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Brexit — what do San Diego analysts think?

And what will it do to us?

Populism is billowing throughout the world.
Populism is billowing throughout the world.

Throughout Britain in the month of June, anti-Brexit propaganda was ubiquitous. Brexit, the vote on Britain dropping out of the European Union, or EU, “was dismissed, mocked and ridiculed. It was for lunatics and madmen,” wrote Daniel Greenfield of frontpagemag.com. “Anyone who wanted to leave was a fascist. Economists warned of total collapse if Britain left the EU.”

On June 24, the results of the vote were becoming clearer by the hour: Brexit and its madmen were going to win. They did. Was this a precursor of a swing to fascism? Hardly. It represented a widespread and growing commitment to populism, or a belief in the power of average people to have control over their government.

“Populist anger against the established political order had finally boiled over,” wrote the New York Times. The vote evinced “deepening public unease with the global economic order,” particularly globalization, seen to be stealing jobs from citizens.

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Populism is billowing throughout the world: Donald Trump and Bernie Sanders have wowed the United States public. A growing number of Scots want out of the United Kingdom. Catalonia may get a divorce from Spain, although the potential secessions of Scotland and Catalonia have been on the table for a long time. Italy may be next to leave the European Union. Other countries may leave.

Some economists see a recession — or worse — ahead. The dollar has risen in value, particularly against the pound, driving oil prices down just as some were hoping those prices were on a recovery path.

Ross Starr

Some of the Brexit-related fears are justified. A threat to free trade, which Brexit could become, is a worry.

“Economists for 250 years have [been] in favor of free trade,” says Ross Starr, professor of economics at the University of California San Diego.

Kelly Cunningham

If further economic woes are restricted to the United Kingdom or Europe, San Diego should not suffer — directly, anyway. Kelly Cunningham, economist for the National University System, notes that the United Kingdom represents a minuscule 0.4 percent of San Diego’s trade (Mexico is 85.7 percent). Europe accounts for only 6.1 percent of San Diego’s trade.

The United Kingdom represents a minuscule 0.4 percent of San Diego’s trade.

The British pound will remain weak. That means fewer visitors from the United Kingdom will come to San Diego. Three years ago, 96,000 British people came, 1.7 percent of the local tourism business. That percentage will drop, “but the overall impact [on tourism] will likely be slight,” says Cunningham. While fewer British come here, more San Diegans will likely tour Great Britain as long as the pound remains weak against the dollar.

But one has to take a broader look. London is Europe’s financial center. The rest of Europe needs it. The European Union has been plagued with bureaucratic sclerosis for decades. Britain wisely did not convert to the euro in the late 1990s, says Starr. That’s one reason “Britain is relatively prosperous” compared to the rest of Europe. “Britain is a far better place to look for a job,” and that’s why it has had a flood of immigrants, riling longtime residents who displayed their pique by voting for Brexit.

Britain now has two years to set up new trade agreements — tariffs, regulation, migration, for example — with those countries left in the European Union, says Starr. This doesn’t have to be as gnarly a process as some expect. Britain’s departure from the European Union “need not be a calamity,” says Starr.

Arthur Lipper

Entrepreneur Arthur Lipper, Del Mar–based scion of a famous Wall Street family, says, “The European Union has always been, in my opinion, a flawed concept. Beneficiaries of the EU have been the politician/managers of the bureaucracy. It was simply a means of the more-efficient members [such as Germany] supporting the less-efficient members [such as Greece]. The idea of a united states of Europe is a nonstarter.”

Mike Stolper

It’s hard to argue with that point of view. But populism and antiestablishment thinking are spreading throughout the world. I caught up with Mike Stolper of San Diego’s Stolper & Co. investment and consulting firm in a bar in Copenhagen. People were told they would have to put up with pain in the early days of globalization, says Stolper, but “the benefits would be in the future.” However, “the benefits have not arrived. The people were sold a dogma” and they feel double-crossed.

“This is a revolution, a big deal,” says Stolper. Brexit is symptomatic of widespread unease. “If I was a betting man, I would bet Trump will be elected. He has tapped into the gestalt” burrowing its way into human psyches worldwide. There will be a negative effect on economies, “but I am not sure I see an impact on global markets. Stock markets are driven by corporate earnings,” and a wave of populism may not affect profits to any significant degree, he says. However, “we have had a long bull market and stock prices have gotten ahead of themselves,” so a bear market only marginally related to a cultural revolution is possible.

“I am bearish for the EU and America and bullish for China and Asia,” says Lipper, but he doesn’t blame creeping populism. “Education is the only answer, and we have failed in our elementary and secondary education efforts. The failure is due to both the policies of the teacher unions and the parents for allowing the supervisory boards to be generally ineffective.”

Lipper doesn’t see a dangerous creeping populism. Rather, he thinks the internet has “allowed for greater expressions of disappointment and criticism of those in authority.”

Cunningham believes the European economy will weaken further. “Losing the UK worsens existing tensions within the EU and weakens their free-market tendencies and makes the contrast even more obvious between the wealthy north and struggling south.”

Even though Great Britain is a small part of the San Diego economy, Cunningham is worried. He looks for a recession in Europe and Asia “and in the U.S. as well. I do not see San Diego avoiding the U.S. recession, which I think is likely to hit next year,” and it may have hit already this year, says Cunningham. “San Diego has been mostly tracking U.S. economic growth, slightly exceeding relative job growth and matching the unemployment rate. The military, which bolstered San Diego in times past, such as the previous decade, will not help now and [may actually] slow economic momentum as we absorb cutbacks in spending.”

