Te outcome of the Brexit vote is clearly bad news for the UK. At the macroeconomic level, if Britain loses access to the single market, that’s going to harm the British economy. Until the negotiations about the single market are completed, there will be a lot of policy uncertainty about what kind of deal we’re going to end up with, and until then, investment in Britain will be lower. There will also be less spending. Hopefully, the large drop in the pound that we have seen will be strong enough to offset this blow to the British economy.

One opportunity for the UK, the easy opportunity to preserve access to the single market, is to follow the so-called Norway model. In other words, join the European economic area, which currently includes not only Norway but also other non-EU countries such as Iceland and Liechtenstein. However, I do not think this is a viable solution for Britain in the long run. Yes, it would preserve access to the single market, but it would come at the expense of free movement of labor, which British voters clearly don’t want, by revealed preference. Britain would also have to continue paying into the EU budget, which they don’t like. And Britain would have to abide by the EU rules, over which it would have no say, which I don’t see the British liking at all.

The Brexit vote is also bad news for the rest of Europe. Brexit, if it takes place, will reverse the long-term process of European integration, which has contributed significantly to peace and prosperity in Europe. Losing Britain will be bad for the EU, both externally and internally.

Externally, the UK has been a strong member of the EU; it’s been able to contribute militarily, and it’s been able to contribute diplomatically. Losing the UK means losing a big voice. The EU will now be smaller and less important on the global stage. Internally, in losing the UK, the EU is going to lose an important voice of reason that has often argued for market-driven solutions inside the EU.

Another unfortunate consequence of the Brexit vote is that over the next few months and possibly years, European politicians will be dealing with Brexit instead of with important problems such as immigration, Greece, and fiscal issues. That’s unfortunate—it’s almost unfair of the British to put Europe in this position.

There are considerable downside risks to what might happen in the wake of the referendum, but Brexit also presents some important upside opportunities for the UK. It will have the opportunity to take a freer hand in its own trade policy, its own immigration policy, its own regulatory policy, and there’s at least the possibility that it could do so in a more progrowth way than would likely have happened if it had remained part of the EU. If it takes advantage of that freedom to construct a regulatory environment that facilitates the formation of new businesses and the creation of new jobs, that’s likely to be good for workers across the spectrum in the UK economy.

On the other hand, if Brexit is really the first step toward an inward retreat with respect to trade, capital flows, immigration, and so on, that’s likely to choke off growth prospects for the UK for some time to come.

One big political issue is how well and how soon the EU and the UK will establish a new trade arrangement. The sooner the better, in my view. The Economic Policy Uncertainty Index for the UK is at historically high levels. (The Index quantifies newspaper coverage of policy-related economic uncertainty.) Until the EU and the UK come to a new understanding about trade in goods and services, capital flows, and financial relationships, that uncertainty will forestall long-term investments, hiring decisions, and other activity. That’s going to spill over to the entire UK economy if it persists for long.

Just as there are opportunities for Britain, this could have a positive impact on the EU. For one thing, the referendum and the larger dissatisfaction in many EU countries suggest that the EU suffers from a shortfall of democratic accountability. People, rightly or wrongly, blame some of the failure to perform economically on decisions made by the EU, and it’s easier to blame the EU when you don’t really have a strong say in how it functions. I would encourage folks in the EU to think about how it is that they can restore both the perceptions and the reality of greater accountability to the citizens of EU member countries.

Many of the aspects of globalization that come with EU membership can be achieved without something akin to political integration. There’s been a long-standing trajectory since the end of World War II—through the GATT (General Agreement on Tariffs and Trades), the WTO (World Trade Organization), and free-trade agreements, which have all promoted greater trade globalization while respecting the sovereignty of individual countries. It would be wise to step back and unpack the elements of globalization and ask, “Which ones can we promote in a way that’s likely to be most beneficial economically and most hospitable to the electorates in democratic societies?”

