U.K. voters elected to exit from the European Union. This is a major shake up for the U.K. and the rest of Europe and is almost certain to rustle, rattle, and otherwise jolt the U.S. economy.
The first impacts will be seen in foreign exchange markets as skittish investors pull out of U.K. and European markets to put their money in the safety of U.S. assets. Several economists predict the impacts of Brexit on the U.S. will be confined to our financial markets. Nevertheless, the result will be a rising dollar relative to the pound and the euro.
Many economists expect some ripples of Brexit hitting the U.S. economy. In which case, the next round of impacts will be seen in trade as a surging dollar suppresses demand for U.S. exports. In addition, economists are forecasting a slowdown in the EU economy, further depressing demand for U.S. exports. As a result, several researchers have cut their forecast of U.S. economic growth to less than 2 percent over the next year.
On the upside, a stronger dollar will reduce the cost of imports lowering U.S. production costs, boosting consumer buying power, and limiting inflation.
The U.K.’s exit from the EU may stifle cross-border merger activity as London is no longer seen as a gateway to European markets.
Brexit’s biggest unanswered question: What will happen to free trade?
While much of the U.K. vote to exit the EU was driven by concerns over immigration and hatred of the EU’s bloated bureaucracy, the Brexit campaign was suffused with protectionist undertones. Both Hillary Clinton and Donald Trump have clearly stated their opposition to free trade deals. If Brexit boosts protectionism worldwide, expect to see much slower growth—or recession—in the next few years.
The bottom line …
Pros: A strong dollar will reduce the cost of imports and keep inflation in check. U.S. importers and consumers will benefit from lower prices. It’s a good time to take that European vacation.
Cons: A strong dollar and EU economic slowdown will reduce demand for U.S. exports. Increasing protectionism will reduce opportunities of international trade. U.S. exporters will be harmed. Potential slowdown in already slow employment growth.
Donald Trump launched his Presidential campaign in June 2015 with the insult heard ’round the world:
When Mexico sends its people, they’re not sending their best. They’re not sending you. They’re not sending you. They’re sending people that have lots of problems, and they’re bringing those problems with us. They’re bringing drugs. They’re bringing crime. They’re rapists. And some, I assume, are good people.
Trump missed the biggest stereotype of all—undocumented workers work and they work a lot.
Research published by the National Bureau of Economic Research finds that undocumented workers tend to work more hours in a year than native born workers. On top of that, undocumented workers work longer hours at every wage level, according the to studies author, George Borjas:
This finding is consistent with a frequent conjecture that is made about undocumented immigration— that “undocumented immigrant men come to the United States to work.” It is clear that the data strongly support this conjecture. Undocumented immigrant men … work regardless of the surrounding economic conditions.
Just look at this graph adapted from the study (I overlayed two graphs, added some color, flipped the axes). It shows native born men (the red) can’t be bothered to work at low wages. At $5 an hour, the average native born man would work less than 20 hours a week. In contrast undocumented men work an average of 30 hours a week at $5 an hour.
To get native born men up to 30 hours a week, the wage needs to be more than $8.00 an hour. Yet, at $8.00 a hour, undocumented men work and average of 30 hours a week.
Looks like Trump is wrong on this one. Research shows that undocumented men come to the U.S. to work.
“Win-win” is the topic for this week’s podcast because it’s “game on” for Portland’s election season.
Oregon state treasurer Ted Wheeler enters the Portland mayor’s race, facing off against incumbent Charlie Hales. The candidates are virtual twins: both are former Republicans turned Democrats, each trying the show that he is the most serious progressive candidate (or the most progressive serious candidate). What is the one issue on which they differ?
A majority of city council is up for grabs. Where are all the candidates? Where are Portland’s Trumps and Sanders?
Mayor Hales has a plan to make housing more affordable … by making it more expensive.
Trees, trees, and more trees. If you thought bikes were a source of city strife, try cutting down some 100 year old trees.
TuesdayMemo and EconMinute team up for a very Portland podcast. We bring together politics, economics, and a dose of common sense into the conversation about what’s happening in Oregon’s biggest city.
This episode, for the first week of August 2015, covers a wide range of topics:
Greenpeace vs. Flugtag: The contrast between how officials treat protestors illegally blocking the Willamette River and how they treat those who jump through the hoops to get a permit. For a bonus, we learn what Portland Mayor Charlie Hales was doing while river was shut down.
Then we talk about the mayor’s friends in high places. And some of the friends of City Hall. Q: How do you know that Charlie Hales has met the Pope or President? A: He won’t stop talking about it.
We end with a chat about “Ban the Box.” What’s Ban the Box? Listen and find out!