At this time of the year, newspapers are packed with predictions about what is likely to happen to the economy in the next 12 months. Underpinning all these views, whether negative or positive, is the pretence that the economic cycle in some way neatly follows the Roman calendar, as if the economic cycle begins on January 1st and ends at the stroke of midnight on December 31st.
Of course this is not how the economic world works. The economic cycle is impervious to our calendar cycle. Possibly because our human need for order, control and rhythm is so great, we feel compelled to align the economic cycle with the 12-month calendar cycle. In reality, the economy is a much more unregimented creature. The peak to trough of the economic cycle can last years. For example, the US is now in its 10th year of an economic upswing. Similarly, the Irish crash didn’t start on January 1st of any year, and end the following December. It kicked off abruptly and the subsequent recovery occurred slowly, bit by bit, over a number of calendar years.
So when talking economics, one of the first things to appreciate is that economic time and human time are not the same thing. There are simply too many components and variables in the economic cycle preventing it from behaving rationally and predictably. This doesn’t mean we shouldn’t try to forecast the year ahead; but we should be aware that trotting out an annual forecast, in economic terms at least, makes little sense.
The economic cycle is as varied as the millions of factors that influence it: ephemeral concepts such as confidence, human nature, where the herd is going, optimism, attitudes to risk, profit margins, perceptions of interest rates, collective recklessness, all have a huge impact.
Rarely does a singular important event have quite the impact expected but, all too often, a small unexpected event can have significant ramifications. This latter development is called a “Black Swan” event, where a seemingly small yet unknowable occurrence impacts on an already fragile system, destabilising everything, leading to panic. Indeed, the fragility of the system is rarely appreciated until it starts to unravel. These unknown, unexpected shocks are usually the ones that throw the system into chaos.
In contrast, events that are well flagged sometimes have a much smaller impact than we fear because, psychologically, even though we might not think so, we are prepared.
And maybe because of this division between expected and unexpected shocks, Brexit – although bizarre, unnecessary and unruly – might not have the catastrophic economic impact that many fear. It would be better for it not to come to pass – and there is a real chance that it might not go ahead imminently – but because it has been so thoroughly analysed, even a shock to trading conditions would be short and the essential vitality of the Irish economy might absorb the long-term ramifications.
This is not a fashionable position to take, not least because a veritable cottage industry has sprung up warning of the impending economic catastrophe of Brexit. Fuelling this cottage industry is the idea that our economy behaves in a mechanistic, almost hydraulic fashion, where a lever is pulled here and this has inevitable and quantifiable impact on the economy within a specific period. I don’t think this is how the modern economy works.
In contrast to the hydraulic, lever-pulling machine, maybe a more persuasive way of looking at the modern economy is through the lens offered by the Austrian economist Joseph Schumpeter.
Schumpeter saw the economy as an enormous, multi-faceted organism driven by an unforgiving process of creative destruction, where the human drive to innovate is constantly making old companies obsolete and is constantly replacing the old with the new. It is a relentless world, where nothing stands still. As a result, political shocks like Brexit are only one of millions of shocks going on all the time.
At the heart of this constantly churning economy is commercial self-expression, risk-taking and human ingenuity. This commercial cut and thrust which propels every business is the property that economist John Maynard Keynes described as the “animal spirits”.
If we look at the act of setting up a company, and backing yourself in the market, as a creative act of will, driven by the human urge to innovate, then a very different picture of the economy emerges. In the same way as it would be preposterous to ban new musicians making new music in order to protect the back catalogue of older musicians, trying to hold the world in a fixed state, is not only unrealistic but is unhelpful and is actually damaging to the intrinsic driver of the economy, which is innovation in the face of adversity.
The world is in a constant state of innovative flux, and Brexit is yet another example of this. It is a fact, an impulsive political act, made legitimate by a referendum with significant economic consequences. That’s it. Many believe – as I do – that it is based on a delusional image of British sovereign power, but who cares; it exists. Brexit constitutes a challenge to business, which, like any disruption, will demand an innovative response. Like any disturbance, it will also create opportunities and threats.
Politically it has exposed fragilities in British politics, shown up deficiencies in the UK’s diplomatic power, made light of their presumption of their own economic might and possibly started a process that might lead to a new, federal Britain. From an economic perspective it is a disruption but it has been extremely well ventilated. It is an act of aggression against globalisation, for which the UK may suffer prolonged capital outflows, but it won’t be an unexpected shock when it happens.
If the UK crashes out, it will be a failure of politics not economics which will not last long because if the outcome proves to be as immediately catastrophic as some suggest, the UK will ultimately sign anything put in front of it.
In the same way as we can’t impose calendar years on the economic cycle, we can’t stop the process of change, innovation and creative destruction.
Weird as it seems now, Brexit might not prove to be the big disruption of 2019. Something far more unknowable is likely to take that prize.
Brexit is not going to happen.
The euro management is ruderless.( No Department of finance – except German interest) Britain has merly chosen its own rudder.
