Winner of the New Statesman SPERI Prize in Political Economy 2016

Monday, 21 August 2017

Brexit remains an exercise in deception

I talked last week about how the Leave campaign involved lies at its centre. Not the occasional exaggerations of the Remain campaign, but claiming things that were the opposite of the truth. Like there will be more money for the NHS, when in fact there will be less. That particular lie probably swung the result, according to the man who organised the Leave campaign.

Labour people tell me that public opinion on Brexit will turn once these lies become apparent, and at that point Labour can safely take up the Remain cause. What this overlooks is that the managing of information characterised by the Brexit campaign continues. The Tory tabloids continue to distort the truth, and the Telegraph acts in a very similar fashion. The UK government appears more interested in saying stuff to please its UK audience than actually negotiating with the EU, and its studies of the impact of Brexit remain secret [1].

Meanwhile the opposition give no hint of the costs that Brexit will involve, and by design or conflicted confusion are just a tiny bit less pro-Brexit than the government. The broadcast media, and particularly the BBC, appear hopeless at questioning the facade that both main parties and supporting think tanks have erected. I have never heard a politician pulled up for saying we must retain access to the Single Market: all countries have access to that market! (This is the kind of journalism we should be seeing.) Individual MPs are intimidated into silence by the power of the Tory tabloids.

When I talk to Leave voters, all they tell me is how the economic ‘catastrophe’ predicted by Remain did not come to pass, or other Leave nonsense talking points like the exchange rate was overvalued anyway. They are often unaware that falling real wages are the direct result of the Brexit depreciation, and as a result the economy hardly grew in the first half of this year. They, and many people who voted Remain, do not realise that the government’s position papers are largely fantasy and that the EU is in a position to dictate terms. This is not because these voters minds are closed. They just get their information from sources that go along with the government’s Brexit fantasy, unless they are fortunate enough to read the Financial Times. No wonder there has been no major change in public opinion since the referendum.

Those in the Labour party should realise more than most how the media can present a one-sided reality which many non-political voters accept, until they see for themselves the other side during a general election campaign. The problem with a ‘wait and see’ attitude to Brexit is that its major economic cost will not become apparent until years after we actually leave the Single Market. Few realise that the original Treasury study, with the central estimate of an average annual cost of £4,300 per household (6.2% of GDP) was not some piece of Remain spin but a perfectly reputable study, which economists at the LSE said was “overly cautious”. Instead we get nonsense like this reported by the BBC. [2]

Some time ago I calculated a conservative estimate for the cost of austerity, and it was £4,000 per household. Ironically it was based on OBR estimates that the MSM largely ignored, just as they ignore the OBR’s estimates for the short term cost of Brexit. But my austerity cost estimate was a total cost, over all the years of austerity. The Treasury estimate is a cost each year. There is therefore a strong liklihood that Brexit will be far far worse than austerity in terms of lost resources, and unlike austerity there is no way of avoiding these costs once we are outside the Single Market.

For Labour party members and MPs I would put it this way. Imagine winning the next election but having to accept continuing austerity. Winning an election after leaving the Single Market will probably be much worse, and of course the media and voters will blame it all not on Brexit but on Labour’s ‘far left’ policies. Winning an election after Brexit is a poisoned chalice.

[1] Here is Mike Galsworthy on this and the earlier 'Balance of Competences' reviews that the government kept very quiet about before and during the referendum.

[2] I’ve talked to people at the BBC, including their economics editor, about why they cannot apply the BBC Trust’s recommendations on science coverage to economics. (The Trust’s conclusion, in summary, is that in controversial areas the BBC should go with the overwhelming scientific consensus. In other words recognise scientific knowledge, and not treat it as just an opinion.) I think a summary of their response to my question is that economics should not be regarded as a science: there is no economic knowledge, just opinions. What that attitude means in practice is that the public do not hear from the many experts in international trade we have in the UK (and there are many), but instead they hear from Patrick Minford.





22 comments:

  1. My understanding is that the Treasury study did not consider the impact of higher (or lower) trade with non-EU countries. Rightly or wrongly that was a key part of the case that Leave made - and I think it was an error to omit this.

    Is 6.2% of GDP a lot in the long-run? Presumably that's equivalent to losing about 4 years of economic growth?

    I'm interested in the political implications of this. If we still end up wealthier 5 years post-Brexit - will this really matter in political terms?

