Winner of the New Statesman SPERI Prize in Political Economy 2016

Saturday, 24 June 2017

Brexiteers versus Economists one year on

One year ago we found out that the British people had decided (narrowly) that they had had enough of experts, and one group of experts in particular: economists. Economists had warned that Brexit would harm the economy, and the Brexiteers laughed it off, claiming Brexit could give the UK lower immigration without any economic pain. Economists responded that reducing immigration would make access to public services worse not better, but everyone told us we were simply out of touch with the people.

When a few months after the referendum Brexiteers started claiming that the economists had been proved to be completely wrong, I decided to score this match between Brexiteers and Economists. Goals would come from actual events, not from unconditional forecasts. The first goal of this match had been scored by the Economists within seconds of the match starting: the collapse in sterling would make nearly all British citizens poorer. The second arrived shortly afterwards, as the Bank decided to cut rates and restart QE to offset the negative impact of Brexit.

The Brexiteer side later claimed that this second goal shouldn’t count, because the economy did not collapse in the second half of 2016. But the main reason that happened was because consumers dipped into their savings, something that was not sustainable. The Bank did not reverse its decision. Forecasts went up and down, but this match is based on events, not forecasts.

The next goal was the election of Donald Trump. At first Brexiteers claimed it was a goal for their side, as Trump had been in favour of Brexit. But the reality soon dawned that Trump, like Brexiteers, lied all the time: he had no intention of making any trade deals with the UK before doing one with the EU first (as Obama had said, we would be way down the list). In addition a trade deal with Trump began to look like something it might be better not to have. That blew apart Brexiteers claims that they could quickly get new trade deals outside the EU to make up for lost trade with the EU. They had scored a goal, but it was in their own net.

If at this point you are thinking the referee is biased, I should add that he subsequently ruled out two goals claimed by Economists. The first was invoking Article 50. Economists claimed that was a foolish thing to do because it would leave the UK fighting against the clock. The referee ruled it out because that was a forecast, and the Brexiteers were still claiming that No Deal was better than a bad deal for the UK. The second was the first quarter GDP figures, with no growth in GDP per head. The referee rightly said that this could just be erratic data and we would have to wait for another quarter at least.

But with the score at 3:0 to the Economists the chances of a Brexiteer win still seemed remote. We now entered the most exciting period of the game yet. The Brexiteer captain called a general election, which she foolishly said was to enable her to consolidate her Brexit position. The Brexiteers threw everything into attack, but this left them weak at the back and a swift counterattack led to the fourth goal in the Brexiteer net. A despondent team then conceded without any resistance a fifth goal, when they agreed to the structure of negotiations set out by the EU. It was now clear the Economists had been right, and starting the Article 50 process had been a huge mistake. Trying to use EU migrants as a bargaining chip became a cruel failure, a tactic apparently invented by the captain herself.

With the Brexiteers now 5:0 down, and with the only prospects being further successful strikes by the Economists (the divorce payment, an interim settlement that effectively keeps existing trade arrangements including free movement), it looks like certain defeat for the Brexiteers. If I had started this off as a boxing match rather than a football match, I could have had the referee calling an end to this fight. It now seems absolutely clear that the Economists have been proved right and the Brexiteers horribly wrong about the economics of Brexit. But Boris Johnson or David Davis are favourites to be the next Prime Minister, Gove is back in the Cabinet and someone is calling for an inquiry into economists because they are "dangerously irrelevant", so what do I know?






13 comments:

  1. Anti Brexit nonsense again. I am astonished how well the economy has held up in the face of constant MSM negative and hostile articles about Brexit.

    ReplyDelete
  2. The public spent more than they possibly should have? Just as they've done for many, many years? Yes, that possibility was completely unforeseeable wasn't it? I can see why it didn't occur to economists predicting instadoom!

    Your post helps to bolster Pettifor's case that economics is in urgent need of reform.

    ReplyDelete
  3. In my view the economic issues have always been pretty clear and are as you have stated them. But you seem to persist in drawing the line at that whereas for many who voted Leave it was (and is) a much more widely drawn issue - the other issues are well known.

