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Friday, 2 February 2018

The Politicised Economics of Brexit

[This piece can be found at The Conservative Online.]

As most readers will know, we've had many nightmare scenarios about Brexit. Indeed we've had some very-rosy scenarios for the post-Brexit period too. Therefore the main question in this piece is as follows:

Do these economic nightmare scenarios primarily express the prior political views, values and positions of people on Brexit?

In most cases (though not, of course, all), the answer to that question is 'yes'...

Thus the following isn't a piece of economics. It's about economics. Specifically, it's about some (or even many) of the economic statements on Brexit.

So there aren't any forecasts in what follows. (Bar one forecast about post-Brexit winners and losers.) There are, however, a few comments on other people's forecasts. This means that there aren't any claims to know what will happen after Brexit. However, there are comments on those economists and politicians who do claim to know exactly what will happen after Brexit.

Economics is, of course, a highly complex business. There are an indefinite amount of variables to consider when discussing any single economic issue. And when it comes to forecasting about Brexit and post-Brexit...

Not only is economics hugely complicated, economists are well-known for getting things wrong. Their biggest mistakes come when economists indulge in futurology (or prophesy). This is especially the case when strong political and ideological views undergird their economic forecasts.

Economic Narratives

One way around this economic complexity is to have what political hipsters call a “narrative”. That narrative will enable people to make sense of the mass of data involved in economic arguments or claims. In other words, people's narratives (or, more simply, their ideological and political positions) will help simplify things. Their narratives will also be loaded with values, theories and political causes. That too will help in the process of simplification.

In any case, after Brexit there'll surely be winners and losers.

That's not a surprise because after every economic change – both big and small – there'll be winners and losers. Indeed sometimes the winners change places with the losers and vice versa.

As for economics and economists.

Depending on the economists concerned and their political affiliations or biases, there have been many mutually-contradictory “studies” and "surveys” on Brexit. That's not a surprise. Again, it's largely because economics is so damn complex that one can find an academic study to back up one's prior political position on Brexit (or on the European Union itself). What's more, one can even construct an academic (or economic) study to back-up one's prior political position.

Take Brexit and immigration.

Immigration & Economics

If an economist has a strong political and/or ideological position on immigration, then that's almost bound to have an effect on his economic positions (as well as on his academic research generally).

For example, say that an economist is

a believer in “open borders”;
deeply distrustful of the nation state;
against nationalism, and also has a problem with patriotism;
an internationalist;
a believer that all those who're against (mass) immigration are racist.

Isn't all this bound to have an impact on his economic positions on immigration?

Similarly, take an economist who's

against open borders;
strongly in favour of the nation state;
a patriot;
against mass immigration for social – not just economic – reasons.

Isn't all this also bound to have an effect on this economist's positions on immigration?

Consequently, it can be said that (at least in some cases) economic arguments about immigration can simply be masks for hiding the underlying ideological/political positions economists (as well as others) have on Brexit.

Now for some fairly random pieces of economic nitty-gritty.

The Politicised Economics of Brexit

"the research literature displays a broad consensus that in the long run Brexit will make the United Kingdom poorer because it will create new barriers to trade, foreign direct investment, and immigration”.

(Let's forget here that the European Union is a big funder of British universities and that many university departments are largely - or at least partly - “Gramscian institutions” of the Left - or, in some cases, of the Liberal Left.)

In theory at least, there needn't be any “barriers to trade” with Europe after Brexit. However, if there were to be any barriers, then the EU would be at least partly responsible for them. And that would tell us much about the EU's post-Brexit petulance and arrogance.

The “survey” also mentions “foreign direct investment”. Again, why can't we continue to invest in Europe? Moreover, what about the rest of the world? For example, what about the United States and the Commonwealth?

Another example comes from a 2016 piece in The Economist. It stated the following:

"It is plausible that Brexit could have a modest negative impact on growth and job creation. However it is slightly more plausible that the net impact would be modestly positive."

We can of course question both the sources and the data here. Then again, we can do exactly the same if it came to a report which stated the exact opposite. So that wouldn't get us very far either.... That's unless we were economists who had a hell of a lot of time on our hands. And even then, we'd still have prior political biases and prejudices which could very well influence our pronouncements, studies or surveys.

It's also said that the EU facilitates intra-European financial services.

For example, we have EU “passporting” for financial services.

The Financial Times said that this accounts for up to 71,000 jobs and £10 billion of tax each year. It's also true that some banks have warned that they may move elsewhere after Brexit. Though even here the obvious point has to be stated. Namely: not many Brexiteers have ever denied that there'll be losses/cons after Brexit. However, for every con, there may also be pros – or more gains. Perhaps the pros will far outweigh the cons. Perhaps the gains will far outweigh the losses. This can't be known beforehand; though that's also true of the economic arguments for remaining in the EU.

