How big a deal is No Deal? We have no idea.

Exiting the EU without a deal having previously been inconceivable, some among the Brexit ultras are trying to present it as an alternative preferable to the negotiating position agreed at the Prime Minister’s Chequers meeting, or whatever the EU might actually offer as a response.

The Government has been alternatively chastised for not attempting to figure out and take mitigating action, and for trying to conceal what they know or what actions they might have planned.

But just how bad would exiting under ‘no deal’  be?

A part of the question was answered by the bodies looking into different Brexit scenarios before the referendum.  The ‘no deal’ scenario envisaged transiting in an orderly fashion towards trading with Europe on WTO terms.  The Centre for Economic Performance, for example, came up wtih a central estimate of a reduciton in GDP per head of 9% relative to the counterfactual of remaining in the EU.

But this is not a complete answer, because there is no time now before March 2019 to achieve that orderly transition.  Our WTO schedules for independent membership have not yet been agreed.  And we lack the physical, IT and administrative infrastructure to carry out the much greater volume of interventions in trade required.

It is this lack of orderly transition that opens up the possibility of shortages and panic and the necessity for mitigating planning with stockpiles and support from the armed forces.

It also makes the cost of no deal to some extent unknowable, and therefore not credibly quantifiable, or even credibly mitigated.

The reason for that is how bad a disorderly no deal turns out to be would depend in part on how bad people think it’s going to be.  If the belief took hold that no deal was going to be catastrophic, panic buying might ensue, shortages would emerge, and there could be a break down in law and order as those who were too late to the shelves or petrol pumps took whatever drastic action seemed appropriate to survive.

What might cause such a belief – that a no deal would be catastrophic – take hold is anyone’s guess, but that would depend in part on whether it was believed that others believed a no deal was catastrophic.  And so on, ad infinitum.

Of course, these higher order expectational dynamics might kick in whether or not we actually exit the EU without a deal in March 2019.  They might begin as people start to take precautions against a possible No Deal catastrophic exit, or take precautions against others taking precautionary action, and so on.

Plans for mitigating action like stockpiling, or armed forces deployment might help reduce the chance of a self-fulfilling catastrophe like this.  Or it might increase it, causing people to surmise, perhaps, that the government have wargamed the thing themselves and concluded that for reasons they have not revealed it all looks much worse than people had thought thus far.  The fact that there are no stockpiles or armed forces plans that could mitigate the event that everyone coordinated on PANIC! – the government’s monopoly on violence would be nothing in the face of 60 million hungry anarchists – is, since it means there is no way of making panic impossible, a factor in making panic possible.

To recap, the consequences of a disorderly exit under no deal are to some extent unknowable, and that unknowability is partly what generates the capacity for a catastrophe.  Attempts to quantify the range of possibilities and their likelihoods are likely to be completely unconvincing.  And no one should be fooled by the water-tightness of any plans for mitigating action, should they come to light.  Equally, although not publishing these plans and deliberations seems like the action of an undemocratic government hoping to evade accountability, it is also consistent with one hoping to avoid the worst kind of self-fulfilling crisis.

It is the impossibility of stamping out self-fulfilling panics that in part makes offering no deal as a bargaining strategy incredible for a rational government seeking to look after its citizens.  Though of course that does not rule out it being used by other kinds of government, such as those actually governing.

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1 Response to How big a deal is No Deal? We have no idea.

  1. metatone says:

    Feels like this is correct, but also incomplete. We have reasonably sober assessments of our complex supply chains that suggest even if no-one panics, we are still likely to see some breakdowns of supply… (And frankly, once that happens, it’s again reasonable to see it as the kind of thing that would inspire some panic… etc.)

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