    In my case what also weighed heavily was the risk within the EZ which would ultimately bring down the whole structure. I have never believed that the EZ can work in anything like its present form but that the necessary conditions for its sustainability are not only absent but probably politically impossible. If the EZ fails then so will the EU. I don't think this is a probability at the moment but it certainly a distinct possibility and one that I fervently hope does not come to pass for either our sake or Europe.

    This is not a football match but a rather much longer game and it will be likely forty years before we will see the result of the decision in its historical and economic perspective.

    ReplyDelete
  4. Nonsense. You know very well that Rochon, Keen, Mitchell, Fazi and many others were pro Brexit, all economists of some sort, professors, all of them were wrong. Who was it who called the Brexit a victory for the working class?

    ReplyDelete
  5. Corbyn still has room to go for a second referendum, given that what his young voters support.

    N.B. Young voters today it seems means under fifty!

    ReplyDelete
  6. "With the Brexiteers now 5:0 down"...

    Shouldn't that be 6-0 if the disallowed goal for invoking Article 50 is now allowed due to: "It was now clear the Economists had been right, and starting the Article 50 process had been a huge mistake"...?

    I guess not as once a goal is disallowed it shall not be re-allowed (still smarting from Euro 2004 and World Cup 2010 !)


    ReplyDelete
  7. Well done match commentary. If only there were a 'mercy rule'

    ReplyDelete
  8. After a series of excellent posts on macro, another terrible Brexit one. 5-0?!?!? Good gdp growth, record employment, end of the Dutch decease for the pound with record export orders. Inflation at healthy levels (see your own recent entry). Result: hard brexit parties got 85%. Remoaners loose their seats (Nick Clegg) and Brexiteers increase majorities (Vauxhall). Even Paul Mason says that if you are a remainer you need a new party. Changing the sport analogy: It's game, set and match for the Brexiteers. Move on. Everybody else already did.

    ReplyDelete
    Replies
    1. "Good gdp growth, record employment, end of the Dutch decease for the pound with record export orders. Inflation at healthy levels"

      GDP growth has markedly slowed. Record employment isn't a wonder given record population. The pound's decline hurts incomes at a time when income growth rather than employment gains are needed. Inflation is outpacing wages again - hardly healthy.

      Delete
  9. A friend who prefers to remain anonymous has put up a blog dedicated to (the absurdity of) Brexit (from a political & philosophical point of view). I thought you and some of your readers might be interested:

    http://www.thebrexitsatires.com/

    ReplyDelete
  10. I distinctly recall the august Remain economists specifically predicting an "immediate and profound economic shock" with a decrease in GDP growth "3-6% lower" the "day after the referendum".

    This simply did not happen. No amount of hand washing can get around this. You cannot then say "oh but consumers dipped into their pockets" or "Carney started the printing presses and rescued us all".

    The reason why you cannot say this is because economic forecasts do not assume a "do nothing" scenario of the Bank of England, or consumers. Everybody is expected to act rationally.

    This was not a point for economists, and you are disingenuous to suggest that it is. The economists were profoundly wrong, in an absolutely outstanding way that totally contrasted with reality, obliterated any shred of credibility for the profession and absolutely further entrenched the total distrust that the voter has in the ability for economists to act in anything more than a totally useless way in guiding their decision making.

    ReplyDelete
    Replies
    1. Nobody said GDP growth would be 3-6% lower the day after a Leave win.

      Moreover, Cameron had indicated that Article 50 would be triggered without delay after a Leave win, so economic forecasts should be seen in that context. In the event, triggering Article 50 was delayed for nine months. Is it any wonder the slowdown that is now underway was not averted but simply delayed?

      Delete
  11. Funny, there were plenty of articles hailing a crisis in confidence in economists - when very little happened after Brexit. You, however, seem to have missed those articles ... preferring to create your own bubble of "reality" on your blog.

    ReplyDelete

Unfortunately because of spam with embedded links (which then flag up warnings about the whole site on some browsers), I have to personally moderate all comments. As a result, your comment may not appear for some time.