What Brexit shows more than anything else is that policies associated with globalization—in particular free trade and removal of restrictions on immigration—have been met by certain groups with resistance. These groups are angry about these policies, and it makes a lot of sense that the vote went the way it did given this anger. We will see an increase in these nationalistic, anti-immigrant, antitrade-type votes across the board in almost all the advanced countries. 

One of the big problems economists have had is that these policies they have been advocating—more trade, more immigration—which I agree make the size of the pie larger and are the right policies in the long run, have negative distributional consequences. Some groups are negatively affected, and economists and policy makers mostly ignore these effects. We now have solid evidence showing the negative consequences of globalization on certain groups. For example, in the United States we know counties that previously produced goods that end up being exported by China into the US have been devastated. We see higher unemployment, higher suicide rates, and even higher opioid addiction.

Economists and policy makers often think policies that increase the size of the pie will automatically benefit everyone, and that’s just counterfactual. If you are going to get the true fruits of some of the policies associated with globalization, you have to think seriously about the groups within a country that are adversely affected by those policies. You cannot just assume everything will work out for these groups.

Since the referendum, it has become clear that the negative economic consequences of a Brexit are real and potentially severe, just as many economists and experts predicted. For the UK, an important political question is whether or not it can and will remain united. The Brexit vote also raises big political questions for the EU and its leaders, who must learn important lessons and adjust.

Of course, at this point, there is still massive uncertainty about whether and when the UK will actually exit. The British Parliament has the final say on the decision, and it probably also needs to first authorize May’s government to trigger Article 50 of the Lisbon Treaty, which lays out the procedures for a withdrawal from the EU. A lot can happen in the next few months, as well as during the exit negotiations. It is entirely possible that once the negative economic consequences take hold, the British mood changes and new elections take place, after which the Parliament could decide against following through with a Brexit. On the flipside, more time could also allow the UK and the EU to mitigate the Brexit fallout.

For the UK going forward, there will be strong political forces pulling toward a breakup. It is not clear to me how one can respect the will of the people expressed in the referendum, yet deny Scotland another independence referendum of its own if the UK follows through with the Brexit. A similar issue could arise in Northern Ireland.

As the EU is largely a political project, it is also essential to view things through a political lens, rather than just from an economic perspective. Politics often prevails over economics, as we saw in the Greek sovereign-debt crisis. Politics will also dominate the exit negotiations. Therefore, most of the Brexit consequences for the EU are, in my mind, political in nature as well. The biggest loss is the change in the balance of power within the EU. Here the UK played an important role as a liberal and free-markets force. Thus, future EU negotiations will be substantially different.

The Brexit vote should be used as an opportunity to find a new resolve. First and foremost, the EU and its leaders need to do a much better job communicating what the political project is all about. There are actually many successes that are worth emphasizing. There are more abstract ones, such as peace and a staunch defense of basic human rights. Conflicts of interest between countries are dealt with in an entirely different way, instead of the old saber rattling. But there are also concrete achievements. For instance, the EU and its predecessors played an important role in the demise of the dictatorships in southern Europe and the stability of those countries afterward. Another example are EU student exchanges such as the very successful Erasmus Programme (European Region Action Scheme for Mobility of University Students), which has offered millions of students the opportunity to study abroad and has done a lot for joint cultural understanding. In addition, there are concrete economic successes. For instance, the euro has had a profound effect on price competition within the eurozone, ultimately benefiting consumers.

But it is not just a matter of communication. EU leaders must change as well. They need to recognize that Europe needs a more democratically legitimized foundation. The paternalistic attitude of current and former EU leaders that says, “Trust us. We know what is best for Europe,” will not work going forward. The recent rise of populism all over the EU illustrates that the leaders and elites have lost thought leadership, or the “sovereignty of interpretation” of what is happening in the world. EU leaders need to regain the trust of their people and to do so need to explain their plans and actions in a more transparent and extensive way.

Ultimately, the EU needs more time. It is a project that should be judged in decades or perhaps even centuries, not years. But there is a real risk of losing the achievements of the last 50 years if European leaders do not stabilize the EU and rein in centrifugal forces.

