I said before the referendum that, and
I should make clear that I was on the side of remain, that
Brexit would be like a divorce, that it would take longer and
cost more than its proponents expected. And once it got done, they
would then have to face the reality that not all the problems
were really the fault of their ex-wife. And that's pretty much proved
to be right in that. It has taken a lot longer and is
going to be a lot more expensive than anybody could campaign for
Brexit claimed back in 2016. The issue has become wildly
complicated because of the politics of the House of Commons. In the end, Theresa May
became prime minister after the referendum, has managed the negotiations
of the divorce quite poorly with the result that we
haven't really got a Brexit agreement or withdrawal agreement that
commands a majority in the House of Commons. Now the analogy is more like a
student who's got behind with the paper and is asking the professor for an extension. It may be that the Europeans will
say no, but I'd be pretty surprised because nobody really wants
a hard no deal. Brexit would be disruptive for Europe
as well as for Britain. So my expectation is that there will not be a successful vote on Theresa May's withdrawal agreement. There will be an extension to
allow the negotiations to continue within the House of Commons. And we will get to yet
another cliff edge later this year, perhaps in June, and nothing much
will have changed. At which point I imagine the student will come to the professor and ask for yet another extension. This thing is going to drag on like many divorces cost a lot more than anybody expected because
during all of this, investment in the UK has dipped
down and the economy is clearly being affected. Well, I did warn you all. In 2011, I wrote a piece for The Wall Street Journal which correctly predicted that Grexit wouldn't happen, that Greece wouldn't leave the monetary union, but Brexit it would, that Britain would leave the European Union. And the reason for that was
that it's actually easier to leave the EU than it is to leave the euro. Britain isn't in the euro, didn't
adopt the single currency, and so it was always more likely that
there'll be a referendum on EU membership. Whereas in Greece, Italy, Portugal,
Spain, the costs of going back to a national currency are unfathomably high. So I think the key point is
that that Brexit is sui generis, that there are very few other countries
in a position to do what Britain has done. And it was a mistake to think
that there would be contagion from Brexit. Actually, what happened
was that almost immediately after the Brexit referendum, support
for the EU went up. If anything, the sheer messiness of
Brexit is acting as a deterrent, which I think is
precisely what the Europeans wanted to happen. Just one reason they played
hardball with Britain all long. However, I don't think the future of the European Union is especially bright without Britain. The financial structure of the European Union is strange. It is a monetary union, but it
has no fiscal union that hasn't really been fixed, which means
that the next financial crisis when it comes along will have
very similar effects to the last one. It will be very asymmetrical. It will hurt southern Europe,
but not northern Europe. Germany has been fine
through the financial crisis. All the pain has been felt
on the periphery and that fundamental problem hasn't been fixed. Secondly, immigration is a far
more problematic issue for Europe than it is for the United States. There aren't, in fact, large numbers
of people coming across the U.S.-Mexican border. There are large numbers of people who
are coming or want to come across the Mediterranean from North
Africa, from Middle East and even from South Asia. And the Europeans do not have
a good answer to this problem. And the more this problem
looms, the more national governments diverge from one another. So the real European disintegration is
not taking the form of exits in which one country
or another vote to leave. The real disintegration of Europe is
coming because there is no European solution to
the migration crisis. And that means that one country
after another is going to go down the populist route. 10 years from now, when the
divorce is finally gone through and Britain has left the European Union,
we'll wonder what all the fuss was about because will have left something that was essentially disintegrating. It'll be a little bit like getting
a divorce and then your ex drops dead and you spend all
that money on the divorce courts. If only you'd known how
sick the ex was. The European Union is sick and
people don't really want to admit that. Least of all in Brussels 10
years from now, I think it will be greatly weakened institution. It won't be dead, but
it will be moribund. Is European integration like
riding a bike? Are you fine as long as you
keep going forward, but fall off when you stop? I'm inclined to think it's a
bit like that and know that integration has stopped, the process
of disintegration will be really hard to resist. I do think that economically things
are going better than most Democrats or indeed mainstream
economists want to admit. After all, the economy in 2018
did grow at around 3 percent. And if inflation doesn't show up,
then rates won't go up. Under those conditions, with the Fed essentially on on
