We’ve had enough of exports

Some stories are doing the rounds about an up-tick in exports following the slump of the pound, which supposedly indicates that brexit is great.

The important thing to remember about the pound’s depreciation is that we import far more than we export, so for every one winner on the export front, there are multiple losers on the import front. Now, to some degree, our trade will be re-balanced by a weaker pound, but in the short term, it absolutely will harm more than it helps – that’s just arithmetic.

But something else to remember is that exports don’t exist in isolation. In fact, a surprisingly large chunk of the UK’s exports are things like electronics, machinery and cars, which can’t be produced without first importing raw materials and equipment, which just got more expensive.

Therefore a weaker currency always means more expensive imports, but it does not necessarily mean more profitable exports.

Brexiters don’t tend to mention this minor inconvenience.

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This week was the first week we’ve had some hard data on the post-brexit economy and they’ve been jumped on by people who don’t realise that these figures tell us very little of value.

The employment figures mostly refer to the pre-referendum period and are therefore not very interesting. Also, despite headlines saying they showed a reduction in unemployment, they actually showed no statistically significant change (the figures were from a sampling survey).

Nobody expected large numbers of people to immediately lose their jobs as a result of brexit on the morning of 24th June, so saying the negative predictions were wrong because 24-30th showed no increase in unemployment is a little bit daft.

The economist Rudi Dornbusch observed that: In economics, things take longer to happen than you think they will, and then they happen faster than you thought they could. Combine that with the fact that common sense usually wins out. You can see an example of this in the 2007 credit crunch, where people predicted for years it would happen, then it didn’t, then it still didn’t so the naysayers were ignored. Oh and then it very suddenly did, and in retrospect it was obvious and we just ignored it at the time because we were in a bubble and quite enjoyed existing in one. So the question is: is it common sense that brexit will cause huge problems? Well typically your currency doesn’t tank 15% overnight if your outlook is good.

People did, however, expect pretty fast enactment of hiring freezes which if sustained will lead to higher unemployment and lower wage growth over the medium term. This would be bad news combined with a weaker pound because it means lower wages and higher prices.

We know that the number of vacancies advertised in July dropped, and that’s consistent with hiring freezes, but the most recent data point does not make a trend.

As for consumer spending: We know that consumer spending increased in July, but we don’t really know why or if it’s likely to be sustained. There are three very plausible possibilities on the unsustainable side:

1. Much better weather in July after a fairly miserable June encouraged people to go out and spend money
2. The weaker pound encouraged more tourist spending as summer tourists suddenly found they had more money (the great irony of course being that the big leave areas like Sunderland aren’t exactly international tourist hot-spots and won’t see much benefit from this).
3. The weakening pound has encouraged people to make big purchases sooner rather than later because they think prices will rise.

We are going to have to wait until the end of the year before we have a good picture of what’s going on in the short term, and even that really has little value for the long term. The general argument is that brexit will harm economic growth over the medium and long term, and lower economic growth means worse economic conditions for the average person.

It plays effectively into the narrative that leave supporters are not entirely on this planet when they pretend they can refute long term predictions of us leaving the EU with a few weeks of data collected while we are still in the EU.

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Currency effects

Compare and contrast the FTSE all-share (first) movements over the last month with the strength of the US dollar relative to the pound (second):

allshare usdgbp1

You’ll notice that both graphs are almost exactly the same.

Bear this in mind when brexiters cite the high market indices as being indicative of a strong economy and optimism towards brexit.

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As I seem to have exhausted brexit, here are some plants.

The first is a venus fly trap I’ve had for a few years. I’m very pleased with it this year; I think this is the most vibrantly red I have seen the traps. It has benefited from our uncharacteristically sunny British summer time. It doesn’t really catch much, but note the dead moth in the left most trap. What they don’t tell you about venus fly traps is they only partially digest their food, so you’re left with carcasses stuck in the traps until the trap dies. You can try to remove it but you’ll probably trigger the trap in the process, so I don’t bother. In the wild they’d probably be cleaned out by rain and wind. A few years ago it caught a wasp, which I didn’t realise until it died off over the winter and I found the remains of a stripy carcass. They don’t actually need to catch things to live; they seem happy with sunlight and (rain)water.

The second picture is another venus fly trap and a sarracenia purpurea, both of which I’ve only had for a couple of months now. When it came, the venus fly trap only had about five traps and most of them were quite small. It didn’t look great, but a few months of sun has really perked it up so that now it looks strong and healthy, if not as impressive as the other one. Maybe next year.

The sarracenia is also a carnivorous plant; the idea is that insects fall in to the pitchers and bacteria inside digests them. The pitchers are open so they will accumulate rain water in the wild, which is necessary to develop the bacteria, so I sprinkle a bit in. It has tiny little hairs pointing downwards, which you can sort of make out in the photo, which mean that anything that lands on the flap above the pitcher is likely to fall straight in and won’t be able to climb up again. Isn’t nature disgusting incredible? You wouldn’t believe that it was solid green when it came. It gradually developed red veiny parts, then very suddenly flourished into the deep red colour in the photo. I’ve only had it a few months but already it’s caught at least three moths and two spiders. Of course I’d like it if it could team up with the spiders to catch the flies, but the spiders don’t seem very smart.

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Red Tories

With Corbyn ruling out overturning brexit, we now have both main parties, who command a vast majority of parliament, apparently committed to leaving the EU.

This is despite the facts that: 1) half the electorate want the exact opposite, and 2) two thirds of Labour voters voted to remain.

What’s the point of Labour existing if it’s just going to throw voters under the bus while it mindlessly follows Tory policy? You wouldn’t have got this nonsense from Tony Blair.

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The main thing the 0.25% interest rate cut means is lower returns on your savings. Savings interest has been pathetic for about the last seven years, and today’s news means it’s just not worth continuing to hold wealth in pounds other than for liquidity.

This is another blow to the 20-40 old demographic who will now find it even harder to save for retirement, dealt mainly by older brexiters who benefited from sustained and high compound savings and pension growth during their earlier years who think that brexit is “in our best interests”.

So we haven’t had an emergency brexit budget, but we have had emergency stimulus from the Bank of England. An emergency budget and stimulus from the government would have been better, because the government has the power to do things like lowering VAT, which is far more beneficial to the average person and economy as a whole than keeping house prices high.

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What’s the time, Mr Woolfe?

Steven Woolfe’s Ukip leadership campaign is off to a good start. First he didn’t manage to submit it on time so it’s not clear whether he’s allowed to continue as a candidate, and now it turns out he “accidentally forgot” that he had a criminal conviction which is also a criminal offence given that he was standing for election at the time. And you’d think he’d know that, given that he’s a barrister.

This isn’t to say he’s out of the race yet. Theresa May’s inability to read a calendar didn’t prevent her from becoming PM, so Woolfe’s chronometric impairment might not be disastrous. And this is Ukip, after all, where vague competence seems to be a hindrance within the party (just ask Douglas Carswell and Suzanne Evans).

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