One of the most important—and least discussed—aspects of the vote for Brexit has been the failure of most pollsters and newspapers to predict and understand the reasons for it. Even the betting market, generally much more reliable, got it wrong. This phenomenon is not unique to Brexit. Most pundits and pollsters missed the importance of Trump. Why?

What we have observed in Britain and what we are observing in the US with Trump is a growing mistrust toward experts. In the Brexit debate it was hard to find any economist justifying a departure from the EU. In fact, many were willing to make forecasts so pessimistic as to be accused of scaremongering. Not only did these forecasts fail to rally the vote for “Remain,” they probably contributed to the victory of “Leave.”

Some have lamented this phenomenon as an example of voters’ irrationality. I fear this has nothing to do with irrationality and has everything to do with mistrust, a mistrust that, while exaggerated, has a rational basis: the disconnect between the intellectual elite and the population at large.

Today wealth concentration allows a few rich individuals to singlehandedly fund think tanks, which have increasingly become loudspeakers of vested interests rather than centers for the elaboration of public policy. Campaign financing and future lobbying jobs are increasingly transforming elected officers from representatives of the people to “butlers of industrial interests,” to use a famous muckraking expression. Doctors are perceived to promote the medicines of the companies that sponsor their lunches; scientists to minimize the effect of pollutants produced by companies that fund their labs; economists to defend the interests of banks that pay them hefty consulting fees. Even journalists, when they are not perceived to promote the interest of their advertisers and owners, are accused at least of turning a blind eye to certain problems.

Fault does not lie with people who mistrust the experts. We need to rebuild that trust. It is not sufficient that most doctors, intellectuals, and journalists do a fine job. We should have transparency rules in place to ensure that they are all free from conflicts of interest. We should have admission rules that favor not just ethnic diversity but economic and social diversity. We should have campaign-financing rules that free our representatives from the yoke of vested interests.

We need to create the conditions to undermine this mistrust of experts. This is the most important lesson from Brexit.

One idea that’s become associated with pro-Brexit sentiment is the notion that foreigners come into an area and take jobs or displace people who don’t have a lot of human capital. A number of people have looked long and hard at the data and the cost of migration, investigating this concern, and it is hard to find support for it. For example, if you look at the correlation between changes in unemployment and changes in migration in different areas of the UK, you don’t find any association, except at the very low end of the income distribution. The best work on this suggests immigration has a positive economic effect. It’s hard to find an economic rationale for the majority to have voted to essentially constrain migration; the reasons are all political.

Immigration has economic significance apart from the job market. My research suggests that if you accept migrants today, 30 years down the road, they will facilitate investment in their host country, particularly if their country of origin takes off economically. The social ties they create between their country of origin and their host country make that investment more likely.

The UK has already benefited from its rich mix of residents. London has a central position in the global social network. Lots of business done between Romania and the US, for example, goes through London. In a variety of ways, having an exchange of populations in the long run makes it much easier to interact economically. London is important in the world economy precisely because it has an ethnic mix. It’s one of the few places in the world where you can find a significant population from Bangladesh and a significant population from Romania, for example.

Overall, for the European economy, and the world economy, it’s going to be hard to substitute for London in that respect. There’s a lot of talk about Frankfurt and Paris benefiting significantly from this; we’ll see how that plays out, but London is a diverse place, and there’s really nothing similar in the rest of Europe, at least on that scale.

This idea of economic interaction also speaks to the dangers of the UK fragmenting as a result of Brexit. Putting a border somewhere is costly; we have plenty of research in economics that talks about the border effect. If you look at the amount of economic interaction between Seattle and San Francisco, for example, it’s orders-of-magnitude larger than the economic interaction between Seattle and Vancouver, Canada. All of that lack of economic interaction between Seattle and Vancouver means fewer jobs, fewer opportunities for people to do business, and fewer opportunities to create wealth for the economy. A breakup of the UK would be costly, both because of a long period of economic and political uncertainty, and because there will have to be a border somewhere.