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  2. Even if the BBC insists that economics is a matter of opinion, surely geography is not? This, from Patrick Minford, is simply a false statement about existing travel arrangements in Ireland:

    "Border Controls. A final worry concerns the movement of people across the border. This particularly is invoked for the Irish-Northern Ireland border. Yet, today everyone has to show identification at these borders since the UK is not in the Schengen agreement. It is a matter of detail what identification is needed and how it is controlled – eg, at the Northern Ireland border where currently it is light and, in practice, may even be largely suspended on particular roads. In practice, this could continue - it is a matter for the UK and Irish governments how to manage their borders. It is worth remembering that there is no EU border agency: EU governments each provide the border service on its behalf."

    Can't the BBC take him to task for writing rubbish like this?

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  3. I can see the next campaign bus "Economists predict 135 billion windfall from hard brexit....lets give it to the NHS!!"

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  4. Austerity is being pressed into service to shore up Corbyn's non-position on Brexit. When you hear the word 'centrist' as a term of abuse, that's what's happening.

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  5. It would also help if more academic economists spoke out in the media against the kind of rubbish from "Economists for Brexit" the BBC is promoting. Or if the RES could speak out. I don't think the economics profession makes it easy for journalists to distinguish between what is something closer to established fact vs. Propaganda (and of course economists for Brexit have an interest in bluring the distinction).

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  6. It seems to me that when something like Brexit comes to be evaluated then there are a very large number of issues which affect the potential outcome over quite a number of years and to evaluate these issues in any sort of comprehensive manner in terms of economic models is very difficult, let alone trying to reach a balanced conclusion on whether it is a good thing economically (which is not everything by any stretch of the imagination). When we entered the Common Market in the early seventies the White Paper published to evaluate this matter distinguished between static and dynamic effects and concluded that the dynamic effects were very difficult to evaluate over time; we simply did not know and we do not know now.

    Now you may be able to dismiss issues such as the one you quote on the BBC web site but this does not mean that there are not many other matters which cannot be dismissed and it seems to me that the rebuff you have received from the BBC effectively reflected this view and it is a point of view and an attitude to economics that cannot be dismissed easily.

    The Minford type of argument may be threadbare as far as you are concerned but that does not mean that all this type of argument is nonsense. It has occurred to me that one of the downsides of the single market and a structure like the EU - very prone to regulation overkill -is that it eventually increases barriers to entry and institutes a creeping drift towards monopoly power and rent seeking behavior which weigh heavily on economic welfare over the years. However, this type of issue would be very difficult to capture in any model designed to evaluate the effects.

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  7. Unfortunately, I don't think the lies will become apparent. Something else will be blamed - the EU being a mean bully, remainers not pulling their weight, the Guardian using up too much of the UK's dwindling paper stocks - and the Mail and Sun will do their best to make sure nobody remembers what was promised.

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  8. This is such a good post you should try to get it more widely circulated (influential as your faithful readers no doubt are). The MSNBC interview should be compulsory viewing at the BBC: John Humphries would hopefully never do an economics-based interview again.

    Listening to his cringing interview with Patrick Minford, backed by 17 (yes SEVENTEEN!!!) economists we were crying out for someone who knew what the issues were - someone who could ask what was going to happen to UK farmers if total free trade is applied to agriculture, whether (as the LSEr eports in its deconstruction of the Minford 'paper'the Professor would be happy to see manufacturing wiped out to reduce prices for consumers, how the employment and environmental standards "which I fully support" can possibly be monitored without some central resource ... I could go on but really. A couple of years ago I disagreed with friends who refuse to listen to, or watch, BBC News claiming that Sky is more accurate. Now, I think they may have a point.

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  9. I would largely agree that the whole game of the government now is to finger the perfidious Europeans for ruining our Brexit. DD's lamentable argument for working in parallel in the Sun Times, is a case in point, its pure nonsense designed to blame the EU when it goes wrong (getting your excuses in early). Unfortunately, "its the foreigner argument" is just what the tabloids, telegraph etc love and it appears close to 50% of the public do to. So Brexit will be an economic catastrophe but provided the right music about foreigners, junket junker, immigrants etc is played, it will attract 40 to 50% support. If Labour do not start to challenge this narrative now, it will be too late when the problems start. The Tory line about > 80 % voted for Brexit parties is on its face true, Labour is currently committed like the Tories to a route which leads to a chaotic Brexit. Whats more as you say, given the certainty of a shambles, the right wing (and a few left wing) people who led us into this are unlikely to blame themselves. If the Tories get re-elected, the scapegoats will be you, me (traitors) and the foreigners who ruined our prosperous Brexit. If Labour are in power they will be added to the enemies list and deservedly so (since their position is identical to the Tories at the moment).

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  10. On reaction.life today Andrew Lilico has gone for the we need the new trade deal negotiated now line. Strange he was a 'it will be great'. I dont remember Brexiteers telling us in the vote that we should worry about how the EU would approach talks, it will all be great I remember.

