Winner of the New Statesman SPERI Prize in Political Economy 2016

Friday, 1 July 2016

Economists, Brexit and the Media: Epilogue

In a thoughtful piece, Paul Johnson of the IFS says that economists must take some of the blame for not getting our message across. In fact he says: “But it is always a mistake simply to look at the media as a scapegoat. The real failings were with my profession.”

What were these failings. He identifies four. The first is that we have failed to get basic economic concepts across to the public, like that a depreciation does not make us richer. The second is that we have no means of getting our voice across as a collective, rather than as individual voices. Third, most of us cannot respond quickly to important issues. Fourth, we fail to translate impacts on ‘the economy’ into concepts people can relate to.

All of these things are indeed general problems. I have written about the lack of collective view here, so I completely agree that is something we should act on. I also think collective action is the only way economists have of dealing with the first problem (apart from individually writing non-economist friendly blogs of course). I do not think the third was an issue for Brexit. Of course the fourth is always likely to be true (more media training!).

But having said all that, Paul is basically wrong. Even if you had put all these things right, I do not think it would have made any difference to the result. In this referendum economists did do their collective best to inform the public. Failing to have a collective voice was compensated for on this occasion by letters and polls. The lack of knowledge of economics (and in this case Europe) among many political correspondents is not really something economists are in a position to rectify. And right from the start, the long term costs of Brexit were expressed in term of costs for the average household. (And when that was done in a perfectly reasonable way, the media mistakenly told us we were doing it wrong.)

This really is like blaming scientists for not warning enough about climate change. And the problem is not confined to the EU referendum. We saw the same problem arise during the Scottish referendum, when the term Project Fear was first coined as a way of dismissing difficult economic realities. The result of the referendum permitted a degree of complacency. I personally would argue, along with other economists, that much the same happened in the 2015 general election, when mediamacro turned perhaps the worst economic record since WWII plus the promise of a referendum into ‘economic competence’. But that was seen as partisan and so ignored. I don’t think either of those two events had much to do with a failure of the economics profession either, and I take no pleasure in having used that experience to anticipate how this referendum would go.

There are all kinds of people you can blame for ignoring economics expertise. Voters themselves, the politicians that call such advice Project Fear, the tabloid media that keeps expertise from the eyes of their readers (or trashes it), the broadcast media for an obsession with balance, underlying economic conditions that lead people to think it cannot get any worse (a phrase I have heard a number of times since the result). It is a long list, and in order of importance the failures of economists themselves comes a long way down it.

And before I get the inevitable comments about the failure to foresee the financial crisis and the sins of neoliberal orthodoxy, please note that the medium term costs of Brexit come largely from models of trade, productivity and international investment which are very empirical and hardly ideological. But if a respected Financial Times columnist calls economists’ assessment of what that literature implies “the profession’s intellectual arrogance” what can you do. Let’s get real: what we said was ignored, and the reasons for that have very little to do with economists themselves.






26 comments:

  1. "And before I get the inevitable comments about the failure to foresee the financial crisis and the sins of neoliberal orthodoxy, please note that the medium term costs of Brexit come largely from models of trade, productivity and international investment which are very empirical and hardly ideological."

    I can't read the linked article, but I think the intellectual arrogance of economists is referring to things that they have ignored since, well, Samuelson 1948. I am not unconvinced of what these models substantially tell us - but I suspect empirical as they maybe they are based on neo-classical principles - for example gains to trade and welfare through comparative advantage. There is very little discussion outside that of economic historians about how comparative advantage cannot explain things like industrialisation, let alone deindustrialisation (and related issues like what is now called secular stagnation). I am someone who took a PHD in economics but now teaches in another field within the social scientists. The big difference between economists and other social scientists is the degree of critical thinking and reflection on methodology and how we go about choosing methodology. It is surely no coincidence that London voted remain and the rest of England out. Economists and policy makers need to start asking why.

    Brexit will be costly, by how much we really don't know. People were aware and even accepted that there would be economic costs. Yet they still voted remain. Why is really the question. Perhaps they were willing to give up some economic prosperity for something else? Perhaps they already thought that whatever prosperity had been achieved from the EU, they were not sharing in it? For whatever reason they voted for change in direction. My first guess is the reasons have something to do with wariness towards globalisation and issues relating to identity and marginalisation. Some very well written articles in major newspapers have also taken this view. To find out what the cause really was, you are going to have to look outside Model and not dismiss these issues as peripheral. In other social sciences they are considered central to understanding matters relating to society.

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    1. Gravity models of trade say that it is easier to trade with your neighbours. So if you make trade more difficult with your neighbours, trade declines. Trade is linked to productivity empirically. Where are the 'neoclassical principles' in that!?

