Brexit and the Globalization Bubble

The stock market has returned to pre-Brexit levels.  So the crisis is over and everything is fine.  After all, if you're not losing money, what's the problem?  Let's think about what craft beer to try next.

Actually, Brexit is still very much affecting the financial markets.  The British pound is moribund.  The Euro isn't looking pretty.  And the Yen is strong, much to the unhappiness of the Japanese, who want a weak currency that gives them an advantage in exporting.  The bond market continues to show a flood of financial refugees into U.S. Treasury securities.  The crisis isn't over.

The volatility in stocks was more about short term speculation over the outcome of the Brexit vote, than about Brexit itself.  Shortly before the vote, much of the fast money crowd had placed large bets on the UK voting to remain.  When the vote went the other way, the speculators had to unwind their now stinky positions muy pronto.  But this volatility didn't reflect the impact of Brexit itself.  Brexit will take years, and its impact is largely unknowable at this time since we don't yet know the terms of the UK's decampment.

The EU is talking tough about the terms of divorce.  That's perhaps an understandable emotional reaction.  After all, the EU is afraid that the insurgents in other member nations will engineer more exits.  Taking a tough line, it apparently thinks, discourages further desertions. 

But the EU is missing the point.  What impelled a majority of British voters to choose exfiltration was that globalization and the benefits of the EU were oversold.  Britons were promised a glowing future if they cozied up to continental Europeans, who they haven't really trusted since before the Hundred Years War.  EU membership may have boosted British GDP, but there was a problem with most of the boost going to a small number of people who were doing pretty well to begin with.  And there was a perception that the EU's open borders policy allowed immigration that took jobs away from native-born Britons.  All this occurred under a legal regime in which many Britons felt they had no voice.  They apparently felt that, contrary to the principles of democracy, they, although voters, were being ruled instead of ruling. 

By playing tough with the terms of Britain's exit, the EU fails to address the real, legitimate grievances leading to Britain's vote.  The truth is that globalization is an oversold political bubble and the bubble is bursting.  Those with grievances aren't confined to the UK; they can be found throughout the other 27 member nations.  A punitive approach to the terms of Brexit could leave both the UK and the EU poorer, while the forces of insurgency would continue unabated.

The distribution of wealth isn't merely something for social scientists to study.  It really matters--politically and economically.  The elites who have led the way toward globalization must find ways to improve the lives and fortunes of all, or face much bigger problems than Brexit. 

This is true in America as well as across the pond.  Donald Trump hopes to emulate the Leave campaign.  Hillary Clinton has gotten a certain amount of mileage  from running as not-Donald-Trump.  But she is one of the elites who has pushed globalization.  She now purports to have changed her mind, but only after severe pressure exerted by Bernie Sanders.  It's not hard to wonder if she's really changed her stripes.  The widespread perception of her untrustworthiness will hinder her ability to convince the blue collar voters in swing states that she's really on their side.  She doesn't inspire or excite hardly anyone.  If she doesn't acknowledge the overselling of globalization in a clear and convincing way, and offer real relief for the distressed, Trump may yet strut to the tune of Hail to the Chief.