Winner of the New Statesman SPERI Prize in Political Economy 2016

Thursday 12 May 2016

Economists say no to Brexit

Today the Times has published a letter about Brexit. It is short and sweet.

Focusing entirely on the economics, we consider that it would be a major mistake for the UK to leave the European Union.
Leaving would entail significant long-term costs. The size of these costs would depend on the amount of control the UK chooses to exercise over such matters as free movement of labour, and the associated penalty it would pay in terms of access to the single market. The numbers calculated by the LSE’s Centre for Economic Performance, the OECD and the Treasury describe a plausible range for the scale of these costs.
The uncertainty over precisely what kind of relationship the UK would find itself in with the EU and the rest of the world would also weigh heavily for many years. In addition, there is a sizeable risk of a short-term shock to confidence if we were to see a Leave vote on June 23rd. The Bank of England has signalled this concern clearly, and we share it.

The simplicity of the letter was deliberate, as it was designed to show the extent of the consensus among economists on this issue. In a relatively short space of time Tony Yates, Paul Levine and I got 196 signatories, most of whom are UK academic economists. (The letter was originally intended just to focus on academic economists, but others wanted to sign.)

Why bother? After all doesn’t everyone already know that nearly all economists think Brexit would have significant costs? Only yesterday NIESR published their own estimates of costs, nicely summarised by Martin Sandbu. There are two important points here. First, a large section of the print media is committed to Brexit. Second, the BBC has pledged to be balanced, which means always matching stories about the economic cost with those who believe it will be a benefit.

Some may have noticed the disparity in the standing of those anti and pro Brexit, but equally others may have used attempts at balance to say to themselves that economists are always disagreeing and therefore dismiss warnings about costs. There are two reasons why you will never get unanimity from economists: it is a science about people and therefore inherently uncertain, and the views of a few economists are influenced by their politics. There is the joke that if you put 10 economists in a room you get 11 opinions. Which means that when all but a handful agree about something, you can be pretty sure the theory and evidence are strongly pointing in one direction.

There is therefore a huge disparity between the overwhelming majority of economists that say we would be worse off with Brexit and the handful that say otherwise. That is as near to unanimity among economists as you will ever get.


  1. "risk of a short-term shock to confidence"

    The 'business confidence' argument is reasonable in the current climate (Tories in power). But this applies to any 'anti-business' legislation.

    Once free from the EU treaty, the state can ensure any level of circulation it chooses. Some good arguments about confidence from Michał Kalecki:

    So if there is lost output, the blame lies firmly with the government - who can then be replaced with one that isn't so stupid.

    "The size of these costs would depend on the amount of control the UK chooses to exercise over such matters as free movement of labour, and the associated penalty it would pay in terms of access to the single market."

    I find that questionable. Firstly, as I have said before nearly all studies on EU immigration get the null hypothesis wrong. Few if any of them separate out "those who would get a visa" from "those who would not get a visa".

    Leaving the EU is only about the latter category of worker - those who compete directly with our remaining unemployed and under-employed.

    So unless you provide a study on that category, then they are useless in evidence.

    Secondly, I can't see much change as Ireland has a veto and they will simply veto any changes that result in a trade war with the UK, most likely.

    1. The argument here seems to be: yes, Brexit might be damaging but only because the Tories won’t implement sensible policies, which the electorate will understand, so they’ll change the government and then it will be OK.

      Perhaps, but that didn’t happen with austerity. How the long-term political path works out post-Brexit is hard to predict. What is more certain is that the immediate impact of Brexit would be to put the nastiest wing of the Tories, plus UKIP, in the ascendancy. They will then try to remove much of the existing protective framework for workers and consumers, originating from the EU or not. Trade deals will be devoid of protections, particularly as from the ‘back of the queue’ it is hard to make yourself heard. There will not be rational management of migration, just a green light for abuse of anyone who looks or sounds different.

      I’m no fan of the EU’s neoliberalism or its democratic deficit but if we leave, then life would get harder for many people, and we need to be ready to resist that.

  2. EU is a political failed experiment, economic reason to remain are much less important than political and democratic ones (and after all we (Uk, Italy) are all members of WTO, we can send our money abroad to Wall Street or Shangahi, why not London after Brexit?)

