“No Deal” Brexit predictions, GDP, average incomes, austerity and the CLIMATE CRISIS

If Bill Gates walks into a room full of factory workers then the average income of everybody in the room skyrockets. It would skyrocket even if everybody else in the room were going bankrupt as Gates entered. Similarly, the average income of the people in the room would plummet as Gates walked out the door even if all the workers were getting a hefty pay raise at the time.

In other words, a big increase or decrease in average income doesn’t necessarily tell you how things have changed for most people.  It all depends on how that big increase or decrease in average income is distributed.

The Bank of England (the UK central bank) just released “no deal” Brexit predictions saying the UK’s GDP could be 8% lower (off its pre-2016 trend basically) if a “no deal” Brexit takes place.

Real GDP per capita is essentially the average income per person in an economy. I say “essentially” because of the “Gross” in “Gross Domestic Product”. There is a correction that needs to be made for depreciation of capital goods. For the entire OECD, the difference between Net National Income (which makes that correction) and GDP was about 20% in 2016. However, GDP is the most commonly cited measure.

Even if the Bank of England’s worst case predictions are completely accurate about the costs of “no deal” Brexit, a few things should always be kept in mind

  1. The UK (largely because it can issue its own currency unlike the unfortunate prisoners of the Eurozone, not to be confused with the entire European Union) need not resign itself to a drop in average income from a “no deal” Brexit. It can, by facing down the UK establishment (especially its media) adopt expansionary fiscal and monetary policies that offset the impact of Brexit on the UK’s average income. And yes I am assuming a government under Corbyn in this – one which is heavily pressured by its grassroots supporters to quit trying to appease elite investors as John McDonnell has tended to do with things like his “fiscal credibility rule”.
  2. Even if there were some drop in average income from Brexit, the UK government under Corbyn can (again, if it dares to act boldly) ensure that the wealthiest people in the UK, and not the overwhelming majority, pay the costs.

Two other things should be considered

Cameron’s austerity cost more than Brexit

A few years ago, U.S. economist Dean Baker did the kind of analysis the Bank of England just did but applied it to David Cameron’s austerity policies. The result: Cameron’s polices reduced average incomes by 16 percentage points – double what has just been predicted from a “no deal” Brexit.

What are the implications for average incomes (GDP per capita) of addressing the climate emergency, which makes a total joke of things like Brexit?

Talk about needing to get bold, dealing with the climate crisis may possibly require a short term drop in average incomes in rich countries as we transition away from fossil fuels and other destructive activity (and pay developing countries for the costs of leaving natural resources in the ground) but it is not obvious that it would.  Perhaps most importantly, we’ll need to transition away from the kind of media that tries to stoke all kinds of irrational fears while it ignores real emergencies.

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