Winner of the New Statesman SPERI Prize in Political Economy 2016

Friday 10 June 2016

For economists Project Fear is Brexit

Ironically we have the Union’s side in the Scottish referendum debate for inventing the idea of Project Fear. Alex Salmond, who knows a bit about spin, immediately saw its potential, and the economic case against Scottish independence was branded Project Fear by the SNP. The implication of that label is that those using Project Fear are hugely overplaying their hand to frighten voters.

In the Scottish referendum the UK government’s case was that people would be significantly worse off in the short to medium term in an independent Scotland. It may have been met with the jibe that it was Project Fear, but in reality it was a pretty reasonable assessment of what independence might mean, parts of which were backed up by independent analysis from the IFS and the OBR. But together with some wishful thinking of their own, the SNP were able to dismiss all this economics analysis as just scaremongering.

Yet in reality things turned out to be even worse than the Treasury and independent analysis had suggested. That analysis assumed that the high oil price at the time would stay high. What actually happened was a sharp fall in the oil price, which would have been a disaster for an independent Scotland. So in the end the UK government’s case against Scottish Independence was understated. But Nicola Sturgeon keeps calling it Project Fear and journalists hardly ever challenge her on that. So by the rules of the politicisation of truth, any reasonable but negative assessment of the economic consequences of change is now seen as potentially politically counterproductive because can be called Project Fear.

It was therefore inevitable that the Leave side would pick up on this trick. They too knew that the economic facts were stacked against them. So they called the analysis produced by the Remain side Project Fear, and political commentators in the broadcast media - being balanced and all - found it easier to repeat the label than try and go through the arguments.

Yet the arguments are not rocket science. Countries find it easier to trade with others that are close by. If you make that trade more difficult by leaving the single market, some of that trade will go elsewhere, but not all of it for sure. The end result will be less trade. It is common sense, which happens to be backed up by lots of empirical evidence. There is also strong evidence that less trade leads to lower productivity growth, which means incomes grow more slowly. What is a key reason why China been growing so rapidly since the 1980s? Because it opened up to trade.

It is also common sense that if we leave the EU, foreign investment into the UK will fall. Invest now and you get easy access to the huge market that is the EU, so after Brexit many firms will go elsewhere to gain that access. This is why 9 out of 10 economists think we will be poorer after Brexit, with only 4 in every 100 thinking we will be better off. [1] As the IFS’s Director Paul Johnson wrote: “That degree of unanimity on any poll of any group of people about just about anything is almost without precedent.”

Faced with this level of unanimity, some in the leave campaign have tried to suggest that economists generally get it wrong. Yet ironically, one of the examples they choose shows completely the opposite, as Paul Johnson notes and I had also pointed out earlier. The UK’s decision in 2003 on the Euro was similar to the Scottish and EU referenda in the following way. Some politicians, for essentially political reasons, liked the idea of doing something they saw as bold: in 2003 it was adopting the Euro. The Treasury did an incredibly thorough job of looking at all the pros and cons, taking extensive academic advice, and convinced first Gordon Brown and then Tony Blair that the risks were too big. And just as in the case of Scottish independence, that analysis underestimated the problems the Euro would face. Luckily neither Brown or Blair thought this analysis was Project Fear.

The 2003 Euro work, and the Scottish independence work, were both headed up by the same man: Dave Ramsden, now Chief Economic Advisor at the Treasury. Having got two big calls right, he is just the guy you would want to be in charge of the Treasury’s analysis of Brexit. That Treasury analysis is once again pretty reasonable, and - just as with the Scottish referendum - has been shown to be reasonable by other studies [2]. The idea that you shouldn’t trust economists now because they always get it wrong has it completely backwards in this particular case.

But as Paul Johnson, myself and others have noted, the message from economists is either being ignored or has not got through. I do not think it is being ignored, for reasons outlined here and here. Which is why journalists in the broadcast media must stop this nonsense of obscuring the truth by being too literal about political balance. The problem, as I noted here, is that one point in the overall debate is obvious: you cannot control immigration from the EU within the EU. So if the media insist on obscuring the economic costs of Brexit by putting up nonsense analysis against the consensus among economists, or continuing to dismiss that consensus as Project Fear, they are effectively taking sides. Let’s hear less from political journalists about Project Fear, and more about the economic consensus that after Brexit wages will be lower and there would be less money for the NHS.

[1] There is this strange idea among Leave supporters that we cannot say people will be ‘poorer’ under Brexit, because being poorer can only mean less well off than you were in the past. I guess if the Brexit side are going to misuse numbers (£350 million a week), they are going to try and misuse language at the same time.

[2] Martin Sandu has a brief summary


  1. You would have thought that Dr. Sarah Wollaston switching her support from leave to remain out of concerns for the NHS should have made an impact...but so far, not that much. Apart from being a GP, for a politician to admit that they got it wrong or did not have the full information, should have been an impressive argument. But apparently it was not enough. If I get really cynical, I wonder if the media knows that either keeping it nail-bitingly close (or even going as far as leaving the EU) might not make for better stories.