  3. "The size of these costs would depend on the amount of control the UK chooses to exercise over such matters as free movement of labour, and the associated penalty it would pay in terms of access to the single market. "

    I know why you went for brevity and simplicity - you have to when dealing with the media. But it is dangerous nevertheless. Are you in favour of controls over free movement? Because the mainstream profession said that when the EU expanded there would be little impact. That was at complete odds with what social workers and people working in job centres very close to the scene were saying and who immediately detected an impact (and this was reported frequently in the FT at the time, although given the strong neo-classical/neo-liberal consensus - it was buried in p.2 factual articles, not in leaders at the time and got very little profile). The big losers of globalisation and free movement are uneducated white men and to its credit, this was broadcast on BBC breakfast today. There is very little we can do for these people while we do not have control over our labour market. We need immigration, and we have to let in (many many more) Syrian refugees, but that is not the type of immigration we are getting. We cannot implement effective workforce participation schemes and minimum wage laws in such an environment.

    This gives you some indication of the complexity of the issues we are dealing with.

    This is not just about output gaps and sticky prices.


  4. Well it can't do any harm.

    Though the benefits may be fairly marginal. I scoured the BBC website for coverage of this letter - and could only find 'Insanity to leave EU -Tracey Emin'.

    Fair play I like Tracey and agree with her, but does anyone know why her individual view is more newsworthy than that of 196 professionals who spend their lives thinking about these matters?

  5. Shouldn't it start saying: "Please make your choice on whether to vote in favor or against a Brexit also taking into account the likely (considerable) costs of this move."

    In the end, it's just another independent variable within the choice mechanism, right?

  6. Even so, "as near to unanimity among economists as you will ever get" may count for little with politicians and the public (unfortunately). For example - the classic 1981 letter to the Times criticizing Howe's 'landmark' monetarist budget was signed by 384 economists at the time and didn't succeed in changing the Tory government's view that Keynes was wrong and the monetarists were right.

  7. A core issue in assessing a major proposal such as Brexit is what might be called ‘assumed counterfactuals’. Those using standard macroeconomic models to evaluate the impact assume, as an inherent part of comparative modelling, that everything remains the same except for specific alterations to the value of parameters, such as a reduction in trade openness or a fall in net migration. But those promoting radical change see it as transformational, opening up possibilities that did not previously exist and hence invalidating the ‘everything else remains the same’ assumption of economic modellers. For this reason, the results of those exercises will never convince those committed to Brexit, even if they influence the undecided.

    A major issue is the wide diversity of views on what the transformational possibilities of Brexit might be. Those on the left who want to leave see opportunities to break from austerity or be more interventionist without EU constraints on matters such as central banking or state aid, while those on the right want to reduce immigration and reverse legislation on worker and consumer rights. The majority of the labour movement favours remaining in the EU because - in today’s political balance - Brexit would be more likely to open scope for the right than for the left in British and European politics. In future that could change, and staying in does not mean we should accept the status quo of how the EU operates.

    1. If you argue that we don't really know what the effect of Brexit is, then the 'transformational possibilities' could in fact be much worse for the UK than anyone has foreseen.

  8. Is there any way to get a list of signatories? It is behind the paywall and it's always fun to check who is on it...

    1. You can find a link to the list at the end of Tony's post:

  9. Just in case someone reads this and decides to vote Remain, economic indicators aren't everything.

    Low wage, working immigrants (who are usually saving for retirements in their much cheaper home countries) provide unfair competition to British workers who are saving for retirement in the UK. Does it makes sense for immigrants to be working to pay the benefits of the Britons who are not working?

    The countries of eastern Europe now have population crises. Poland has lost millions of its hardworking, well-educated people to richer countries like Germany and the UK. This is good for our economic indicators but it's bad for Poland.

    The UK minimum wage is 40 Polish złoty. This is worth in Poland roughly what £40 is worth in the UK. So of course millions of Poles want to work in the UK, no matter how bad it is for Poland when they leave. (If the Polish minimum wage was worth £40 then millions of Britons would be there!)

    The UK's public services and transport infrastructure are struggling to cope with the current population level. EU immigrants will keep coming until the UK is no more attractive than their own countries. The EU will never let us restrict immigration, as Cameron's failed negotiations showed.

    Then there's the remoteness of Brussels, where 30,000 lobbyists have more effect on legislation and trade deals than the electorate, which barely pays attention.

    The EU is great for big, international businesses who want to influence lawmaking across 28 countries and minimise labour costs. It's not great for the individual countries and their people. Almost all the eastern Europeans I've met prefer their own countries and are in the UK because of the value of the pound.

    There's very little the EU does that cannot be done by independent countries cooperating when is suits them, without sharing sovereignty and allowing free movement of people.

    Investors hate uncertainty. If the British government were open in their planning for Brexit and made clear what our new arrangements would be then there would be less uncertainty.

