Winner of the New Statesman SPERI Prize in Political Economy 2016

Tuesday 30 August 2016

Project Fear = We have had it with experts

Normally reading the Financial Times you are safe from ‘I cannot believe he said that’ moments. But occasionally you come across something like this, in this case from the normally reliable Wolfgang Münchau:
“Those who campaigned for the UK to stay in the EU are shaping up to be two-time losers. They lost the referendum vote on June 23; now they are losing the battle to keep the UK inside the single market. Both defeats are based on repeated misjudgments.
Their original mistake was to exaggerate the economic effects of Brexit. The long-run consequences are hard to gauge. What we do know, so far, is that the result did not cause an immediate crisis — and this is what matters politically. This is why the consensus within the Conservative party has been shifting towards a harder version of Brexit.”

Forget all the conflicting and unreliable monthly data and surveys, and focus on the two clear impacts that the Brexit vote has already had. The first is a large depreciation in sterling, which makes almost everyone poorer. [1] The second is a cut in interest rates plus a reactivation of unconventional monetary expansion. To imply that these events strengthen the Leave case is just completely and utterly bizarre. It is just another version of the ‘they predicted Armageddon’ trick which I complained about here. Any objective referee would judge the score so far to be

Economists 2 Leavers 0

As for ‘the long-run consequences are hard to gauge’, this homily implies that making trade harder with our immediate neighbours might make us better or worse off. This is wrong. Common sense, along with all the economic models, suggest the uncertainty is all one-sided. Estimates are for a reduction in UK living standards of between 3% and 8%.

Michael Gove was widely derided for saying the UK has had enough of experts. But using the label ‘Project Fear’ is exactly the same. It has been used in the Scottish referendum and Brexit as a way of discounting expert advice. Yet in the political world calling warnings about the impact of either Scottish independence or Brexit ‘Project Fear’ is seen as a successful tactic. If you believe this report, it is why the Labour leadership chose not to endorse (and in fact rubbished) the government’s warnings about the economic dangers of Brexit (although as I note here the suggested involvement of the Economic Advisory Council in that is incorrect). It is true that Project Fear is applied to government warnings about the economic impact of independence/Brexit, but when those warnings are backed by nearly all experts it amounts to an attack on expert advice.

So in the Orwellian world that we are now living in, the tactic of calling something Project Fear is newspeak for saying we have had enough of experts.

[1] If you own a large amount of assets denominated in overseas currency then you could be better off, at least for a time. However even here a permanent terms of trade loss will eat away at any wealth gain when real interest rates are negative. On average the UK is a net debtor, not a net creditor.  


  1. Not really. George Osborne led Project Fear. Who has ever called him an expert?

  2. SW-L; 'We have had it with experts'.

    No, just obviously bad ones. Just obviously captured ones. Just boringly whiny ones who cant gratify their own egos by being following unthinkingly any more. Think of Niall Ferguson ...

    Most people are still quite happy to rely on expertise in very many aspects of their lives; as Brian Cox says, there aren't many takers for 'faith-based airplanes', people want ones which actually fly safely. What people are rejecting is anyone peddling ideology dressed-up as fact; we've all had far too much of that. Luckily people are starting to wake up now.

    That may mean that a few useful snippets get ignored from time to time but the trend is overwhelmingly positive if it means that the vast sweeping savannas of ignorant BS-peddling laid before us become increasingly ignored.

    1. For you "Bad"=not agreeing with my prejudices. The long run costs of Brexit have nothing to do with ideology, and almost everything to do with evidence. As to the depreciation and Bank of England actions, they are facts.

    2. If you're responding to Allan's post then you're misrepresenting again Simon. It's becoming a bad habit. He's merely suggesting that there are those (academics/experts)who lose credibility by their actions. Ferguson is a prime example as you must well know. Academics need to behave and publish professionally should they wish to retain credibility. I'm sure the same applies to your field. Can you take Patrick Minford seriously after the Liverpool model and his Brexit campaign?

    3. But the overwhelming majority of economists thought Brexit would be harmful. They are the experts that I'm talking about in my post (obviously), and for it to make any sense AllanW's comment is also about. And pewartstoat, you are becoming a left wing version of @spinninghugo.

    4. No, I'm responding to your misrepresenting others posts. It's a bad habit and one you would do well to curtail.

      Please don't associate me with sh: I find that very insulting and, once again, unrepresentative. I agree with many of your posts and address each post critically and discretely. I wish you'd do the same! So, for example, I agree with you re Brexit and the economists, but not with your conflating the issues to constantly snipe at Corbyn or address the behaviours of the party. Furthermore, I admired you're principled and well-argued stance against austerity: as previously noted you made a far better fist of defending New Labour than the Labour Party managed themselves.