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Populism is billowing throughout the world.
Populism is billowing throughout the world.

Throughout Britain in the month of June, anti-Brexit propaganda was ubiquitous. Brexit, the vote on Britain dropping out of the European Union, or EU, “was dismissed, mocked and ridiculed. It was for lunatics and madmen,” wrote Daniel Greenfield of frontpagemag.com. “Anyone who wanted to leave was a fascist. Economists warned of total collapse if Britain left the EU.”

On June 24, the results of the vote were becoming clearer by the hour: Brexit and its madmen were going to win. They did. Was this a precursor of a swing to fascism? Hardly. It represented a widespread and growing commitment to populism, or a belief in the power of average people to have control over their government.

“Populist anger against the established political order had finally boiled over,” wrote the New York Times. The vote evinced “deepening public unease with the global economic order,” particularly globalization, seen to be stealing jobs from citizens.

Sponsored
Sponsored

Populism is billowing throughout the world: Donald Trump and Bernie Sanders have wowed the United States public. A growing number of Scots want out of the United Kingdom. Catalonia may get a divorce from Spain, although the potential secessions of Scotland and Catalonia have been on the table for a long time. Italy may be next to leave the European Union. Other countries may leave.

Some economists see a recession — or worse — ahead. The dollar has risen in value, particularly against the pound, driving oil prices down just as some were hoping those prices were on a recovery path.

Ross Starr

Some of the Brexit-related fears are justified. A threat to free trade, which Brexit could become, is a worry.

“Economists for 250 years have [been] in favor of free trade,” says Ross Starr, professor of economics at the University of California San Diego.

Kelly Cunningham

If further economic woes are restricted to the United Kingdom or Europe, San Diego should not suffer — directly, anyway. Kelly Cunningham, economist for the National University System, notes that the United Kingdom represents a minuscule 0.4 percent of San Diego’s trade (Mexico is 85.7 percent). Europe accounts for only 6.1 percent of San Diego’s trade.

The United Kingdom represents a minuscule 0.4 percent of San Diego’s trade.

The British pound will remain weak. That means fewer visitors from the United Kingdom will come to San Diego. Three years ago, 96,000 British people came, 1.7 percent of the local tourism business. That percentage will drop, “but the overall impact [on tourism] will likely be slight,” says Cunningham. While fewer British come here, more San Diegans will likely tour Great Britain as long as the pound remains weak against the dollar.

But one has to take a broader look. London is Europe’s financial center. The rest of Europe needs it. The European Union has been plagued with bureaucratic sclerosis for decades. Britain wisely did not convert to the euro in the late 1990s, says Starr. That’s one reason “Britain is relatively prosperous” compared to the rest of Europe. “Britain is a far better place to look for a job,” and that’s why it has had a flood of immigrants, riling longtime residents who displayed their pique by voting for Brexit.

Britain now has two years to set up new trade agreements — tariffs, regulation, migration, for example — with those countries left in the European Union, says Starr. This doesn’t have to be as gnarly a process as some expect. Britain’s departure from the European Union “need not be a calamity,” says Starr.

Arthur Lipper

Entrepreneur Arthur Lipper, Del Mar–based scion of a famous Wall Street family, says, “The European Union has always been, in my opinion, a flawed concept. Beneficiaries of the EU have been the politician/managers of the bureaucracy. It was simply a means of the more-efficient members [such as Germany] supporting the less-efficient members [such as Greece]. The idea of a united states of Europe is a nonstarter.”

Mike Stolper

It’s hard to argue with that point of view. But populism and antiestablishment thinking are spreading throughout the world. I caught up with Mike Stolper of San Diego’s Stolper & Co. investment and consulting firm in a bar in Copenhagen. People were told they would have to put up with pain in the early days of globalization, says Stolper, but “the benefits would be in the future.” However, “the benefits have not arrived. The people were sold a dogma” and they feel double-crossed.

“This is a revolution, a big deal,” says Stolper. Brexit is symptomatic of widespread unease. “If I was a betting man, I would bet Trump will be elected. He has tapped into the gestalt” burrowing its way into human psyches worldwide. There will be a negative effect on economies, “but I am not sure I see an impact on global markets. Stock markets are driven by corporate earnings,” and a wave of populism may not affect profits to any significant degree, he says. However, “we have had a long bull market and stock prices have gotten ahead of themselves,” so a bear market only marginally related to a cultural revolution is possible.

“I am bearish for the EU and America and bullish for China and Asia,” says Lipper, but he doesn’t blame creeping populism. “Education is the only answer, and we have failed in our elementary and secondary education efforts. The failure is due to both the policies of the teacher unions and the parents for allowing the supervisory boards to be generally ineffective.”

Lipper doesn’t see a dangerous creeping populism. Rather, he thinks the internet has “allowed for greater expressions of disappointment and criticism of those in authority.”

Cunningham believes the European economy will weaken further. “Losing the UK worsens existing tensions within the EU and weakens their free-market tendencies and makes the contrast even more obvious between the wealthy north and struggling south.”

Even though Great Britain is a small part of the San Diego economy, Cunningham is worried. He looks for a recession in Europe and Asia “and in the U.S. as well. I do not see San Diego avoiding the U.S. recession, which I think is likely to hit next year,” and it may have hit already this year, says Cunningham. “San Diego has been mostly tracking U.S. economic growth, slightly exceeding relative job growth and matching the unemployment rate. The military, which bolstered San Diego in times past, such as the previous decade, will not help now and [may actually] slow economic momentum as we absorb cutbacks in spending.”

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