The Brexit breaker?

I’ve long considered that the weak point in so called Modern Monetary Theory (MMT) is how exports and imports are considered.

Of course, in the UK, we must realise that as a deficit (as in trade deficit) nation we need foreign investment.

While Chris Williamson MP has a tendency to speak truth unto power and understands MMT, I certainly don’t agree with his recent article. I think that his original conclusion to stay in the EU was correct!

For foreign investment will actually become more foreign if we leave the EU – no common rules or common ways of operating. So ‘foreign’ investment in pretty much anything is likely to become more difficult both for them – and, as it were, us. As Ivan Rogers has already indicated, the EU is a regulatory superpower.

The first problem is that foreign influence can influence the political process and the Tories have of recent date been, I’m pretty sure, the unique political party beneficiaries. We really must take as much money out of politics as we can, so we need to limit donations – I’d suggest to £500 from absolutely anywhere – perhaps increasing with inflation. It is Capitalism and not politics that needs money.

Second where we need to sell gilts the rule of law is overarching. For me it is preferable to pay a small rate of interest, rather than a a big rate of asset sale. So encouragement to buy interest bearing government bonds is preferable to overpriced London flats or Dorset seaside properties.

Third, if these foreign bond holders suddenly choose, all of a sudden and in unison, to dump British gilts – as is sometimes suggested – then they will get their money back of course. But the exchange rate is unlikely to reward them for their endeavours…

Perhaps – and this is kite flying – Britain should encourage a bond comprising a ‘spread’ of diverse government bonds supplied from numerous European countries in order to pay for British imports?

Woudn’t this give the City something constructive to do?

And in the end the exporting countries need the UK as an importing country to accept their imports – otherwise their own economic prosperity is threatened. So bonds and gilts are, it seems to me, their way out.

In the end though, Britain has to be more careful than most – we import roughly half our food.

I consider that that is ultimately the Brexit breaker.

 

Comments

  1. Adrian Kent -

    The import/export problem (if it is one) can be ameliorated if investment is tailored to favour import substitution.

    As for foreign investment, then of course it can buy power (and I would definitely recommend your party donation limits), but what also is vital is the degree to which that investment is supporting the real economy and not asset prices or simply extracting rents. The Lexit view would be that the EU (Four Freedoms, SM, ECJ etc) favour this latter kind of investment – and tie our hands when it comes to getting to grips with it.

    Chris Williamson’s error is that he faught for remain and reform – as I’ve commented here before, this is a fairty tale. If you’ve not read it, I thoroughly recommend Prof Danny Nicol’s recent piece on this point:

    https://www.thefullbrexit.com/remain-and-revolt

  2. Peter May -

    Thanks.
    Agree about and am entirely in favour of import substitution.
    The difficulty for me is the time scale.
    We need to do it and now.
    But that’s unlikely to achieve much benefit before the end of the next decade…

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