It’s difficult to understand Brexit’s recent impact because it is so entangled with COVID-19, but the lack of tariffs and trade quotas has been positive, said Neiman, a former staff economist for international finance on the White House Council of Economic Advisers. Still, there are some unknowns.
“It would be a worse shock if tariffs were included as part of the Brexit package, but that did not materialize,” said Neiman, the Edward Eagle Brown Professor of Economics and William Ladany Faculty Scholar. “On the other hand, there will be increases in what economists would refer to as non-tariff barriers, such as differences in rules on licensing and professional permits, which can be important for services trade. We’ll have to see, but those certainly could put a wedge in the flow.”
Spending sprees: Should we be concerned about the deficits countries are running up to combat the pandemic?
Kroszner said that spending to stimulate economies and facilitate public health necessities, such as vaccines, is important—but so is having a plan for paying back those debts.
“A low cost of borrowing does encourage more borrowing, and it gives a signal that it’s OK to do more. But the challenge is that our models tend to suggest that, as the markets become concerned about repayment, things move smoothly and we’ll get signals to pull back as interest rates rise,” Kroszner said. “The way the world works, however, markets often change very quickly, confidence changes quickly, and we don’t fully understand exactly what undermines that confidence. A rapid loss of confidence could cause a sharp rise in rates and financial instability.”
Fairness: Will the inequalities that played out during the pandemic lead to more calls for universal income?
Some of the stimulus packages have focused on addressing inequalities brought on by the COVID crisis, Neiman said. In particular, those funds are often used to address scarring that could occur for workers in low-wage sectors or from the reduced provision of education.