Europe is like a big enormous cannon with no “aiming apparatus” or in economic terms a “clear policy’ or direction.
Give me a 22 rifle any day. If the Brits can produce an effective financial policy to drive their economy they will succeed.
Devils in detail.
It’s 50/50 – either way we’ll get over it.
Your piece contains extracts from your book- renaissance nation – a good read.
If people were any good at predicting the future they would be winning the Cheltenham Gold Cup every day of the year. My own joke prediction made in 2015 long before Brexit was ever thought of has so far come true: “Cameron narrowly wins the May 2015 general election; he attempts to re-negotiate the UK’s relationship with the EU and makes the expected pigs-ear of it. The UK exits the EU after a referendum, triggering a Scottish exit from the UK. A constitutional crisis occurs which inspires an Anglo-Celtic Federation of independent nations, trading with the world. The challenge engages… Read more »
Though provoking piece but not as radical (unpopular) as one might wish it to be. “It is a fact, an impulsive political act, made legitimate by a referendum with significant economic consequences. That’s it. Many believe – as I do – that it is based on a delusional image of British sovereign power, but who cares; it exists.” In my view there is nothing impulsive about the vote, it was an act of personal sovereignty. The small man taking back power from those that wield it. It is about something more the economics, GDP, trade etc. The British, in my… Read more »
David, not sure Brexit is a display of British sovereign power aspirations. Rather, it’s about English nationalist aspirations. Scotland have the Scottish assembly, the Welsh have their Welsh Assembly, we have the Northern Ireland (albeit non functioning) Assembly. England have nothing. Scotland & NI voted against Brexit, Wales followed their neighbours & voted to leave, but by a small margin, whilst the majority of the leave vote came from England – 15M out of 17M! The Brexit vote was on of “40 shades of Brexit”. No one knew exactly what we were voting for, unlike the Scottish referendum where a… Read more »
An article that is such an amusingly provocative start to 2019 that I simply can’t resist having a few pop shots. Well, why not? It’s only ‘the internet’. This is only a fecking ‘blog’. Nobody reads the comments or cares about them. Do they? ….ahem! ‘It would be better for it not to come to pass – and there is a real chance that it might not go ahead imminently’ Better for who? The business elites of Ireland Inc, maybe. But not for the majority of ordinary working people in the United Kingdom. The attempt to forestall, thwart or rescind… Read more »
It might be helpful in explaining this scenario of the ‘federal break-up of Britain’ which the author prognosticates on by copying an email I sent to various political and media ‘luminaries’ yesterday, putting them on notice of my firm and settled intention to join street riots to prevent the UK joining any EU armed forces should Brexit be reversed & an attempt to join a Federal Europe alongside Ireland is attempted by the Globalist clique running the UK Parliament. ‘Monday 7th January 2019 FAO: Harriet Baldwin MP House of Commons London ‘Good afternoon Harriet Thank you for your recent letter… Read more »
As the propaganda war to try and reverse Brexit approaches its end-game we see canny authors and ‘authorities’ begin to read the runes, to stare into their half-empty cup of tea and see the leaves, hedging their previously firm bets as they see the writing on the Brexit graffiti wall saying “Don’t make a total eejit of yerself by hitching your professional reputation to the Brexit Doomsday Cult!”. Quite a sensible & pro-actively cautious ‘damage limitation’ article given the fact that an Asymmetric Brexit Apocalypse which only affected the UK was always a ridiculous affront to reason, logic and basic… Read more »
Hi David,
“Brexit might not prove to be the big disruption of 2019. Something far more unknowable is likely to take that prize”
You on for a nominal wager for a run on the dollar?
Michael.
Brexit will have little economic effect but these black swans might.
https://www.dollarcollapse.com/pento-2019-recession-stocks-free-fall/
Be in no doubt, the very future if England itself is on the line if Theresa May manages to put the shackles on Brexit on behalf of the Corporatocracy she represents whilst claiming to be the elected head of a Parliamentary Democracy. If she succeeds in banjaxing Brexit, England itself must fall into the abyss and a New England arise from the city-state of Birmingham & surrounding Heart Of England shires via #Mercianomics, an uprising against Globalism and pseudo-National State appartus of Government by Globalist apparatchiks posing as elected members of Parliament. If Brexit is banjaxed, I am calling for… Read more »
“. Fuelling this cottage industry is the idea that our economy behaves in a mechanistic, almost hydraulic fashion, where a lever is pulled here and this has inevitable and quantifiable impact on the economy within a specific period. I don’t think this is how the modern economy works.”- ——————————- The economies of the the world are ALL manipulated by the central banking system. Wall street now hangs in breathless anticipation of every utterance of the FED Chairman about his proposed actions, never mind his actual actions. Government also manipulates the economy with fiscal activities such as taxation, duties, tariffs, trade… Read more »
https://premium.telegraph.co.uk/newsletter/article1/the-euro-has-failed-threatens-democracy-and-should-be-abolished/ ”the-euro-has-failed-and threatens-democracy-and-should-be-abolished, —-Ambrose Pritchard Evans The above headline should read Fiat paper currency has failed and should be abolished. The only way to abolish the EURO is to allow the nation states, or rather the nation states should demand, to return their sovereignty by having a national currency. To avoid the inflation, depression cycles of the monetary system all money needs to be backed by a commodity, usually gold or silver. Backed by a weight of gold or silver whose value floats according to market demands. Central banks need to be shuttered, closed, eliminated. They are a blight on… Read more »
PPT Plunge protection Team aka The Presidents working group on Financial markets , manipulate the barometer of the economy. Be not deluded. Dave from Denver on the real deal… The Powell Helium Pump January 9, 2019Financial Markets, Gold, Housing Market, Market Manipulation, U.S. EconomyFed funds, market crash, Powell, PPT, stock bubble The stock market has gone “Roman Candle” since Fed Chairman, Jerome Powell, gave a speech that was interpreted as a precursor to the Fed softening its stance on monetary policy. Not that intermittent quarter-point Fed Funds rate nudges higher or a barely negligible decline in the Fed’s balance sheet… Read more »
Russia Buys Quarter of World Yuan Reserves in Shift From Dollar
https://www.bloomberg.com/news/articles/2019-01-09/russia-boosted-yuan-euro-holdings-as-it-dumped-dollars-in-2018
World economy is in decline.
