Brexit Day: things carry on. British people will have to work somewhat harder than otherwise to earn somewhat less than otherwise. Britain has opted for lower growth before - the 1920s, the 1970s - and now they're doing it again. Almost traditional, really.
And in fairness to past generations: British problems of the 1970s were huge and system-wide, slow accumulating and difficult to fix - or even to know how to fix. As for the 1920s, even that was more complicated than now generally remembered ... oh crap I'm writing a thread ...
In the 1920s, Britain priced itself out of many export markets by returning the pound to pre-1914 value as measured in gold. Employment suffered horribly. This decision is generally regarded as a catastrophe and blamed on Winston Churchill personally, who was then Chancellor
Probably the decision was a mistake. But it was a truly hard call for reasons almost nobody in the UK chooses to recall. Churchill himself never defended it - leading even pro-Churchill biographers like the great @aroberts_andrew to accept the criticism without demur. But!!!
@aroberts_andrew Here was the dilemma Britain faced in 1925: UK had borrowed vast amounts of money to finance not only its own war effort 1914-1918, but that of less creditworthy allies: France, Italy, Greece, Portugal, etc. It had borrowed not only from individuals, but also had piled up debts
@aroberts_andrew to Dominion governments, especially India. The debts to the Dominion governments and to domestic British savers were of course all denominated in British pounds.
@aroberts_andrew But Britain had also done much borrowing - again not only on its own behalf, but for its European allies - in the USA, on New York money markets. And *that* borrowing was denominated in US dollars.
Once the decision to return to gold at any price was made - and in the 1920s there seemed no sustainable alternative to gold-backed money - the UK had to choose a level. Pre-war: 4.87 dollars to the pound? Or something lower postwar?
If the UK chose a lower rate, everybody who loaned to the British govt in pounds - including the govt of India - would suffer a windfall loss relative to those who had loaned in New York in dollars. Such large and wide losses would have vast repercussion ...
... for the trust of British savers, for London as a financial center, and even for the cohesion of the Empire, as Indians realized they had been coerced into an even vaster subsidy to the UK than visible during the war.
Adding to the difficulty was the adamant determination of the USA to deflate the dollar after the war - and the US refusal in any way to coordinate its monetary and fiscal policy w former allies.
(The current trend among some conservative US historians to rehabilitate Presidents Harding and Coolidge is based on indifference - and maybe even unawareness - of the ghastly international effects of their backward-looking economic policies.)
So Churchill was well and truly stuck in 1925. His best defense - "I'm returning to gold at pre-war values to keep faith with Indian savers and lenders" - would have done even worse politically than the defense he adopted - "I was totally ignorant of monetary matters, sorry."
All of which is a needlessly discursive way of saying: Brexit is not only self-harming, but much less justified self-harm than the two previously comparable episodes of British self-harm.
-30- to the four people still following this antiquarian amble ...
-30- to the four people still following this antiquarian amble ...
OK one more monetary PS. Back when I worked at the Wall Street Journal edit page, 1989-92, I had to deal with a lot of submissions by - to put it bluntly - monetary cranks.
I asked an economist friend, "What is it about monetary policy that so attracts weird people?" He replied,
"The consequences of bad monetary policy are so bad - hyper-inflations, great depressions, the rise of the Third Reich and World War II - that it's easy to assume that the consequences of good monetary policy must be correspondingly good: the Emerald City of Oz FOR FREE. ...
... But in fact," he continued, "bad monetary policy is like drinking arsenic and good monetary policy is like not drinking arsenic. You still have to diet and exercise if you want to see any benefits, and even then you're not going to live forever."
-30-
-30-