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    2. The neoliberal principle is that free trade equals free movement of labour which, in turn, equals unfettered labour migration which, then, leads to population increase and, theoretically, the possibility of reduced productivity and per capita GDP.

      But none of this negative stuff - negative in terms of social policy fallout - matters in the neoliberal embrace of free market "principles". Remain arguments were clearly based on the comparative advantage to the UK - and to UK households - of not just free trade in the traditional sense but also to free trade as free movement of labour.

      Krugman has generally commented on this confusion of politics and economics and wondered, a couple of days ago, whether or not economists have confused political distaste for Brexit with economic analysis - whether or not intellectual standards have declined.

      More specifically he has referred to movement of labour in a culturally and income level diverse free trade area as presenting specific problems in terms of winners and losers.

      To the extent that most economists missed this social policy dimension, it sounds neoliberal to me.

      Maximisation is not always good.





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  2. You mentioned the original Project Fear in the context of Scotland's independence referendum. Any thoughts on whether Scotland would benefit economically from separate membership of the EU? I assume they would be forced to adopt the Euro both because of EU policy and needing to abandon Sterling. Would they become another small impoverished country with a persistent deficit? What would their trade position look like?
    Also, would Northern Ireland necessarily have to join with the Republic of Ireland or could it also join independently as a separate Euro state with free movement across its land border? Would it be viable economically? Would the Republic of Ireland be able to block it? Would Spain and other countries allow this level or regional autonomy?

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    1. I think these are all very good questions: maybe I will get time to think about them later, although I kind of hope I don't have to.

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  3. Politicians must take most of the blame for the Remain failure but economists also bear responsibility. Paul Johnson is right to acknowledge that.

    First, economists need to get out of the bubble of academia, think tanks, articles, blogs, interviews, policy advice, etc. and spend time talking to people on doorsteps, in the street, at the pub, wherever, particularly in places such as the older industrial areas where the referendum was lost. Call it field research if you must. At the New Economics roadshow meeting in Bristol a couple of months ago you gave a useful presentation on Mediamacro but then responded to a question on how to get this across when canvassing by suggesting we used a graph showing GDP had fallen below trend. I could see looks of incredulity. The people we talk to are not stupid but they do not see the world through graphs. Paul is right to point to the problem of language. We need to translate concepts into those through which people understand their own lives.

    An example of the problem is the claim that outside the EU we would be permanently poorer to the tune of £4,300 a year per household by 2030 and beyond. Let’s assume that the Treasury did its work well, unlike some of its predictions about austerity. The first issue here is precision. The comparison is with an assumed negotiated bilateral agreement and anyone with negotiating experience knows that you cannot predict exact terms prior to sitting round the table. The magnitude of the loss will also depend on future states of the economy. Economists lose public credibility when they make claims that are more precise than our knowledge of the world permits. As I was told while canvassing they are “just predictions”. Some modesty would improve economists’ standing.

    The method adopted of calculating household losses by dividing predicted GDP loss by number of households is standard practice but the result is not what people think of by ‘household loss’ which they see as money going out of their personal post-tax income. Confusion results. I handed out a Welsh Labour leaflet that included the £4,300 claim, next to an icon of a shopping basket, so organisers failed to grasp the point too. Sometimes that leaflet was bundled with another with the same icon against the claim “British families save on average £450 a year at the checkout thanks to the EU”. I doubt if anyone reading both would have felt confident that we knew what we were doing, even if each claim could be justified.

    A month ago you blogged about an opinion poll showing academics were highly trusted on the EU. That might be true but I don’t think it applies to the institutions that academics often represent. There was definitely resentment of the repetitive barrage of claims from “the great and the good” that disaster would ensure from leaving. In the end attitudes hardened against this.

    Economists should recognise that ‘averages’ hide as much as they show. People are far more interested in what it means for them personally and that depends on individual circumstances. The media recognise this when reporting on budgets, when they take typical cases and try to work through what it might mean for ‘a working couple paying standard income tax with two children, a car and a mortgage’ etc. There was none of this in the EU campaign.

    Presenting results out of the black boxes of economic models has little credibility with those who do not understand these and suspect the motives of those presenting them. We need to explain how the real-life processes that lead to these results operate. We should have talked more about how businesses react to uncertainty by cutting investment, how leaving would make it harder for businesses to export to EU countries, how that would impact jobs and wages, how that would lower tax receipts or reduce spending in local shops, etc. All explained with real-life examples, so that claims such as “100,000 Welsh jobs are linked to exports to the EU” could be more widely understood beyond those obviously at risk in sectors like aerospace.

    There is plenty to learn.

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    1. I think what you are mainly complaining about is not how economists should present their work, but how political campaigners should use that work to convince people. I think what you are also reflecting is the combination of a soundbite broadcast media and a tabloid press that is largely partisan.