    Also, the EU cannot make any trade deals with the UK, post-Brexit, without freedom of movement and contributions to the EU budget (and as for the regulations, much of it is really about having common standards to make trading relatively straight forward) or it will open a can of worms with Norway and Switzerland. That should be self-evident, but I have not heard the media challenge Gove or Johnson on this point (or any of the Leave camp).

  2. I am stunned at the similarities between the current campaign and the Scottish referendum. I recall the thought stopping mantras that were uttered whenever a problem with independence was mentioned: 'Too poor, too wee, too stupid?', 'Stop talking Scotland down!' and of course 'Project Fear!'. I have also grown to despise the word 'sovereignty'. Without specifying the process by which sovereignty being brought closer to home can improve a typical persons life - the cost of food, housing, wages, transport and so on - it is just another word without value.

    1. You are considering democracy "without value".
      Ok, it is an opinion amid many others.
      Around the 20' and 30' the same opinion was shared by some people I don't rememeber the names in Europe.

  3. SW-L and his economist friends are of course entitled to their economic forecasts under the Brexit and Remain scenarios. My forecast is that since Europe has lost any intention of securing its borders, it will descend into something resembling a failed Afro-Islamic state in 50 years time. Thus the sooner we get out the better.

    1. There are valid arguments for Brexit, this is obviously not it.

  4. At the popular level, the Brexit argument is 'well a lot of economists also supported UK's entry into the euro' - with the implication being that therefore everything is a matter of opinion, and economists are just doing the mathematical equivalent of reading chickens entrails.

    Similarly with the arguments that the CBR, IMF, World Bank and so on warn against Brexit.

  5. "and more about the economic consensus that after Brexit wages will be lower and there would be less money for the NHS."

    You know there is always as much money as required. Therefore it is a political choice by the Cameron government. Brexit is only about ending unskilled immigration.

  6. So, let's have you economic predictions of what will happen to the UK economy in the year following the result.
    Two possible outcomes: what will be the situation be in each scenario?

  7. “Countries find it easier to trade with others that are close by.”
    “What is a key reason why China been growing so rapidly since the 1980s? Because it opened up to trade.”
    Ok. China trade, of course, is mainly with countries which are close by, no?
    And the reason of the fast growth of China was not the increase on its trade, but the increase of its Export, and of its big Current Account surplus, not merely trade. Big surplus, even if less than the one of Germany.
    Moreover, China is a developing country, and the increase of output by means of net export balance increase is typical of such kind of countries.
    Things are different for developed countries, which must rely mainly on the domestic demand. They have to be net buyers, not sellers.
    So the “economic assertion” “ … after Brexit wages will be lower and there would be less money for the NHS ...” is based on the hypothesis that Brexit will mean necessarily a slump in foreign trade and a loss in current account surplus. This nevertheless depends on what other countries will do, refusing f.i. to sign bilateral (or multilateral) free trade agreements, which is of course possible. But such a matter is a political issue, not economical one. So, being an economist doesn't mean nothing peculiar.
    The main trade partner of China is (and was) USA (which is in a chronic current account deficit, being the “buyer of last resort” all around the world). Neither USA nor China are in the EU.
    Even Norway and Switzerland aren't in EU (as Bosnia, Serbia, Macedonia, Moldova and so on). They can nevertheless trade with everyone in Ue and outside EU.
    Switzerland has specific problems in foreign trade because it is out of the EU?
    Sorry, but the idea that EU is a “free trade area” is a little outdated.

  8. All you say is that there will be some form of retaliations from the EU to the Brexit. Well, I'm not sure that this can be incorporate in an economic model. If there will be retaliation, Britain will be treated worse than Norvege, f.i., and I don't see any reason to remain as member of a so bizarre club.
    On the other hand without retaliations, what you say is no sense.

  9. Even dimwits can see you need to seperate out those who would have a visa and those who would not to do analysis. Not economists apparently.

    "analysis from the IFS and the OBR."

    It is wrong because the amount of tax receipts the government gets is related entirely to the desire to net save in the private sector. Not the tax rate. Not whether we are in or out of the EU. The desire to *net* save in the private sector and of course the amount the government decides to spend. As long as the government lets people and corporations save there will be 'black holes' - and people like to save as it makes them comfortable.