    Of course the government needs to pretend that Brexit will be awful because they want us to vote Remain, but if we vote Leave then Cameron will go back to what he's always said, which is that we'll be fine outside the EU, and our economy will be ok.

    1. I appreciate your argument. why don't you talk about western Europeans such as Germans, Dutch, Swedish coming to live in the UK?

  10. The BBC and false equivalence reporting. This guy says the earth is flat, the other guy says it's spherical. We report, you decide. Thanks, BBC.

  11. I am afraid that we might handle the all reasoning with political criteria.

    Why should we belong to "something" ONLY because that "something" hurts us if we do not belong? Is it a logical argument?

    This mechanism approach of whenever we have a challenge we put another layer on the top (by creating another supra-individual layer) does not seem the correct way.

    Maybe the option could be stimulate the people to understand that we are in a Titanic (ALL of us) and life boats such as EU, TTIP (and similar) are useless for the challenges of humankind.

    We have to remember that ALREADY 200 and something year before Jesus Christ the Chinese had their "EU". And the results were?

    So, it is my understanding that there a bit of intellectual laziness (specially by the current government of UK) on handling this practical wicked problem.

    A view for Nordic Countries by an Africa born.

  12. I read a report by Paul Krugman that said that sudden losses of confidence in nations that have control of their own currency are essentially benign. A loss of confidence would cause a currency devaluation and stimulate the economy of the nation in question.

    I don't agree with Brexit (even if Krugman is right, there are better ways of stimulating an economy), but at the same time I think the downsides are overdone.

  13. Have you noticed how cows grazing in a field all point in the same direction?

  14. The LSE has put out a study which says that migrants from EU countries "are net contributors". Well of course they are. If I take a job that might have gone to someone else, I will earn an income and pay tax, while the other person won't and will probably be forced to go on the dole and therefore will be a net recipient.

    I really think everyone can see through this, and we expect better analysis from the economic establishment. They already have low credibility because when the EU expanded Portes and Dustman et al said there would be few people coming in and had far fetched (classically neo-classical) arguments about how they would greatly expand net per capita GNP and employment without major substitution effects.

    We hope for better work now before the Referendum, but I am not optimistic.

    1. But the migrant creates additional demand which leads some firm to offer an additional job. Which is why its very hard to detect any negative influence from migration on wages or native employment.

    2. For what it's worth, Dustmann claims to have warned that inflows from Eastern Europe would be high if Germany and other countries impeded access initially (which is what happened). So it seems that the politicians and media picked up on an estimate and ran with it, neglecting to check the underlying assumptions.


    3. "But the migrant creates additional demand which leads some firm to offer an additional job."

      Simon you are not thinking.

      There is a potential loss in purchasing power by the fact (1) the potential UK worker is now replaced by foreign labour therefore we lose his potential contribution to AD and (2) wages of local workers competing with the new entrants have been pushed down by this seemingly infinite new supply.

      Next look at the data. Has migration and associated population increase increased net real per capita GNP - all this before we even consider the equity consequences between capital and labour and between high and low income workers?

      Think of an economy and a community like a football team. Is it better to train players starting with good sports facilities and teaching at primary school at the local level, or is it better to rely on foreign players? It might be better to bring in foreign coaches to train up and bring in new ideas. But the best approaches, both on equity (social) and productivity (economic) grounds are ground- up community building ones. This has been a big lesson from historical approaches to economic development.

      Less Ricardo, more Polanyi and Gandhi. But sure it is difficult to disentangle the interlinking factors. But perhaps this whole experience underlies why we should be very careful with pushing the results of economic modelling and studies like that of Dustman should not have got the public profile they did.

    4. But the migrant creates additional demand which leads some firm to offer an additional job."

      That job has gone to other foreigners, as there is an infinite supply - which has pushed wages down further. This is a classical deflationary Marxian outcome.

  15. No one with a conscious and love of Britain would vote to stay and wait for the country to consume itself in the orgy of greed that is the current state of globalisation.

  16. the fact that this makes perfect sense begs the question as to why have a referendum at all? the economic union was the basis of the EEC the clue is in the title European Economic Community, the Bureaucracy, Politicisation, and Militarisation of the Union have destroyed the Communitarian Principle, not least at British hands engaging in illegal War of Americas' instigation, the colonial chickens are coming home to roost and pulling up the drawbridge is not going to solve the problems which are Global.

  17. 171 academics from Royal Holloway have also signed an open letter to their students in favour of remaining in the EU:


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