By Scott Sumner
James Hamilton provided one of my all-time favorite quotations:
You could argue that if the Fed is doing its job properly, any recession should have been impossible to predict ahead of time.
In many cases, the disasters that strike us are unexpected. The 1973 oil embargo. The 9/11 attacks. The Lehman moment.
Many of the disasters that are anticipated, somehow fail to arrive. I recall a feeling in 2015 that China was sliding into recession. I recall that many experts expected the Syriza government to take Greece out of the euro (dubbed “Grexit”)–thereby triggering a loss of confidence in other Mediterranean countries. Often (but not always) these expected crises don’t materialize.
So what is the prospect for a hard Brexit? On one level, it’s hard to see how this outcome can be avoided. The votes for Theresa May’s soft Brexit option are simply not there. Indeed she just suffered the worst defeat by a sitting government in UK parliamentary history, by a margin of 230 votes. So what will happen?
I am just as in the dark as everyone else. But I suspect that in one way or another the UK will avoid a hard Brexit. Big institutions find it very difficult to knowingly walk into a disaster. (Put aside your personal view as to whether a hard Brexit would actually be a disaster, which is debatable. The point is that a majority of UK officials see it that way.)
Here’s yesterday’s Financial Times:
Theresa May has hinted that she could delay the date Britain leaves the EU, as the UK prime minister seeks to devise a new Brexit plan following the historic parliamentary defeat of her original deal last night.
Ministers have been split on whether to back an extension to the so-called Article 50 negotiation period, a prospect that would dramatically reduce the likelihood of a no-deal Brexit but would infuriate Conservative Eurosceptics.
When I see a politician go from “no” to “maybe”, I think back to when I was eight years old. When we asked for Dairy Queen ice cream and our parents told us “maybe”, my siblings and I would chant in unison “maybe means yes”.
I still see enormous uncertainty here, as there is no clear path toward any of the possible outcomes. So “disaster” could still strike. But as of today I lean toward “no hard Brexit”. That means either no Brexit at all, or a soft option like the Norway arrangement. The latter option might be better, as it is dangerous to totally ignore the voters.