In the campaign leading up to the Brexit vote, political pundits and commentators inundated the airwaves with doomsday and apocalyptic scenarios. According to the "experts," private investment would collapse and a meltdown of financial markets would follow. Millions of Brits would lose their jobs and unemployment would skyrocket. The U.K. would be thrown into utter economic chaos.
What a difference a few months make.
Indeed, one could even go as far as to say the aftermath of Brexit has been rather boring. Granted, the pound has lost value, but that in itself is not necessarily a bad thing, because it may encourage exports. But doomsday scenarios about the end of the U.K. as a result of the vote simply did not materialize, and the economy, if anything, is performing just as well (or just as poorly) as before Brexit. In fact, the stock market is now up 15 per cent.
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Of course, it is still early, and difficult times are certainly still possible, especially if and when the U.K. begins negotiating some of the hard details of the separation. And even then, the effects may take years or even decades to filter through the economy (at which time it will be difficult to distinguish between the direct consequences of Brexit and those of various other economic policies). But for now, the cabal of alarmists, fear mongers and naysayers have all been proven wrong.
So what happened? First, how can a whole range of "experts," notably economists and financial advisors, be so wrong? My guess is they were simply engaging in political posturing within a deliberate campaign of fear, as it was called, attempting to scare citizens into voting to remain. They knew they were exaggerating, but the assumption was Brits would be so terrified of the possibility of total economic collapse that they would prefer to remain within a system that many acknowledge was broken than to leave it all together.
Second, the financial powers-that-be woke up the next morning to realize nothing had actually changed. So why panic? "Animal spirits" calmed down and life went on.
The Brexit economic dud carries important implications closer to home. There are lessons to be learned here with respect to past and future Quebec campaigns for sovereignty.
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During the acrimonious sovereignty referendum campaigns in 1980 and 1995, many of the same tactics were used to scare Quebecers into believing that breaking up the country would be economically disastrous (mostly for Quebec). In large part, those tactics won … barely in the case of the second referendum. But will they work next time?
For the record, I am not advocating the separation of Quebec from Canada, as I strongly believe the benefits of remaining within Canada far outweigh the negatives. I hope we won't revisit the question, but if we do, hopefully sometime far into the future, it will be interesting to see whether the Brexit dud will invigorate the debate in Quebec. Sovereignists will now be able to point to Brexit and say the world did not end and the U.K. economy did not crumble around itself. There is no reason to believe the same conclusions won't apply to a modern, industrial economy like Quebec. So why fear secession?
In other words, voting to leave Canada would not necessarily carry the inevitable doomsday that many economists, financial advisors and pundits so loudly proclaimed before the referendums and likely will repeat in the future. As Brexit shows, Quebec voters may no longer be so easily tricked.
What will likely influence the aftermath of a breakup (or Brexit) are the specific policies adopted post-breakup. For instance, a decision to adopt the Canadian or U.S. dollar as official currency would certainly be devastating to a new Quebec, as it would rob the new government of an important policy lever.
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It would be equally disastrous to adopt austerity policies and doom the economy to possible recession, not as a result of the split, but of bad economics. This is why, I suspect, the new government of Theresa May in the U.K. has decided to reflate the economy by turning on the fiscal taps.
The important lesson is that attempting to scare Quebecers into remaining in Canada by playing the economic disaster card simply won't work again. Let's hope someone is already thinking of new strategies.
Louis-Philippe Rochon is a professor at Laurentian University and co-editor of the Review of Keynesian Economics.