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    2. Perhaps the point is that economists need to help educate political campaigners if they are to have enough understanding to convince anyone. Most people would have had no idea how to defend the £4,300 figure if challenged on it.

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  4. I hate to be the bearer of good news in these circumstances but it appears Osborne has abandoned his surplus target because of Brexit.

    I still don't think fiscal is loose enough to prevent a recession by 2020 though. The buildup of private debt is worrying. Of course we can still blame the recession on Brexit and ignore real problems :D

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    1. I hate to bearer of bad news: Osborne has a drop of corporate tax in mind, and the marginal propensity to spend on that disposable income is below sea-level.
      Earth is round and each road to Rome can be walked in either direction; one is a way to roam.

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  5. I found this very compelling.

    http://noahpinionblog.blogspot.com/2016/06/some-stuff-economists-tend-to-leave-out.html

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  6. One of my professor once said that economists usually are quite happy with their job, except for those who monitor uncompetitive behavior. He used it humorously to illustrate the difficulty of identifying such behave without hard proof like tapped conservations, letters, etc.

    As I see it, macroeconomists don't get by easy either. There's a host of people who either agree or dismiss your claims out of a simple gut feeling, you never seem to be able to translate your results into vulgar terms and, even when you think you got something right in this respect, decidors still don't listen. It's like being doctor to a fatso who can't wrap his head around the existence of his bad health and its relation to his eating disorder.

    I don't suspect that my preference for microeconometrics will make it any easier, but I hope I will find the words, comes the time for me to speak up after my studies.

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  7. Hi Simon, I have been following your posts since quite long now, though this is my first comment. Thanks for keeping your readers aware of how powerful tabloid media still is, and how even most of mainstream media is unable to articulate economic issues. In India, the TV media is simply restricts itself to daily "burning"issues, making a mockery of what one might call a debate. Even the serious sections of print media keep publishing appallingly misleading articles on all issues, esp economic ones.

    Using your posts on macromedia as the starting point, I published an article on the role of Indian media: http://www.newslaundry.com/2016/07/01/brexit-should-get-us-thinking-about-indian-media/

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  8. All the Tory candidates and Corbyn+McDonnell are saying we should respect the result, despite most also acknowledging the result was based on many untruths and that it will hurt our economy. They also risk breaking up the UK.

    Why aren't they listening to calls for a second referendum?

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    1. For the simple reason that you cannot set up a referendum, promising to accept the result, then refuse to do so if you don't like it. Not if you want people to retain any trust in democratic processes.

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    2. On such a constitutional issue a decission by the toss of a coin has nothing to do with democracy; it has been fifty/fifty for a career's time, never a two third majority either way. The committed procedure was: Cameron would respect the outcome and in case of a Brexit-vote remain on the job. That is: in case of a Brexit-vote he would invoke the procedure 24 June before noon, and he did not, so there is no ground for that commitment. We are in the middle of a mine-field, and listening to calls for a next step, but not obeying them straight away. Why? I have a rich imagination; it is registered at the Cayman Islands.

      P.S. It is puzzling. It is July and Tories consider May.

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  9. Simon, please help to get the word out by publishing the following:

    *POTENTIAL WAY TO STOP BREXIT*

    Do you regret voting Leave or know someone who does? If so, please start a petition saying so or add your name to one if already started:

    1) CHECK EXISTING PETITIONS: https://petition.parliament.uk/petitions?state=open

    Search "We regret voting Leave".

    2) START A PETITION: https://petition.parliament.uk/petitions/check

    Start a petition called "We regret voting Leave and urge the government to hold a second EU referendum". (It's important to use the exact text!)

    Given Leave won by less than 1.3m votes, even 650k signatures should give the government pause for thought.

    Please only start/sign if you genuinely voted Leave and have come to regret it.

    *PLEASE SHARE WITH OTHERS*: even if they voted Remain, they may know remorseful Leavers.

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  10. As a fellow Mancunian observed if you have money you voted to remain if you have nothing then Brexit offers hope of change!

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    1. In breve: the have-nots chose for change, and the haves for banknotes.

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  11. From my perspective the (partial) blame on economists is that we have made 'the economy' into an abstraction hidden behind thick layers of math.
    Is has become a 'thing' no-one can connect with personally.
    No-one knows how to act personally to improve 'it', so no-one feels personally responsible for it.
    It has become a chimera no-one knows how to trap or to control.

    Whereas 'the economy' could simply be 'the way in which we organize that we get what we need/want', which can be improved by social technology (rather than science).
    With 'politics' ('building the future of a society as a whole') as one of the tools, but in which EVERYONE can take responsibility for organizing provision of needs and wants in her/his own network.
    In which the perceived alternative modes of organizing are not ideologically limited to government intervention (bureaucracy) and the market 'mechanism'.