https://goldswitzerland.com/times-a-changin-but-gold-permanent/
”THE GREATEST DEPRESSION EVER?
So now is the time to “start swimmin” as the greatest wealth destruction in history is beginning. But most of the investment world hasn’t even begun to understand how serious it will become. Because the coming implosion of stocks, bonds, property and virtually all other asset markets is just one aspect of the coming super bear in the world economy. Still, it will be enough to create the greatest depression ever as stocks decline by 75-95% and debtors default.” Egon von Greyerz
Freedom of speech, that is constantly under attack, must be supported.
https://needtoknow.news/2019/01/tucker-carlson-calls-president-trump-support-supporters-use-constitutional-powers-protect-freedom-speech/
Europe has a lot more to worry about than just Brexit. ”Industrial output is in crashing. Retail sales have stagnated. Business confidence has dropped, and investment is heading south. A sharp slowdown might have been expected for Britain heading out of the European Union, America where the President is busily ripping up half a century worth of carefully constructed trade agreements, or China, which has been on a decade of wild, credit-fuelled growth. But the real slowdown is happening in the one place where few economists expected it. It is now painfully obvious that the eurozone is heading into a… Read more »
Posted at Midas du metropole. http://www.lemetropolecafe.com
It is time to ask a simple question:
If ALL markets are 100 percent rigged by market manipulators using computer programs and algorithms (using selective true or false fundamentals factored into their prices, at the market rigger’s discretion), what is there to even write about?
In fact, we don’t know what the price of ANYTHING should be, in this computer generated matrix or simply put:
THE MATRIX
THERE ARE NO MARKETS TO SPEAK OF!!!!!!!!!!!!!!
Recapturing the citadel of Truth.
Will you participate?
https://medium.com/@martingeddes/wwg1wga-the-greatest-communications-event-in-history-698ba926df64?fbclid=IwAR3rktVzVs9R4r0tAAqv1uxwR9JnPdmiVDSwSnOsNS0QbrQUrodsl7k5nlQ
“By covering all of this here, I am publicly placing a large bet, and for a good reason. If what I say is anything approaching reality, then we must unite against this evil, and abandon old divisions. It’s not conservative vs liberal, or left vs right, but criminal psychopaths vs the rest of us. The military, executive and judicial systems cannot transform society and legitimise the outcome alone. The people have to participate, demanding truth and justice, and give their consent to the new system of government.”
https://youtu.be/80s5xuvzCtg
Brian Kolfage–We will build the Wall
https://youtu.be/9-cDKIsp2gg
You can donate if you wish to help out.
Fear not Brexit as Irelands Gold Core’s, Mark O’Byrne is positive about 2019
http://news.goldseek.com/GoldSeek/1547216288.php
https://www.youtube.com/watch?v=4jP8d1wiwTE&feature=youtu.be
Update From Brian Kolfage On We Build The Wall Plan
https://www.youtube.com/watch?v=Ht5337bsx4I
Triple Amputee Veteran Brian Kolfage Fights Against Facebook’s Censorship Of His Page
———————————————————————————————–
Brian Kolfage fights for the liberty of free speech after being censored by Facebook for his political views. He is not alone in his being censored. Thousands of others are as well as on Twitter and U-tube. You may like to offer some support here before your right to dissent against PC speech is overrun.
No Go Zones –coming to a place near you soon. Time to wake up. There is an invasion going on. We are at war whether we wish it or not. politicians lie and cover the truth.
https://mail.google.com/mail/u/0/#inbox/WhctKJVJcmxRpHjbtdlWWQvxmlNpJRtkBKrKGGwLDDLZqCSrfknLJvGpBJSCJSCJJhFxFQq?projector=1