Paul Krugman: The Bank of England's Dire Estimates of Brexit: "Another trade discussion where I would like to believe the worst but not convinced: Brexit. The Bank of England just released some very dire scenarios...
...And I won't make a full judgement until I see the details. But their bad-case losses from a no-deal Brexit look extremely high. I mean, 8 percent of GDP was the kind of estimate we used to make for countries with 150 percent effective rates of protection. I don't understand how you can get that kind of cost without making some big ad hoc assumptions about productivity or something. And I have worried in all this about motivated reasoning on the part of people who oppose Brexit for the best of reasons. As best I can tell, the big results depend on assumed relations between trade/FDI flows and productivity. It's really important to understand that this channel does not follow from basic trade theory and comparative advantage; it's a black-box story. What we have are correlations between trade and investment flows and productivity that don't really follow from standard models. Are these causal? There is surely room for skepticism. Yet that seems to be the big driver of the whole thing. So I'm worried .
Again, I'm anti-Brexit, and have no doubt that it will make Britain poorer. And the BoE could be right about the magnitude. But they've really gone pretty far out on a limb here...
#shouldread #orangehairedbaboons #globalization
