Tag Archives: Brexit

Britons did better than Germans since Brexit

Leave a reply

Britain and Germany are the two largest economies in Europe. When Britain voted to leave the EU seven years ago, 23 June 2016, economists, royals, and the richer, smarter set predicted disaster. The unemployment rate at the time was 5.2% in the UK; economists guaranteed it would rise with Brexit due to the loss of access to the common market. Unemployment fell to 3.7% today: Embarrassing for economists, a bonus for British workers. Germany unemployment today is 5.6%, basically slightly higher than the 4.3% of 2016. There has been a large influx of Ukrainians into both countries, and of illegal boat people into the UK. These are people coming to get jobs, seeking a better life than available in the rest of the EU. That boat people don’t go the other way suggests that things are better in the UK.

Fromm Bloomberg, October 2022. See full article here. UK unemployment is down to 2.5% in February 2023.

Britain’s GDP was supposed to suffer from Brexit, too. Instead, GDP has grown by 18% since 2016, about 2.5% per year on average, outpacing Germany’s 10.6% total growth, 1.5% per year. Between 2016 and 2022, the British GDP rose to $3.19T from $2.7 T. Germany’s GDP increased to $3.57T, from $3.14T (data from the world bank). Separating from the EU helped, it seems and helped us too something Trump promoted. Germany chose close ties to Russia instead. That does not seem to be a big plus.

German Inflation has traditionally been low. It has increased in the past few months due to rising food and energy costs.

Inflation is higher in the UK than in Germany, 10.4% as of February 2023 versus 8.7% in Germany, or 9.9% in the European Union and a whole. I don’t think that’s Brexit. The UK typically has seen higher inflation rate than Germany, something seen by the steady drop of the pound. They have a tradition of inefficiency and silliness. Part of the problem today is that Britain gets much of its electricity from natural gas, while the French use nuclear power. Nuclear is cheap and clean, compared to natural gas. Coal is cheap and dirty; China uses it extensively and plans to use more. But the real cause of the UK’s higher inflation is inherent in the British and Germans, IMHO. The Germans hate inflation, the Brits don’t mind.

Population growth (green) or decline (orange) in Europe

For high-power, white collar workers, Britain seems to be as good a spot as Germany, maybe better. Maximum tax rates are slightly lower than in Germany (45% vs 47.45%), and the population is growing (slowly). Apparently, people like it enough to come there and have children; children are a good sign, IMHO. It’s harder to get good workers, but population growth suggests that the problems won’t be catastrophic (as they were in Japan, and likely will be in Germany). If you want a developed economy with yet-lower taxes, plus good workers, the US is the place to be, IMHO. Our maximum tax rate is 37%. You get fewer free services (healthcare), but you can earn enough to afford it. Prince Harry moved to the US recently, joining foot-baller David Beckham, and Pele a few years back. Former Python, John Cleese, came here too… They complain that Americans are cheap when it comes to helping others (but that’s out attraction). They claim that we’re violent and crass (true enough!) but say that the UK isn’t what it was. The fact that refugees seem to prefer the UK to Germany, suggests that Britain is a place to go. Britain, I’d say seems to have come out pretty well from Brexit.

Robert Buxbaum, April 11, 2023

The Brexit, Trump, Johnson anti-crash

1 Reply

Before Brexit, I opined, against all respectable economists, that a vote for Bexit would not sink the British economy. Switzerland, I argued, was outside the EU, and their economy was doing fine. Similarly, Norway, Iceland, and Israel — all were outside the EU and showed no obvious signs of riots, food shortages, or any of the other disasters predicted for an exited Britain. Pollsters were sure that Britain would vote “No” but, as it happened, they voted yes. The experts despaired, but the London stock market surged. It’s up 250% since the Brexit vote.

Lodon stock market prices from January 2016 through the Brexit vote, August 2016, to the Boris Johnson election, August 2019. The price has risen by more than 250%.

A very similar thing happened with the election of Trump and of Boris Johnson. In 2016 virtually every news paper supported Ms Clinton, and every respectable economic expert predicted financial disaster if he should, somehow win. As with Brexit, the experts were calmed by polls showing that Trump would, almost certainly lose. He won, and as with Brexit, the stock market took off. Today, after a correction that I over-worried about, the S+P index remains up 35% from when Trump was elected. As of today, it’s 2872, not far from the historic high of 3049. Better yet, unemployment is down to record levels, especially for black and hispanic workers, and employment is way up, We’ve added about 1% of adult workers to the US workforce, since 2017, see Federal Reserve chart below.

Returning to Britain, the economic establishment have been predicting food shortages, job losses and a strong stock market correction unless Brexit was re-voted and rejected. Instead, the ruling Conservative party elected Boris Johnson to prime-minister, “no deal” Brexiter. The stock market responded with a tremendous single day leap. See above

Ratio of Civilian Employment to US Population. Since Trump’s election, we’ve added about 1% of the working age US population to the ranks of the employed.

You’d think the experts would show embarrassment for their string of errors. Perhaps they would save some face by saying they were blinded by prejudice, or that their models had a minor flaw that they’ve now corrected, but they have not said anything of the sort. Paul Krugman of the New York Times, for example, had predicted a recession that would last as long as Trump did, and has kept up his predictions. He’s claimed a bone rattling stock crash continuously for nearly three years now, predicting historic unemployment. He has been rewarded with being wrong every week, but he’s also increased the readership of the New York Times. So perhaps he’s doing his job.

I credit our low un-employment rate to Trump’s tariffs and to immigration control. When you make imports expensive, folks tend to make more at home. Similarly, with immigration, when you keep out illegal workers, folks hire more legal ones. I suspect the same forces are working in Britain. Immigration is a good thing, but I think you want to bring in hard-working, skilled, honest folks to the extent possible. I’m happy to have fruit pickers, but would like to avoid drug runners and revolutionaries, even if they have problems at home.

I still see no immediate stock collapse, by the way. One reason is P/E analysis, in particular Schiller’s P/E analysis (he won a Nobel prize for this). Normal P/E analysis compares the profitability of companies to their price and to the bond rate. The inverse of the P/E is called the earnings yield. As of today, it’s 4.7%. This is to say, every dollar worth of the average S+P 500 stock generates 4.7ยข in profits. Not great, but it’s a lot better than the 10-year bond return, today about 1.5%.

The Schiller P/E is an improved version of this classic analysis. It compares stock prices to each company’s historic profitability, inflation adjusted for 10 years. Schiller showed that this historic data is a better measure of profitability than this year’s profitability. As of today, the Schiller P/E is 29.5, suggesting an average corporate profitability of 3.5%. This is still higher than the ten-year bond rate. The difference between them is 2%, and that is about the historic norm. Meanwhile, in the EU, interest rates are negative. The ten year in Germany is -0.7%. This suggests to me that folks are desperate to avoid German bank vaults, and German stocks. From my perspective, Trump, Johnson, and the Fed seem to be doing much better jobs than the EU bankers and pendents.

Robert E. Buxbaum, August 16, 2019.