June 25, 2016
“Britain’s exit from E.U. sends global economy into a tailspin.” That was the headline of a Washington Post article on the vote in the U.K.. If you missed the tailspinning economies that’s because this is just Washington Post hysteria. Obviously the Washington Post is referring to financial markets. They apparently don’t realize the difference between financial markets and the real economy.
And if you don’t realize they are very different then you must believe in the horrible recession of 1987. Of course there was no recession in 1987 (or 1988 or 1989), but that was when the stock market plunged more than 20 percent in a single day. This drop, which happened in every major world market, did not correspond to any identifiable event in the economy. Nor did it have any massive fallout on the world economy. But in Washington Post land it was undoubtedly a serious recession.
Unfortunately the headline did not misrepresent the nature of the piece. The first sentence tells readers:
“The global economy faces months — if not years — of slower growth as Britain’s stunning decision to abandon the European Union threw financial markets into a tailspin and darkened the outlook for corporate and consumer spending.”
While the UK’s departure from the EU will almost certainly have a negative impact on world growth, most of the impact will be on the UK, with a lesser effect on the EU (both will be worse if the EU imposes harsh protectionist measures as punishment — which should be the big story in the media), the impact on the U.S. economy and the rest of the world will likely be minimal.
In terms of hits to the world economy, the 2011 budget agreement that turned the U.S. sharply toward austerity was almost certainly far worse than Brexit. Of course, the Washington Post basically liked that deal so it is unlikely that it would ever make this sort of comparison.
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