    A competent Labour opposition would every day simply quote back the lines of DD, Fox, May, Gove, BoJo et al. When are getting the new money? When is BMW going to swoop in and force Juncker to deal? . Relentlessly day after day, ask about the progress to the utopia that was promised. Ask May will we follow Minford's plan and have 'free' trade? Its all nonsense and an open goal for a competent opposition. However so long as Labour are tied to the same stupid nonsense of a great deal on our terms (ignoring the interests of the EU27) , then these questions rebound on them.

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  11. The constant display of your clothes-rending, vein-opening personal agony over losing the Brexit vote has finally crossed the line and become unedifying.

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  12. Given that Osbourne must have known austerity was counterproductive in achieving his stated aim of reducing the deficit, why did he persist, given that faster economic growth would benefit the governments popularity?

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    Replies
    1. Osborne's first duty after the election was to Tory donors. They don't donate for nothing; they expect a pay-off.

      Two years or so before the next election you then start to sweeten swing voters / Tory voters, especially those in marginal constituencies. Voters have short memories.

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  13. What alarms me, even more than the thought that we're being systematically lied to, is the thought that some of the people involved are so confused and prone to wishful thinking that they believe their own falsehoods. It's the only explanation I can find for the recent IEA report with its bizarre references to trade and treaty relationships between the UK and the EU27 "continuing substantially unchanged" - as if there were any trade and treaty relationships between a non-EU-member UK and a UK-less EU27.

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  14. Hi Simon,

    I greatly enjoy your blog but I think you are peeing into the wind on this one (unfortunately). The weird thing is that this is the way our Western democracies work. The do-over happens at election time and no one is held to account for the things said during a campaign except in the loosest of terms. I'm afraid this ship has sailed. Deception or not, most people got on the bandwagon and there they will stay.

    All the best,

    A faithful reader.

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  15. What's the difference in terms of costs on Britain's economy between getting a simple free trade deal with free exchange of goods/services and the full single market status quo?

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  16. «Brexit is that its major economic cost will not become apparent until years after we actually leave the Single Market. Few realise that the original Treasury study, with the central estimate of an average annual cost of £4,300 per household»

    I quite agree with that and as to the figure I think it is an underestimate (but not by much), but there are some technical points and a political point:

    * As usual that "average" £4,300 per year can mask vast differences in impact: it could well be that the loss will be entirely at the expense of property and business owners and better paid executives, while at the same time the living standards of brexit voting workers are not affected or benefit. Surely a large part of them believe so, and it is not a ludicrous misconception.

    * That £4,300 is relatively small in absolute terms, and it is likely mostly in lost growth rather than an actual income reduction, and many brexit-voting people might consider it a worthwhile price for avoiding the national humiliation of a burgundy passport instead of a blue one :-).

    «For Labour party members and MPs I would put it this way.»

    The political point is very simple: you can't win elections based an argument like "cost will not become apparent until years after", it is ridiculous.
    Those arguments are not very popular, for both irrational and rational reasons.

    Try to imagine arguing to the average voter: "The sell-side Economists could not predict the 2008 crash, but we can can confidently predict that the 'major economic cost will not become apparent until years after we actually leave the Single Market'". It may well be true, but at best you'll get a tired laugh.
    Tim Farron tried to make that argument, and today he is PM with 400 Liberal seats as most of the 48% for "Remain" voted Liberal, and the 52% voting "Leave" were split between Conservatives and Venezuelan Trots, reducing them to 100 seat rumps. :-)

    As I have said many times the only realistic clear and present event that could derail Brexit would be a house price crash directly linked to it, but is "The Establishment" willing to allow a house price crash just for the sake of stopping Brexit? I guess not. But events between now and 2019 might still help regardless :-).

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  17. You say that the linked BBC article is nonsense. I would like to understand why you say so. Whilst it may be self-evident to you that it's nonsense, it's not evident to me.

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  18. This is a one sided account with huge assumptions about peoples reasons for leaving the EU. It was precisely for this reason that I voted remain, I did not want to enter this utterly sterile debate about about two Neo-Liberal states. Europe is Neo-Liberal and we have a Neo-Liberal government here. That is the problem.

    We first have to get rid of this Tory Neo-Liberal government along with the rest in parliament of all political persuasions they are working for corporate interests and not the well being of the population at large.

    It is disingenuous to say that Labour should calculate how much it will cost to leave the EU when you make no reference to cost of staying or the incalculable benefits there might be for our future.

    The EU is not the economic paradise you seem to think it is, you forget the levels of debt building up throughout Europe not from it's success but from it's abject failure.... also not forgetting GREECE.