      So what about addressing the very pertinent question re Minford? :-)

    5. But of more import, given the arguments at hand, I too resent the culture wars approach to dumbing down debate.

    6. What SH often does is misread my posts in a way that allows him to make points he wants to make. I do not know how you can read the original AllanW COMMENT ON MY POST without thinking he was talking about most economists, not just a few like Patrick Minford.

  3. I was driven mad by 'project fear' during the Scottish referendum, and was no more impressed with it during the EU referendum. It invites people to ignore the downsides of any scheme.

    For example, when the UK treasury produced its report into leaving the EU, Nicola Sturgeon very helpfully suggested it was 'overblown' and 'fear-based'. Clearly, she didn't want anyone thinking the UK treasury knew what it was doing.

    Then, after the vote to Leave happened, she recently suggested the cost on Scotland of leaving the EU will be enormous. The analysis was heavily based on the UK treasury's report.

    I happen to agree that it will be bad for Scotland, but I found the way she was willing to damage the Remain case for her own ends very distasteful. It wasn't just Jeremy Corbyn that ran a subversive campaign.

  4. «a large depreciation in sterling»

    The sterling has been going up and down like a yoyo since the 2008 crisis, most people won't be very impressed by the most recent fall.

    «Estimates are for a reduction in UK living standards of between 3% and 8%»

    I think so too, but the people who vote brexit think it will hit someone else, like employers and rentiers in the south, as less immigration may boost wages and reduce demand for housing. I am not agreeing with that notion, just reporting it.

    «the Conservative party has been shifting towards a harder version of Brexit»

    The problem with the Conservatives is that the majority of MPs are for "Remain" and around 3/5 of their voters are for "Leave". Those MPs have taken a huge fright. They are terrified by the spectre of UKIP, even more than Labour is.

    As to Labour, J Corbyn is still campaigning for "Remain", like O Smith, as good internationalists would:
    «Both Smith and Corbyn spoke tonight in Cardiff and even after the rise of UKIP, the vote for Brexit and the genuine concerns of the working class in their traditional heartlands regarding uncontrolled immigration, they are still both advocating the free movement of labour . . electoral suicide . .»

    Labour's leader, majority of MPs, and nearly 2/3 of voters are all for "Remain" or something close. The problem is the 1/3 that are for "Leave": J Corbyn talks softly about "single market" and "freedom of movement", O Smith talks loudly about them because he wants to make sure that such 1/3 stops voting Labour and Labour turns into a mandelsonian New Liberals/New Conservatives for Europe party.

    O Smith and the other mandelsonians ideally would like to get rid of the membership too, as they were supposed to be upper-middle class neoliberals against the trade unions, not lower-middle class hattersleyites against neoliberalism.

    1. "Estimates are for a reduction in UK living standards of between 3% and 8%"

      Why is everyone running around like headless chickens?

      Lots of companies increased their UK prices by around 12.5% - right until their volume fell off a cliff as customers moved to competitors.

      Given that in a world short of demand they have nowhere else to shift their stuff - so on anything that is not a pass through there will not necessarily be any inflation.

      And this is assuming no foreign central bank buys any Sterling to maintain exports.

    2. «"reduction in UK living standards of between 3% and 8%"
      [ ... ] so on anything that is not a pass through there will not necessarily be any inflation.»

      That reduction of between 3% and 8% was estimated in theory taking into account everything, and it is not about inflation, it is about lower growth, that is loss of real income. So either 3-8% fewer jobs, or an average salary fall of 3-8%, or in between. In the past 10 years the median UK worker has already got a salary fall of at least twice that without unemployment rising significantly. What is depressing is that many seem willing to risk taking another 3-8% hit for the sake of doing something; and they may unknowingly "right" in the sense that probably most of that hit will actually fall on the City and on property owners.

  5. «focus on the two clear impacts that the Brexit vote has already had. [ ... ] depreciation in sterling, [ ... ] cut in interest rates plus a reactivation of unconventional monetary expansion»

    The depreciation in sterling as I argue above does not bother many people: sterling fell 30% in 2007-2008 and nobody cared, something very different from the 1960-1980s.

    As to lower rates and looser credit, many people are "dancing in the streets", as speculation with low interest rates and high leverage is what many southern voters make a lot of money with.

    So far so good. However something really different may be coming up: yesterday A Haldane was published as saying very strongly something quite like "if you want a pension sell stocks and bonds and buy property". He is a subtle mandarin of nearly thirty years, and he would not say hugely market-moving things like that without that being cleared with superiors. If the BoE are throwing stock/bond based definite contribution pension funds under the bus the only possible reason is that they think the property market needs a huge boost.

