The British Economy vs. Boris Johnson
Following Theresa May’s resignation last month, Parliament voted Wednesday to name Boris Johnson the UK’s new prime minister. A firebrand conservative and known rabble rouser, Johnson stands to further divide the British electorate, adding brinkmanship to issues that have strained UK politics for years—the predominate one being Brexit.
In the few days since his swearing in, Johnson has already offered rhetorical support toward exiting the EU on October 31—the deadline for deciding whether to extend deliberations in hopes of agreeing to a soft Brexit where only certain Brexit policies are enacted, or following through with a hard Brexit, dissolving all trade pacts between the UK and other EU countries. And as the UK closes in on this deadline, I am often reminded of my time in President Obama’s Council of Economic Advisers (CEA) where I, like everyone else in Washington, tried to predict how exactly Brexit would unfold.
As a junior CEA staffer during summer of 2016, I worked on a variety of interesting policy areas for the Council. But by far my favorite was briefing senior staffers on ongoing Brexit developments by monitoring market volatility and addressing any impacts Brexit had, or perhaps one day could have, on US capital markets. It was a really fun task, and one that I certainly will never forget. And on the Monday before the Brexit vote, during CEA’s weekly staff meeting where junior staffers get to discuss economic issues with senior economists and sometimes members who directly advise the President, I reported on my research and added a shockingly bold prediction on how things would play out.
The weekly meeting served as a progress report of sorts. Junior staffers updated senior economists on what, if any, progress was made on their reports, as well as what needed to be done to ensure its timely release. These meetings weren't particularly interesting. But Jay Shambaugh, one of President Obama's key economic advisers who ran the meetings, was a fun guy who would give junior staffers an opportunity to be heard on various economic issues facing the nation. He did this by having a “question of the week” discussion where each staffer would answer a question of Jay's choosing and explain the logic behind their answer. And that week's question was: “Will the UK vote for, or against, Brexit? And what affect will this have on UK GDP?”
Now I, like most in the office, predicted Brexit wouldn’t happen. It was a pretty safe bet at the time, but unfortunately turned out to be shockingly wrong; not unlike picking Hillary Clinton to win the White House in 2016. But I followed this analysis with some additional information that everyone found interesting. I said that if I am wrong and the UK does vote to leave the EU, nothing substantial would take place because UK policymakers would never let such an illogical policy take effect.
As you probably can imagine, much laughter followed. I am sure some even wondered why CEA ever hired me. But if I may, I have been mostly right about that prediction. Since the referendum in 2016, British parliamentarians, led by former Prime Minister May, have done everything in their power to avoid a hard Brexit, as many believe leaving the EU would issue such a body blow to the UK economy that it may never be the same again. And sure, available economic forecasts can't say definitively what Brexit's long term impact will be, but for sure Britain’s economy will take a hit one way or another. Tariffs would immediately take effect between current trading partners in the region, economic growth would slow as companies face higher prices for materials, and real household income would fall as consumers are passed on higher prices for producing goods and services.
So if Boris Johnson knows this, and I find it hard to believe he doesn’t, why is he so adamant about following through with leaving the EU?
Most likely it's because he was the primary face of the VOTE LEAVE campaign. He, along with other conservatives, led a populist movement that persuaded white middle income voters who have been negatively affected by automation and globalization to blame the EU for the hardship they have experienced over the last thirty years. But that narrative is a very myopic way of looking at what has really happened over that time period. And having been educated at Oxford, Boris Johnson certainly knows this. There is no way he believes exiting the EU would good for Britain’s economy.
But what Brexit may be good for is Boris Johnson’s political career. Standing by this issue, as illogical as it is, has served the prime minister well in the past and likely will in the future. Even if his constituents end up being hurt by Brexit, he will have earned their respect by following through on what he promised and what voters say they want.
So as he begins work at 10 Downing, he is faced with a crucial decision. Should he choose what is best for the British people by finding some way to resolve Brexit without drastic and perhaps irreversible economic consequences? Or should he stand on principle and give the people what they voted for: higher prices, lower output, and inevitable job losses?
Only he knows the answer to this question. But as I think back to that day in 2016 when I had little to lose other than making a stupidly arrogant Brexit prediction, I honestly believed no Prime Minister—regardless of political persuasion—would ever in their right mind support leaving the EU. But as we have seen in other career-driven, self centered populists like Boris Johnson, ideas that were once brushed off as merely unthinkable, inevitably become our present reality.