    You would be better off listening to Faith No More than the IFS and OBR :)

    "Because I know what goes inside
    Is only half of what comes out
    Isn't that what it's about ?
    To remind us we're alive
    To remind us we're not blind
    In that big, black hole

    OK that could be stretching it a bit :)

  10. Thanks for following economist's advice for decades the UK is a country with large inequalities and an overly large financial sector. I cannot help think there is a little bit of naivety here. On China, I would go with what a Sinologist says about how that economy succeeded, not a neo-classical economist. One thing they will tell you is that economists overstate the importance of trade in explaining that country's rapid industrialisation. China's growth was largely internally generated and its period as a closed economy was important in understanding the foundations of its industrialisation. Successful countries are both in and out of the EU and international trading blocs. High productivity is not tied to trade/output ratios. I would argue that countries that adopt egalitarian and inclusive policies actually succeed, and often they protect their workers. You cannot understand Japan's success without import substitution policies and its long term employment system. I am not saying these work everywhere, just as countries very open to trade or are in trading blocs do not always succeed. Japan and China's trading success is often a symptom of their other successes, but their trading success is not the key reason for their economic success. There are such successful countries outside the EU, and very unsuccessful ones in. Yes I think you are scaremongering because ultimately the UK's economic success does not depend on EU membership. I also can't see how the Treasury could possibly know or be able to say with any confidence at all that its assertions are true. It looks very speculative to me.

  11. No I disagree, the remain side is also very negative and economists a big part of it. Instead of all this speculation of doom and gloom with a Brexit and trying to convince people of the impossible - how wonderful economists are - it would be nice to hear something positive. What is your vision for the EU? How do you intend to deal with growing inequalities and long term slowing productivity? I think you can make a positive case that the EU could help us. But it is not being made.

    The EU, however, made a big mistake in not giving Cameron an emergency brake on free movement. It would have been a small price to pay to keep the UK in

  12. «The UK’s decision in 2003 on the Euro was similar to the Scottish and EU referenda in the following way. Some politicians, for essentially political reasons,»

    Perhaps here the subtext is "essentially [short term] political reasaons" because the EU itself and the Euro even more so are almost entirely politically motivated, and if there were an economic price to pay for them, that is something that most countries are willing to pay, even Greece.

    «liked the idea of doing something they saw as bold: in 2003 it was adopting the Euro.»

    But the Euro project was more or less designed to create a two-layer EU, with an outer layer essentially equivalent to the EFTA in which the UK would have limited ability to disrupt, and an inner core of countries who wanted to actually get along.

    So the Euro treaties were more or less designed to ensure that the City of London would not want to be part of the eurozone; mostly avoid being regulated by honest germans rather than by their "whatever you want" mates at Whitehall and Westminster.

    BTW there are two countries in the EU that have large elite factions who want to be in the EU mostly to act as disruptors and proxies for the USA, and they are the UK and Greece. In Greece there have been for a long time pro-english and pro-french divisions in the elites, and in the UK my vague impression is that like in many other cases the line is between the "norman" and "saesneg" cultures.

    BTW there is a very amusing paradox about the whole mess, and it stems from the fundamental issue being invasions: most EU countries are a bit fed up with being invaded a couple of times every century. Sure the invasions have the advantage of preventing cultural and political stagnation, but the cost is also huge.

    The EU is an attempt to solve the invasion problem by mixing-up would be invaders and invaded countries, allowing for free voluntary movement of labour and capital and shared sovereignty. The policy of the "disruptor" faction of the UK elites is instead to prevent invasions from the continent by helping strife and divisions among the continentals.

    The invasions issue has also been happening in the british archipelago, and the welsh, cornish, scots, irish, danelawers have been repeatedly invaded by the wessexians and mercians.

    The amusing paradox is that the Act of Unions was basically an EU-like solution to the invasion problem, where the scot and english elites decided that mixing up was better than trying to mess each other up. But it is not surprising that a lot of the pro-EU sentiment in the british archipelago is in the countries that are still fed up with repeated invasions from Wessex and Mercia (even if they changed names over the centuries...).

    In a funnier world the solution to the european invasions problem would be for the continental EU to join the British Empire rather than viceversa :-). I think that just putting Her Majesty as the nominal head of state of the EU and changing its name to United Kingdom of Britain and Continental Europe, with no other changes, would be enough to appease the Little Englanders to be enthusiastic supporters of the mixing-up solution to the invasions issue. :-)

    I think that N Farage and like minded people are mostly just very upset that they have been born in an era in which their country has to join another empire instead of viceversa, and that most continentals would not care very much about the labels and formalities as long as the invasions gave way to mixing-up.

  13. «There is this strange idea among Leave supporters that we cannot say people will be ‘poorer’ under Brexit, because being poorer can only mean less well off than you were in the past.»

    That argument applies equally to the issue of immigration from very low pay countries: even if that does not make wages of low-pay native workers fall with respect to the past, it makes them poorer than they would otherwise have been.

    Some arguments cut both ways...

  14. «The policy of the "disruptor" faction of the UK elites is instead to prevent invasions from the continent by helping strife and divisions among the continentals.»

    More explicitly, that faction has a policy to get the continentals to invade each other as a way to distract them from invading the british archipelago. The continentals have gotten wise to that policy and are fed up with it too.

  15. Oh c'mon Simon, don't be so simple: the Brexit folks just want to make Britain Great again.

  16. Publicly challenge Nigel Farage to a debate.


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