Now that the initial shock from the Brexit vote has abated, the real work has started on how to deal with it. At the time of this writing, leading Norwegian politicians have congregated to hammer out a plan to protect their country's interests. Other countries' leaders do the same. Most of them seem to start from the premise that Brexit is bad for everybody, that all you can do now is to save the spoils.
I don't share that view. I haven't thought carefully about how I would have voted if I were eligible to vote in the Brexit referendum. However, I do not believe that that vote was just a result of misinformation and wishful thinking. At a session I attended at this year's NBER Summer Institute, that was indeed the view expressed by a panel of Very Serious People (yes, I plagiarized that term from my classmate Paul Krugman, although I don't believe he has patented it). The same people did an impressive job of listing all the percentages of lost GDP that the UK could expect from this unwise decision.
What I felt that panel—and a lot of other commentators—missed, is the fact that a lot of British voters indeed had good reason to resent the EU. For them, the EU is part of the globalization trend, and globalization hasn't benefitted everybody like the prophets said. The prophets may have been right that it has benefitted all countries, when we add up the plusses and minuses within each country; but it has not benefitted everyone within each country. To be sure, the Chinese working class and middle class is ways better off than 20 years ago, as are all the top wealthiest people in the west, such as the financiers in the City of London. But the working and middle classes in the western countries have been the big losers. They finally revolted.
Second, the EU has not exactly been a growth success. That was the promise of the internal market as well as the common currency. Instead, we got a continuity of crises. Eurozone GDP has barely recovered to the level before the Global Financial Crisis in early 2008. Italy, one of its major members, keeps scraping the bottom at almost 10% below that level. The UK has done somewhat better than the euro zone, but mainly because they didn't participate.
So, like any bad marriage, the British EU membership might as well end. The British people may not have listened to the Very Serious Economists; but, as professors Sapienza and Zingales at the University of Chicago have shown, they are not alone about listening the least to economic experts exactly when the experts agree the most.
But enough about the British, what about the rest of us? Isn't Brexit just one of the ways that our world order is coming unhinged, along with Trump, Putin, Erdogan, the Sweden Democrats, and the IS? Well, yes, but maybe that is not all bad. Like I said above, I belive the EU process has reached an impasse. I belive Brexit gives the EU leaders an opportunity to take a step back and rethink what they are doing. The common currency came too early. Too many countries are highly indebted in a currency they don't control. That's a prescription for continuous crisis. To regain stability, the euro zone should become a real federation, with a common Treasury and a directly elected federal government. The Eastern EU states are not ready for that. But the original "Inner Six" should be. That would mean a two-speed Europe, but so be it. The people in Eastern Europe can board later if they so wish.
And then there is Norway. The future of the EEA agreement and Norway's future relations with the EU are both important questions. The EEA model cannot work for the UK, because it involves exactly the things that the British voters revolted against: Taking orders from Brussels free movement of people, and a stiff annual fee. But I do believe Norway should welcome the UK into EFTA. Admitting such a big member would change the organization's dynamics, to be sure. But for the UK, Norway, and Switzerland to work as a team would surely present opportunities for all three.
So, just like many newly unemployed people use the opportunity to find new opportunities, I believe the various parts of Europe can do the same. That is true of the UK, the rest of the EU, and for Norway. We just have to seize those opportunities.