is presented in negative terms.

In such a scenario the UK would set tariff schedules in line with trade strategy and protect domestic industry/agriculture with tariff rate quotas.

The UK would lose tariff-free exports into the EU and the markets with which the EU currently has free trade agreements (the two main ones being Japan and Canada).

The non-weighted average MFN global tariff is [9%](https://www.wto.org/english/thewto_e/20y_e/wto_20_brochure_e.pdf). The weighted average tariff for UK exports into the EU is estimated to be around [4.5%](http://www.civitas.org.uk/content/files/potentialpostbrexittariffcostsforeuuktrade.pdf) in this scenario. Natural movements in currency value are of this order of magnitude.

There would be increased trade friction for the [44%](https://fullfact.org/europe/uk-eu-trade/) of our exports that are sent to the EU. British exporters would have to follow the customs rules used by other 3rd-country exporters to the EU like China and the USA.

This would be a major change. Most countries export to the EU under these terms. Our reliance on services mean this change would be economically bounded.

The productive base of the UK would re-orient around the new status-quo with some sectors decreasing in competitiveness and diminishing and some increasing and expanding.

The overall success/failure of the new status quo would be determined by the wider economic strategy rather than tariff changes that are mostly small.

Why is a negative long-term forecast necessitated?

**Tags:** macroeconomics, economic-growth, united-kingdom, european-union, forecasting


---

## 5 answers

### Answer by username_1 on 2019-06-20. Score: 1

Brexit economic forecasts usually assume that Brexit will happen and nothing more than Brexit. In other words forecasters will not assume other changes which may be pro-growth. For example they will not likely assume the "Singapore on the Thames" outcome because we do not know if it is politically feasible or realistic.

All else equal, countries tend to trade near rather than far so Brexit may be a welfare reducing event.

[Link to Wikipedia on the so called gravity model of trade.](https://en.wikipedia.org/wiki/Gravity_model_of_trade)

This is why a post-Brexit forecast of GDP in 2030 will tend to be less than the non-Brexit forecast.

Of course in the very long run the tendency to trade near rather than far becomes less significant. More trade will occur over greater distances because of decreasing transportation costs and convergence in cultures and convergence in per capita incomes between countries, even distant ones.

Between now and say, the year 2030, transportation and culture will probably still matter a significant amount so the proximity and cultural similarities with the EU suggest GDP will be higher in the "remain" scenario. If the Brexit scenario has less trade, as is likely, then you have an explanation for an adverse GDP forecast.

[Link to a description of Singapore on the Thames.](https://www.city.ac.uk/__data/assets/pdf_file/0005/356558/CPRMay2017.pdf)


---

### Answer by username_2 on 2019-06-02. Score: 1

Maybe someone can get into more details, but [generally speaking](https://www.lse.ac.uk/europeanInstitute/LSE-Commission/Hearing-11---The-impact-of-Brexit-on-jobs-and-economic-growth-sumary.pdf)

> The range of estimates is large, from a loss of GDP of nearly ten percentage points (in the least
> attractive trade and inward investment scenarios modelled by the Treasury, NIESR and the Centre
> for Economic Performance at LSE)
> 1
> to a gain of four points (Minford, for Economists for Brexit
> – a
> clear outlier) – see figure 1.
>
> [![enter image description here](https://i.sstatic.net/dPj19.png)](https://i.sstatic.net/dPj19.png)
>
> The main reason for the differences lies in the assumptions made about shifting from the
> current access that the UK has to the EU single market to a new regime in which the UK
> faces restrictions.

Those were from 2016 estimates/papers.

Also, economists were not terribly good at predicting Brexit-related effects insofar, at least short term; see <https://economics.stackexchange.com/a/27492/6210> While the gloom and doom may have been overstated, some effects are apparent already, in [some analyses](https://www.bloomberg.com/opinion/articles/2019-01-14/the-economic-damage-of-brexit-in-charts):

[![enter image description here](https://i.sstatic.net/6V2fM.png)](https://i.sstatic.net/6V2fM.png)

Apparently the chilling effect of Brexit on investments may have been a real thing (but that assumes the counterfactual dotted trend was a sure thing).

---

As a sort of an update, some days ago (Sep 3, 2019) UNCTAD has posted [an article](https://unctad.org/en/pages/newsdetails.aspx?OriginalVersionID=2176) on the narrower issue of potential UK losses in a "no deal" scenario due to continuity trade agreements with other countries not yet agreed.

> In relation to exports to countries with which the UK has not yet secured the continuation of preferential access, the UK could face substantially higher MFN tariffs, especially on agricultural products. For example, processed food products could face an average increase in tariffs of about 17 percent. Similarly, apparel, textiles and motor vehicles would also face substantially higher tariffs. In value, most of the losses would be concentrated in motor vehicles (about USD\$750 million) and in chemicals (USD\$200 million).
>
> [...]
>
> Among the countries which currently grant preferences to the EU but for which the UK has not yet reached an agreement to grant continued preferential market access, Turkey, South Africa, Canada, Mexico, Japan, Egypt and Morocco are the markets where the UK is expected to have larger export losses. In particular, the UK is expected to lose about USD\$500 million of exports in the Turkey market, about 5 percent of its exports to Turkey. In South Africa, the UK is expected to lose about USD\$240 million, equivalent to about 9 percent of its exports to South Africa.

