Brexit: human beings underestimate themselves, again

Enjoy the Brexit rollercoaster? The wild swings as scores of billions were wiped off and on markets? All a bit silly really.

Among the many clichés that have been thrown around is that markets hate uncertainty. Well, some market participants dislike uncertainty.

Others think it’s fantastic - that’s the way they make money by keeping their heads while others lose theirs.

The Brexit ructions aren’t over by any means but the immediate surprise at the result and the wave of wild speculation about what it might mean to the global economy seems to have run its course.

Now we’ll have to wait to see how much, if any, of that speculation results in actual damage to the British/European/global economy.

My bet is that Brexit of itself will have negligible effect on the global economy, very little on Europe’s and maybe not even a lot on Britain.

As I wrote elsewhere in the aftermath of the Leave vote, I don’t care much about British economic growth being up or down a bit. It would be nice for everyone if it was up and I feel sorry for the people who suffer when it’s down, but it doesn’t matter much to me in Australia.

If the UK wants to become more insular and encourage the baser anti-immigration and anti-refugee sentiments, well, it’s their great loss.

What could matter is if the anti-globalisation sentiment behind much of the Leave vote takes hold more broadly.

The world is a better place for globalisation. Hundreds of millions of people have been lifted out of dire poverty because of it.

The populist ratbags of the world – and none is a better/worse example than Donald Trump – try to convince the gullible that the very poor escaping deprivation comes at the cost of the well-off in rich countries.

Their knowledge of economics is so limited that the see the world as a zero-sum game – they think that if someone wins, someone else must lose. That’s actually not the case.

Increased economic activity creates a bigger cake. If the cake is not divided reasonably, creating greater inequality with all the disruptive tension that flows from that, it’s not the fault of the people rising above the rank of subsistence peasants.

The scourge of increasing inequality is more the fault of failed domestic policies in individual countries, of governments giving into the power and influence of the rich to make them ever richer.

Contrary to much of the commentary, I think there’s a good chance the Brexit result will mean the end of globalisation – the great tide of freer trade and movement that has steadily enriched the world since the end of World War II.

The pessimists, as usual, underestimate our ability to deal with a problem once it becomes obvious.

So it’s been with our roiling markets this week. The pessimists decided the sky was falling and rushed for the exits, thus losing money.

The optimists, opportunists and (I hope) the realists kep their heads and bought in at the lows, recognising that most of our institutions will actually work to solve an obvious problem instead of making it worse.

People certainly are capable of making terrible mistakes. Populist movements that prey upon the prejudices of the hoi polloi are dangerous things. But most of the time, we take the necessary actions to avoid disaster.

An example I’ve often used is that a pessimist will see a bus heading towards a cliff and forecast that it will crash and all aboard will die.

The pessimist takes no account of the likelihood of the driver applying brakes or turning the wheel if the cliff is obvious.

The vast majority of the time, buses heading towards cliffs don’t go over them – as anyone who has visited the Amalfi coast will know. Pessimists are advised to stay away from that beautiful place in case the strain should kill them.

We’ve been well warned now of the cliff in the Brexit scenario. I think the collective bus drivers are more likely to brake and turn than go over it. But I’m happy to be an optimist about the human spirit.

Michael Pascoe is one of Australia's most respected finance and economics commentators with over four decades in newspaper, radio, television and online journalism. He regularly appears on Channel 7's Sunrise and news programs and is a regular conference speaker, MC and facilitator.