    Europe is again on the verge of Deutsche Bank along with the rest suffering the same collapse as before, due of course for the same reasons, levels of debt are up to the same levels as before.

    There is absolutely no way you can predict the cost of leaving the EU as similarly any benefit that might accrue in the future. What I do know is that we were promised greater prosperity from membership that has in reality been a disaster, but for our oil reserves economically we would be in a much worse state now than we are.

    You take absolutely no account of the possibilities we could face in the future with a sovereign government working for the interests of people instead of corporations, the long term view that automation will reduce jobs, and that money creation spent directly into the economy instead of as it is now, issued as debt.

    I do not accept your premise that we can only spend into the economy in times of recession, as the evidence is we already do that now, but we issue money as debt. Using taxation and interest rates as regulators.

    Just look at Japan and how they are coping under Shinso Abe's unlimited Quantitative Easing, how would Japan clean up the Nuclear disaster without it?

    I am of course not specifying QE as a solution because it isn't for us, but we don't need QE because we can spend directly into the economy, when and where it is needed, Where did Theresa May find £1 billion to bribe the Irish with?

    Europe can't survive, the Euro is not operating as a single currency should, the trade imbalances are not working for those at the bottom and ultimately undermine those at the top Germany is running out of customers, how else it does make its surpluses?

    We are a net importer not exporter, we need a new paradigm, I think we call it socialism, the promised private sector is not working, by choice or design they refuse to pay real wages, that problem is not going away, we need to focus on the Tories and the failure of capitalism that is currently eating itself up. They are the real problems and that remains inside or outside the EU.







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  19. Instead of regretting the fact that we have made a monumental, and I think probably irreversible, decision to leave (I voted remain, tho' not very enthusiastically), why not focus on how we can make the best of a bad job? If P Minford is bonkers, please tell us how we should survive and prosper, albeit less well had we remained, in this freakish pre-1968 (?) world.

    Just btw. Yesterday I had a chat with my ex's builder. A year ago he was pissed off 'cos he was being undercut by Poles etc (i.e. just as busy, but underpaid) and voted Brexit. Now he's busier than ever doing proper jobs for people who pay proper rates. For those left behind, it was never the size of the cake, which you keep going on about, but their share of it that was the real issue. And this builder / decorator lives in Essex!

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  20. David Simpson: Step one to making the best of a bad decision is to try to stop making bad decisions. If the processes that led to the bad decision remain in place, it is well-neigh hopeless that future decisions will be better.

    Also, to SW-L's main point in this post, if blame is misallocated, we will never right the ship. Labour looks like it may be repeating its strategic error from austerity. If you don't criticize it in advance, you become complicit. In the US, Democrats discovered this yet again in the Second Iraq War. How many times do parties have to relearn this lesson?

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  21. «please tell us how we should survive and prosper, albeit less well had we remained,»

    We need not do much anything, business as usual. You see that's that problem with "Remain": the economic impact is quite significant but not catastrophic, probably smaller than the 2008 crisis. As long as “less well had we remained” is accepted, it is indeed acceptable as to size.

    I think that Remainiacs like S Wren-Lewis are constantly making the wrong argument by focusing on the significant but not catastrophic economic impact, because for fundamentalist "Leavers" it is a price well worth paying for ending the national humiliation of being "just a member" of an empire, instead of being the sole ruling country.

    There are economic arguments for EU membership, but they are quite secondary: the real argument for "Remain" is entirely political and geopolitical. In an age of continental powers, small piratical and trading maritime city-states, like England or Portugal or Holland or Venice or Athens, are not that viable. Being outside the EU won't get the Raj back. England could conquer and control much bigger countries with superior technology, but that's no longer an option.
    A gauge is: how many carrier groups can the present english empire afford to maintain?

    The case for "Remain" is that the Schuman Plan was to end the 1,200 old fight between east and west Franks for control of the carolingian inheritance and of lotharingia/middle Frankia, and that England was invited to participate, and at the high table.

    Tony Benn, an inveterate "Leaver" put it very clearly in his diary, 1965-01-04 and little has changed in 50 years:

    «Defence, colour television, Concorde, rocket development - these are all issues raising economic considerations that reveal this country's basic inability to stay in the big league. We just can’t afford it.

    The real choice is — do we go in with Europe or do we become an American satellite? Without a conscious decision being taken the latter course is being followed everywhere.
    In reality the choice lies between Britain as an island and US protectorate, or Britain as a full member of the Six, followed by a wider European federation. I was always against the Common Market but the reality of our isolation is being borne in on me all the time.»

    The real arguments for/against are about the next 50-100-200 years, about the place of England in the world.

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