Specifically, that possible £10 billion tax loss may quickly be made up by savings (or gains) resulting from our no longer sending money to the EU; reducing/ending benefits payments for unemployed (or low-paid) immigrants; cutting down on EU red tape for businesses; and so on.

As for the 71,000 jobs in the EU-wide financial services (besides that being a guesstimate): surely most of these people would immediately find jobs anyway. Indeed they may not even loose them in the first place. Isn't it the case that very few people in the financial services end up as long-term (or even short-term) unemployed? Wouldn't these people simply change their own employment arrangements?

In terms of detail, a study from 2017 also found that

"Brexit-induced reductions in migration are likely to have a significant negative impact on UK GDP per capita (and GDP), with marginal positive impacts on wages in the low-skill service sector”.

So even this negative scenario about lower immigration has a positive outcome; though, in this example at least, only for workers in the “low-skill service sector”.

Note the word “likely” too; as in the phrase “likely to have a significant negative impact”. Economics isn't a “hard science”; and its record when it comes to prophesy (or futurology) has often been woeful; especially when those economic prophesies are driven by political positions or values.

As stated earlier, economics is complex. It's often rendered gross and simple simply in order to further political goals or causes – as in both the Brexit and Remain positions.

So although there are economic pros to large-scale immigration into the UK, there may be far more cons. What's more, these cons may be mainly social in nature.

On the Leave side.

The former Governor of the Bank of England, Mervyn King, once said (in December 2016) that the warnings of economic doom and gloom after leaving the EU were over-the-top. He still believes that the UK should leave the single market; as well as “probably” leave the customs union. Doing these two things, according to Mr King, would bring about more opportunities for the UK; and, in the process, improve the UK's overall economic performance.

Other benefits of Brexit have also been noted.

For example, we may well be able to bring about more free-trade deals when unencumbered by the rules and laws of the EU. A radically different immigration policy may also financially benefit the UK. That is, the state may need to pay less benefits to unemployed (or low-wage) immigrants – even if we bear in mind, for example, the immigrants who work for the NHS. (That number is often both over-exaggerated and overstressed.) There would also be reduced regulations on businesses and reductions in public spending generally. More relevantly, the UK would save a hell of a lot simply because it would no longer be contributing so much money to the EU budget.

Economic Futurology

As stated in the introduction, economics is complex. And because of that, economists often get things wrong – sometimes massively wrong. This is the case at least partly because of the political values, causes or ideologies which often drive the economic arguments and studies of economists.

Take this example.

In January 2017, the Chief Economist and the Executive Director of Monetary Analysis and Statistics at the Bank of England, Andy Haldane, commented upon the bank's own bit of futurology about Brexit. The BoE claimed that there would be an economic downturn. However, that claim wasn't about the post-Brexit era. It was about the period before, during and immediately after the Brexit referendum itself. As for Andy Haldane, he said that the BoE's forecast was very inaccurate. That market downturn (after the Brexit referendum) turned out to be an upturn.

Interestingly enough, Haldane did accept that economics was “to some degree in crisis”. The thing is, that crisis had nothing to do with the referendum or even (directly) to do with the EU. It was due to economists and politicians failing to predict the financial crisis of 2007 to 2008. Nonetheless, Haldane did say that in the future Brexit would harm economic growth. Despite that, Haldane had already said that the near-term forecasts were wrong. So can't we now say that his longer-term forecasts are even more likely to be inaccurate (or plain false)?

David Miles (at Imperial College London) agrees with this scepticism towards economists. (Though he's an economist himself!) He responded to Haldane by saying that that there's no “crisis in economics”. Why is that? It's because (according to Miles) economists never claim to to forecast what will happen (at least in precise terms) in the future. David Miles went on to say that that most people know (or at least most economists know) that short-term forecasts (like that of the BoE) are unreliable. And if that's the case with short-term forecasts, then surely that's even truer of long-term ones - such as Brexit.

Thomas Sampson (of the London School of Economics) also agrees with this. He said that it's difficult to know what will happen during the transitional process to Brexit. Indeed he turns my own statement on its head by saying that that long-term Brexit forecasts are (or will be!) more reliable than the short-term ones.

In any case, David Miles's earlier statement must actually be normative (or prescriptive) in nature. That is, he must surely be saying that economists should be more modest when it comes to their forecasts. As it is, however, that's not usually the case. Economists can often be far from modest; especially when political causes, values and ideology are driving their economic forecasts.

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