There's an update to the update as well. On Sep 11, the UK has [announced](https://www.bbc.com/news/uk-47213842) an "agreement in principle" with South Africa and with a few other, smaller countries from Africa.

> **Comments:**
> **username_0**: Are any of these predictions? Or is there a semantic difference between a prediction and a projection?  
> **username_2**: @Ben: There isn't one.  
> **username_0**: I’m not sure about that: https://www.abs.gov.au/websitedbs/a3121120.nsf/home/statistical+language+-+estimate+and+projection  
> **username_2**: @Ben: maybe you should ask a separate question about that distinction, then.  I have a feeling it might depend on the author.  
> **username_2**: @Ben: The distinction according to that page is that projections (unlike forecasts) may be based on assumptions one does not commit to as being realistic. In the case of those Brexit projections I'm not sure any of those were made with that level of dissociation. I mean why bother projecting something you think unlikely to happen...  
> **username_0**: That’s easy: politics. I have an inkling the distinction is important in economics because I vaguely recall being made aware of it by an economist I spoke to. Of course non-economists (and economists!) probably then play on the general public’s assumption that a projection is a prediction in order to “accidentally” construct a false narrative. Maybe.  
> **username_3**: @Ben To the best of my knowledge, when ABS uses the term "projection" it's generally (maybe always?) in the context of demographic data. We try to avoid getting into the forecasting business; economic forecasting is usually done by other agencies e.g. Treasury and by NGOs, although ABS data is a major input into their forecasts. So I would not necessarily assume that an economist talking about "projection" is using the term in the same way that ABS defines it in that document. Even within a single agency, consistency of terminology is hard to achieve!  
> **username_4**: This a minor issue, but the last graphic in your answer (from Bloomberg) is very bad. One can easily eyeball the dashed trendline and tell it is overly optimistic - continuing it to the left would not intersect the historical data at all. This is of course not your fault in any way.  

---

### Answer by username_5 on 2019-06-27. Score: 0

How much is sovereignty worth?

This should be balanced against potential short-term costs of Brexit.

Among other things, one will retain the ability to purchase "champagne" from its region of tradition, cultivation and origin in France (but only "sparkling wine" if produced outside of that region). But, will be assured of access to a veggie "burger" and also to grains and pulses reformulated into "fake meat".

A negative long-term forecast would be largely due to assumptions inherent in many economic models that the world after a specified change will function identically to the world before the specified change, with the exception of the one or handful of changes specifically modelled. It is one thing to change a 0 to a 0.09 (9%) in an existing model. But reality may evolve differently than what can be readily modelled empirically using economic theory.


---

### Answer by username_6 on 2019-09-17. Score: 0

Here's one way to look at it: The NPV of a rapid X% hit to GDP exceeds the NPV of a rapid increase of +X% some years in the future, given a constant discount rate.

Let's say the additional one-time increase to GDP needed to get Britain back on its current growth path is Y%. So just to break even on Brexit, you need to believe that growth on the scale of X+Y% will happen, ideally quickly (the longer this takes, the bigger Y% will have to be).

On top of that, global growth is Z%, which in the current pessimistic environment, is not expected to be large.

So if X is large (and it's expected to be), and if Y is large (because it will probably take a while for Britain's economy to reorganize itself), then a positive outlook requires believing that Britain will experience a very large surge to GDP in an environment where overall growth rate forecasts are pessimistic.

You can certainly have that outlook, but I'd be interested in hearing how you think it will happen. :)


---

### Answer by username_7 on 2019-06-02. Score: 0

I decided to edit the post to bring it in line with my area of expertise.

The question is, why the UK will be worse off after a no deal Brexit. Why could it not be economically favorable?

The answer is simple: by leaving the EU, the cost of doing business will rise in all cases and lower in none. The default tariffs are higher than existing tariffs. They are a sales tax. The loss of cooperative agreements in service industries is the functional equivalent to tariffs and are probably more damaging.

You may ask, “why could we not just create a new trade deal?” You can, but trade deals are very slow things to construct. It is miraculous that Theresa May’s government had anything at all to show Parliament.

All major global firms run optimization routines, and they will shift those routines by the amount of the new tariffs. It is a mistake to look at the average tariff rates. They do not matter. For some types of goods, the tariffs are not going to matter, but for others, it is likely the entire flow will stop. The UK will have the default tariffs, and everyone trading with the UK will be required to use the generic tariffs. They are item specific. It is incredibly dangerous to speak in terms of average tariffs. That is a meaningless number.

