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Should we protect the economy from politics?

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01.09.2019

"Political shocks are now becoming economic shocks," warned Reserve Bank governor Philip Lowe at the annual gathering of the world's central bankers in Jackson Hole. But which political-turned-economic shock was he referring to? The looming "hard" Brexit? The US-China trade war? The technology war? The currency war? Protests in Hong Kong? Trump's looming self-inflicted recession? The World Trade Organization's imminent collapse?

"All of the above" is probably the answer. But this long list of candidates raises the question of whether we should be doing more to protect the economy from the whims of politicians.

Britain's Prime Minister Boris Johnson. The Bank of England warned in 2018 that a hard Brexit could be worse for Britain than the global financial crisis. Picture: AP

John Maynard Keynes warned in 1920 that economic extremes lead to political extremes. The state of the world today suggests that the reverse is also true - and nowhere is this more apparent than in Keynes's home country. When Boris Johnson became Prime Minister, he warned that "anyone who bets against Britain will lose their shirts." The markets weren't listening. In fact, if you bet against the British pound on the day Johnson became prime minister, you would have made a 4 per cent return in a single month.

It's no wonder markets are spooked. The Bank of England warned in 2018 that a hard Brexit could be worse for Britain than the global financial crisis, reducing GDP by up to 8 per cent and pushing unemployment up to 7.5 per cent. A leaked brief from the cabinet office earlier this month showed that British authorities are anticipating a hard Brexit and expect it to cause fuel, food and medicine shortages, rising social care costs,........

© Canberra Times