Brexit will make the rich richer and the poor poorer. Take that elites!
Experts are out of favour in this referendum, and perhaps for good reason. The idea of an ‘expert’ is a rather shady one, especially in the weird world of economics.
No less than the Justice Minister, Michael Gove, has given voice to this popular suspicion of clever-clogs types instructing the public on what to think.
However, there are some ‘experts’ worth listening to. To paraphrase the prime minister, it’s probably sensible to listen to a mechanic before you take a car on the road, (I would add, even if that mechanic is looking to pinch your pocket with a tidy fee).
One such example is currency speculator George Soros.
Soros is a hate figure on the American Right, with wingnuts like Glenn Beck seeing this Hungarian-Jewish financier behind every liberal machination in US public life. (Soros has funded liberal groups like the Centre for American Progress and MoveOn.org, and is chair of the Open Society Foundations.)
Today he warns a vote for Brexit on Thursday will crash the British economy, costing jobs and resulting in a recession. So much we’ve heard from the Institute for Fiscal Studies and all the rest.
But he goes further. Writing in the Guardian, Soros compares the impact of a drop in the value of sterling – which he argues is already evident in its decline over Brexit fears, and rebound now Remain seems more likely – with a previous devaluation, in 1992.
Soros knows whereof he speaks. By some deft speculation that year, he was able to make a huge profit after Britain left the European exchange rate mechanism (ERM) and cut interest rates to soften the blow. On that occasion, a devaluation was good for the economy, but this time, things would be different.
‘I would expect this devaluation to be bigger and more disruptive than the 15 per cent devaluation that occurred in September 1992, when I was fortunate enough to make a substantial profit for my hedge fund investors, at the expense of the Bank of England and the British government.’
His reasons are summed up by Guardian economics editor Larry Elliott:
‘In the months following the UK’s departure from the ERM [in 1992], interest rates were cut from 10 per cent to 5.5 per cent – easing the financial burdens facing consumers and businesses.
However, with official borrowing costs currently at 0.5 per cent, Soros said rates were already at the lowest level consistent with the stability of British banks and meant there was little the Bank of England could do in the event that Brexit led to a recession.’
In other words, there’s no room to cut interest rates this time. So, as Soros continues, ‘if a fall in house prices and loss of jobs causes a recession after Brexit, as is likely, there will be very little that monetary policy can do to stimulate the economy and counteract the consequent loss of demand’.
Soros predicts the pound would fall ‘at least 15 per cent and possibly more than 20 per cent’, making one pound roughly equal to the value of one euro.
He concludes that a better comparison would be with the 1967 devaluation, when prices rose and living standards dropped, while ‘financial speculators, back then called the Gnomes of Zurich, were making large profits at Britain’s expense’:
‘Today, there are speculative forces in the markets much bigger and more powerful. And they will be eager to exploit any miscalculations by the British government or British voters.
A vote for Brexit would make some people very rich – but most voters considerably poorer.’
So leaving the EU won’t ‘take back’ money from Brussels, but hand it over to financial speculators and hedge fund investors – in other words, make the poor poorer and the rich richer.
What an odd way to stick it to ‘the elites’.
Adam Barnett is staff writer for Left Foot Forward. Follow him on Twitter @AdamBarnett13Like this article? Sign up to Left Foot Forward's weekday email for the latest progressive news and comment - and support campaigning journalism by making a donation today.