If I wore the average clothing required in most cities in temperate zones around the world, I would freeze to death or die of heat exhaustion in many of them. The issue is variability, not the central tendency. The question is how much of a percentage shift in tariffs will happen minus the effect of added transport costs and the impact of changes in rental spaces for warehousing.

What will happen is that the entire world will be kicked out of equilibrium. The UK will have to compensate for the higher costs by cutting other costs such as wages. In other words, there will be more lower paying jobs to compensate for the added costs created by Brexit. There also could be shifts in interest rates, but it isn't clear without a model as to which way it would go.

For the UK to expand in real terms, rather than nominal terms, it will have to create technologies not present anywhere else. That will require an increase in immigration. All cities of large size require constant immigration. For geographically large countries like the United States and China, much of the immigration comes from within the country. They are also constantly suffering from emigration out as people are constantly moving to new places once they are no longer in the city of best fit. It is why there is so much fight in the heavily populated places in the US against the Trump administration. The lifeblood of all major cities is the constant movement of people in and out to make the city relevant. God save you if you are Detroit USA, and you only have outflows.

The problem is that what most people want are high skilled workers, but that is costly. It costs a lot to hire a general when there are many privates who can eventually be trained to be generals. Plus, high skill immigrants often prefer to live in communities with people of their country of origin. Genius is randomly and uniformly distributed in any population group and is independent of parental income. Also, if you hire someone who has already developed technologies, it is unlikely the marginal gain to the UK will be much as that marginal gain was likely captured by prior employers. For the UK to grow, it is going to need robust immigration at all levels of skill.

For the UK to grow in real terms, it needs to negotiate trade deals after the equilibrium shifts. Imagine, for example, all sheep herding in the UK ends due to tariffs. Imagine it shifts to France, Germany, and Austria. Those three countries will not allow a trade agreement which will take away their newfound income. It isn't possible to enact trade deals until someone sees which industries in the UK go away forever and the low wage workers created from the former high wage workers expand an industry that previously was not that important. It may be that furniture making will increase, though I doubt it.

The UK will need to enculturate innovation. The UK needs to make sure that it is the destination for the new industry, whatever it may be. The UK is likely to have a cadre of highly trained former bankers running around. With a pay cut, all that skill is going to be useful to someone.

In short, Brexit with no deal has no upside for the UK. There will be a handful of individuals who will be better off, some may be much better off, but most will be worse off. The UK has historical competitive advantages, on a comparative basis, in several industries. The changes are going to knock those out, and the UK will need to rebuild.

To use an American analogy, the UK needs to learn to play baseball and give up the advantages of playing basketball. Basketball is a cooperative game. If one viewed the other European countries as members of the team, then in basketball, you gain the strengths of the other members. That is surrendered. Baseball requires everyone to execute their skills with excellence at every point in time. It doesn’t require any cooperation and requires an enormous amount of autonomy.

The UK will need to execute with excellence. It will have to find ways to excel on its own and it will have to find a way to do so without slowing down.

> **Comments:**
> **username_2**: Ships (from China etc.) mostly go to Rotterdam; from there stuff is transboarded to smaller ones to the UK or goes by land (tunnel). https://www.economist.com/finance-and-economics/2016/03/19/the-shipping-news  
> **username_0**: The port of London is a 1,375k TEU/annum port vs Rotterdam at 12,892k TEUs/annum.  
> **username_0**: What are “multiplicative” tariffs?  
> **username_0**: In the short term there will be economic disruption in a no deal scenario. But my question is about the long term. Brexit was about a fundamental change of UK governance. A major change. A period of disruption is to expected. Over the longer term FTAs will be struck and a new positive status quo will surely emerge. Given this, why are long term economic forecasts uniformly negative?  
> **username_7**: I did address the long term actually.  The UK will need a cultural change.  No standard model is going to assume mass culture change and a big shift toward immigration when the voters opposed it.  There will need to be large shifts in educational revenues and a shift in thinking on innovation.  The UK, in the long term, has chosen to run a race carrying weights.  It may reduce the weights over time.  It may even get them back to the current level, but it will be behind the rest of the pack when it does that, forever.  It must learn to run faster.  It must learn to run faster than everyone else  
> **username_0**: How quickly can it reduce the weights to zero and gain strength to progress faster? This all depends on the policy choices the UK makes over the next one, five, ten, twenty years. None of this is knowable. Presumably there are possible futures where the weights are shed rapidly and a positive new status quo achieved. On this basis the widespread dire predictions seem to have a confidence and certainty that is unwarranted.  
> **username_7**: @Ben I am actually posting for several jobs in the UK, so I do care about the outcome, but this is too short a space to talk about changes in culture and law.  The goal has to be to figure out where the bleeding edge is and not go for it, but instead go past it.  If you are playing hockey, you do not skate toward the puck, you skate to where the puck will be.  There are no simple answers.  The nation has hobbled itself.  It has to turn those restrictions into strengths.  

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