While many people are focusing on the consequences of Brexit, I find the causes to be equally troubling. Much of the pro-Brexit media coverage prior to the vote focused on limiting immigration into the UK. These arguments resonated because, as within the US, the labor market has remained quite weak for workers with lower levels of schooling. There was a belief that migrants entering Britain were partly responsible for the weak labor market there. In fact, many of the pro-Brexit arguments primarily focused on this issue in the weeks prior to the vote.

However, this belief turns out not to have merit. Immigration played, at most, only a small part in weak demand for lower-skilled workers. The decline in manufacturing, and in routine jobs more broadly—within both the US and UK—has depressed employment rates and wages for those workers without a bachelor’s degree. That has nothing to do with immigration.

I predict that Brexit will actually make lower-skilled workers in Britain much worse off. Leaving the EU may curtail immigration, but it will likely further serve to reduce Britain’s manufacturing industry—because it will be harder to ship goods abroad.

One of the things I am most concerned with is that the stagnation of wages and declines in employment rates for lower-skilled workers are common across many industrialized countries. As these workers struggle, there is a strong populist movement that wants to limit immigration and restrict trade across countries. We are seeing similar patterns within the US: Donald Trump is promoting policies that are similar in spirit to those promoted by the politicians supporting Brexit, policies that restrict both immigration and trade.

While it is likely that Brexit will have large effects on the UK and the European economy broadly, the underlying factors that led to support of the referendum are also very much present in the US economy. I am really not sure how these factors will play out within the US political landscape.

The Brexit referendum, and some of the political discourse in the US presidential election, shows clearly that there is pushback on globalization. Globalization is a term that I think of as referring to integration across countries in essentially three types of markets: for capital, for goods and services, and for labor. It’s easy to take for granted that the world will always become more and more globalized over time. But it’s not a technological law that globalization must march forward.

In my own lifetime and in my students’ lifetimes, there have been no sustained reversals in the progress of globalization. We’ve seen more and more trade in goods relative to GDP; more trade in assets relative to GDP; more workers crossing international borders. You might assume that things have to trend this way. But if you go back to the late 19th or early 20th century, when the world was also globalizing quite rapidly, people may very well have also taken for granted then that the world would continue to get more and more integrated. Yet, it did not. From about 1914 to about 1945, globalization actually reversed. International capital flows collapsed, as did goods traded relative to GDP in some periods.

For those of us who think enhanced cooperation and cross border flows in goods, services, capital, and labor are important things for productivity, poverty alleviation, and welfare around the globe, it’s important to remind ourselves of these benefits and that we shouldn’t take them for granted.

And further, while globalization might make us better off on average, it certainly doesn’t have to help everyone. Some people gain, and others may lose. For those of us who want globalization to continue moving forward, it’s obviously become more and more important to think harder about ways to make sure the benefits are shared by a broader set of people than perhaps has been the case in some places.

The British people have spoken; it’s important that the Parliament, as well as Prime Minister Theresa May, take that seriously. I don’t think there’s any need to move immediately—they need to have a plan if they are going to go through with this. You shouldn’t just start on some sort of adventure and not know where you’re going. But they shouldn’t wait years to do this because uncertainty can be costly.

The key to the long-term impact is really going to be the policy changes within the UK as well as the relationship with the EU and the rest of the world. Britain can respond to this by dramatically changing domestic policy to make it much more business friendly. For example, former Chancellor George Osborne proposed cutting corporate taxes significantly; though Osborne has been replaced, the idea remains worth exploring. Perhaps the UK, rather than Ireland, could become the low-tax haven in Europe.

To whatever extent the UK needed to move in a more business-friendly direction, this is an opportunity for them to say, “We’ve got to do this now, because otherwise we’re going to go off a cliff.” I don’t think their economy will go off a cliff, but if that’s what it takes to get them to really reform their policies and produce higher growth, that’s going to be good for everyone across the UK, particularly for those with low incomes. If the policy makers don’t take that opportunity, I think low-income workers will be disappointed with the effects of Brexit, because immigration’s effect on the job market was not as great as many people thought it was, and because slow economic growth tends to hurt low-income people more than the wealthy.