pause mode, ready for inflation, but not too worried about it, then I think the economy is not going to suffer a recession in 2019. I find that highly unlikely. It's not going to grow as fast because the big impetus from the tax cuts at the end of 2017 is largely gone. But if you look at the most recent numbers, investment in nonresidential assets was pretty high
still in the last quarter, and that investment will in turn have consequences for productivity in 2019. So I guess standard view
of many people, particularly towards the end of last year, was
are terrible stuff is coming. There's going to be a recession
because, well, gee, isn't it time for a recession? It's been ages since we had one. I think that kind of thinking
was distinctly fuzzy when the economy was at full employment,
but there was no inflation really in sight. If the Fed had continued to tighten
into the first half of this year, I think we might well have ended up with a recession or at least a significant slowdown. But the Fed changed its mind big
time in January, and I think this is a huge shift away
from a rather formal model based approach to monetary policy to one in
which the Fed is going to wait and see. I think that because the economy
is is doing relatively well, there is a real
tailwind for this presidency. The most commentators in New York
and in Washington and on the West Coast are underestimating. At the same time what we see
is the Democrats, as I mentioned before, lurching to the left with the
Green New Deal and a bunch of other policies on tax that sound
great if you're in New York City, but don't sound so great
to the rest of the country. So my sense is that 2019 is
going to be a very, very misleading year and it's going to incline many
people to expect Trump to be a one term president and they're to be left leaning, potentially female candidate winning in 2020. I don't think that's going to happen. And in that sense, I think the strange compromise between Republican tax and regulation
policies and populist immigration and trade policies could turn
out to work quite well. It's certainly way too early to start writing the obituaries on the Trump presidency. There's no question that the erosion
of trade union power is one reason why workers have lost bargaining power. But I don't think it's by any means the only explanation. Technology has played a part. And globalization has played a part. Probably globalization has played
the larger part. And Chinese workers in particular
entered the global labor force in the 80s and 90s and into the 2000s. The returns on unskilled labor
in developed countries were going to fall. Even of trade unions had somehow
managed to preserve their power intact. And the same applies
to the increasing use of technology to displace labor. So we are in a world in which the returns to labor have been depressed and the returns to
capital have been significantly enhanced. Well, the most interesting number to look at is labor force participation. Prime age male labor force participation
in the United States is low by international standards and
it declined really quite steeply over the last decade. The question is, does that reverse
itself or have people left the labor market never to return? And we don't quite
know the answer yet. Some evidence from recent months
suggests that people are returning to the workforce who'd
left it. If that's so then the labor market has more slack
in it than we thought and therefore, it's not as tight a
labor market as some economists had feared. Now, it's not all bad news. I mean, at some point, it seems
to me that tight labor markets that we see in many
countries, particularly the United States, ought to translate
into higher wages. That's taking longer than most
economists would have predicted. In fact, we're all kind of
scratching our heads wondering why wages aren't going up faster and
why inflation isn't going up faster. I think one reason
that that's not happening, although there are a bunch, is that many
people, even if they are in employment, are asking themselves the
question, at what point does the autonomous vehicle or the
iPad or whatever it is, come along and make me obsolete? The bad news, if you were
planning on living off relatively unsophisticated skills is that it's
not about to get better. The problem is really that many of
us arrive at the moment of employment, not really having acquired
skills that are likely to earn as a good income. There is a big mismatch between
what the economy wants and what we are educating people to do. The problem lies, I think in large measure in public education at the high school level. There is also a problem
in the college level. There's a lot of bad education
out there that really equips young Americans very poorly
for the modern economy. When you look at where Americans
come in in the league tables for educational attainment at age
15, it's kind of appalling. There is a real quality problem
in in public education in the United States. And that, I think, is where we
spend much more of our attention as a society. It depresses me how little discussion
there is in America today of education. It has become the invisible
topic in policy debate. I think if we don't address
that issue, we condemn a substantial proportion of our population to if
not poverty, then at least stagnation. Will not get out of
the bottom quintile of the income distribution if that's
where they started. So top of my agenda for
reform would be, reform education and try to give people who are in
that bottom quintile a much better chance than we
currently give them.