    By making it into an abstraction and hiding it underneath math we have disempowered people as economists.
    By giving the 'market mechanism' a central role in our narratives about 'the economy' with government as guardian of its preconditions we have facilitated trench wars about 'more/less government' and focused people's attention on what 'they', the government should or should not do.
    'Europe' has become another 'they' which people feel they cannnot control instead of simply the most appropriate level of organizing an increasing number of our needs.

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    1. «From my perspective the (partial) blame on economists is that we have made 'the economy' into an abstraction hidden behind thick layers of math. Is has become a 'thing' no-one can connect with personally.»

      That sounds extremely (and perhaps deliberately) naive to me: I guess that most people have figured out by now that "the economy" is a simple euphemism for "the interests of property and business rentiers" (and that the «thick layers of math» are just camouflage for that). Just like the news are as a rule reported from the point of view of property and business rentiers. After all property and business rentiers, many small and some big, are arguably a majority of voters, in particular of swing voters in marginal seats.

      Things that "good for the economy": higher house prices, more immigration from low income countries, less wage inflation, lower taxes on high incomes especially from property, lower benefits for those on low incomes, more competitiveness with low income country exports, ...

      Anything else is called "class war". Because "trickle down" of course, which is the essence of Economics.

      Usual quote on a related term, "aspiration":

      «Although Mr Brown talks a lot about aspiration, he means it in the sense that people at the bottom of the pile should be able to get to the middle, rather than that those in the middle should aspire to get a little bit further towards the top.»

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  12. "Fourth, we fail to translate impacts on ‘the economy’ into concepts people can relate to.

    All of these things are indeed general problems...Of course the fourth is always likely to be true (more media training!)...There are all kinds of people you can blame for ignoring economics expertise. Voters themselves, the politicians that call such advice Project Fear, the tabloid media that keeps expertise from the eyes of their readers (or trashes it), the broadcast media for an obsession with balance, underlying economic conditions that lead people to think it cannot get any worse (a phrase I have heard a number of times since the result). It is a long list, and in order of importance the failures of economists themselves comes a long way down it."

    I want to add to the list the appalling economics coverage of the broadsheet press, and specifically of the Guardian, of which I am already a member. The editor-in-chief appeals for contributions to fund Brexit coverage

    http://www.theguardian.com/politics/2016/jun/29/if-you-value-the-guardian-coverage-of-brexit-please-help-fund-it

    Some of these funds need to be spent on hiring and training economists as journalists and commenters with specific skills, and creating a senior editorial position to develop the paper's economics coverage. The current personnel may have journalistic, historical, and political skills, but in my view their coverage of Brexit shows that these are not enough.

    What is your view Simon?

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    1. I have talked in the past about the low level of economic understanding among political journalists in general.

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  13. Perhaps, I can state what is difficult for a respected economist to state in outright terms. The reason most newsprint media organisations (including through their digital platforms) do not print, or dismiss, what most economists proffer on economic policy is because they are not writing what the journalists/owners want the public to know.
    shaunt

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  14. Meh, there is no Brexit right now. When they trigger 50 and potentially try to leave the market, the "UK" will implode and more than Scotland/Northern Ireland. Down south, succession cslls will start to form their own countries. The "Leave" camp was a Permindex/Rothschild/Murdoch scheme. That is why many support the EU. Not because they love the organization, but it was who triggered the Leave vote. The scam behind it and its true motives.

    This is the real story the media should be talking about, but they pass it up consistently.

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  15. Wren-Lewis: "This really is like blaming scientists for not warning enough about climate change."

    Mr Wren-Lewis, you imply that it is *wrong* to blame climate scientists for not being politically engaged.

    But that is indeed largely why we are in a climate crisis: the blame lies largely with climate scientists.

    The problem is the same problem that manifests with academics generally. They are closeted in their seminars and conferences; they are like anoraks and nerds who prefer to stay in their basements playing video games rather than getting their hands dirty through involvement with the real world with its dirty business (e.g. politics). That is: prefer to stay in their comfort zones.

    The attitude is: Let's wait til all the fighting blows over, then, when things have calmed down and we can feel safe again, we'll stick our heads above the parapet.

    All that academics really care about is being feted by others, e.g. politicians, through being invited to expound their *professorial* expertise.

    They always want to run away from a fight.

    But their running away only exacerbates the misery (e.g. austerity) for citizens. Academics who are both intellectual giants *and* political fighters (e.g. Noam Chomsky) are very rare.

    Economic experts are happy to *advise* Corbyn (because that boosts their own profile), but they don't want to be seen as *endorsing* any politician because that would bring them too close to the heat of the battleground.

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