    Actual quote:
    «Haldane believes that property is a better bet for retirement planning than a pension. “It ought to be pension but it’s almost certainly property,” he said. “As long as we continue not to build anything like as many houses in this country as we need to ... we will see what we’ve had for the better part of a generation, which is house prices relentlessly heading north.”»
    «Ros Altmann, the former pensions minister, said his comments were “divorced from reality” and it was “irresponsible” to suggest people should rely on property rather than pensions.»

  6. I thought gist of Munchau's whole article could be paraphrased as 'focusing on the trade/economic effects of brexit did not win the referendum, still focusing now on the economics won't win the post brexit debate either.'
    Following this line of thinking it does not matter if economists won 2 - 0. Because the points economists won on were not critically important to that part of the electorate that voted to leave. It's unpalatable to economists (i'm one myself) but if as has been suggested leavers were predominantly the old and socially conservative I find this understandable. The leave campaign's rather nebulous take back control message was far more effective with this group.
    Anyway, the real fun will begin when the Govt, finally, if ever, lets us know what its intentions are.

    1. So why are the old and less well educated not affected by the higher prices caused by a depreciation? Many older people rely on interest income and pensions, both of which are compromised by the Bank's decision.

    2. Simon, a thought-provoking post - thank you. On higher prices, however, inflation isn't the demon it once was. The forecasts I've seen indicate inflation will rise to 2-3% by end-2017. If true, I suspect that won't be enough to induce buyer's remorse among Leavers.

      To be clear, I agree the Brexit vote has prolonged the low real-interest rate misery for pensioners. But it would need a turning of the screw rather than essentially more of the same to have a political impact.


    3. Simon of course they are affected - I agree with you. But I think the point Munchau is making is not that economists are factually wrong but that the economic arguments used by the remain camp were ineffective with that portion of the electorate that voted leave and continue to be so.

    4. No, he is not a bad writer. He means what he says.

  7. I'm not sure how reliable the 'normally reliable' FT commentator actually is. Has he not been predicting the collapse of the euroz0ne for some time now? As for the point of the cited article, to blame Remainers for the failure of Brexit Cabinet Ministers to decide what they want is like blaming Krugman for the rise of Trump.

    None of this is to criticise your post which seems as usual sensible and aware of the deeper issues. Of course a devaluation makes us poorer in the short term (although not necessarily in the longer term: see your call for Greece et al to exit the eurozone)and of course none of the economic data currently available reflects the real impact of the referendum result. Saying "but the politics is what counts" is what led Labour into endorsing austerity, and we all know how well that worked.

  8. Today we have seen the EU retrospectively rewrite Irish tax law to charge Apple E13bm. Therefore I find myself holding my sides as I laugh at your assertion:

    "As for ‘the long-run consequences are hard to gauge’, this homily implies that making trade harder with our immediate neighbours might make us better or worse off. This is wrong. Common sense, along with all the economic models, suggest the uncertainty is all one-sided. Estimates are for a reduction in UK living standards of between 3% and 8%."

    Tell that to Ireland.

  9. I don't know where to begin with this one-sided narrative, I really don't. Whilst I quite agree with you re the FT piece, the Huff Post link is risible. It's just the type of logic that sees members purged for affiliations and convictions dating back years. There's nothing more Orwellian than that. I'm yet to see you comment on the purges, I'd imagine, as a reasonable man, and a democrat, you'd have reservations about the behaviour of certain elements within the Labour Party, yet you align yourselves (relatively) uncritically with those malign forces by virtue of your silence. I'd be interested in your take on democracy in the Labour Party rather more than you're repeated complaints about well established knowledge.

  10. There has been much comment on the split within Labour voters over the EU referendum but I have heard nothing from journalistas over the split amongst Tory voters, 42 per cent on Ashcroft poll and 39 per cent YouGov of Tory voters voting to Remain.

    Are these younger Tories, and they more affluent Tories? And ultimately, are they happy to go wholly along with the 52% vote and risk the Union in the process?

    1. In a similar vein, there has been no complaint about the failure of Cameron/Osborne to carry their party for Remain, nor complaints about the lack of enthusiasm shown by May in the campaign. These things are not deemed to be significant by the Serious People in the media.

    2. Well, in part the journalists and columnists pull their punches with the Conservatives, in part the Labour situation is a bit more dramatic. The Conservatives are actually unifying around harder flavours of "Leave" because the 75% of "Remain" MPs have realized that 58% of their voters are for "Leave", and they are scared of defection to UKIP. Labour is more interesting because while the leader, the leader challenger, 75% of MPs and 63% of voters are all aligned as "Remain", the leader wants to try and keep the 37% of "Leave" voters by campaigning softly for the "single market", but the challenger and the 50-60% of MPs seem to want to get rid of the 37% of their voters who voted "Leave" by campaigning loudly for "single market", hoping to replace that 37% with a chunk of the 42% of the Conservative voters who voted "Remain". Their strategy is to completely realign english (not UK) politics, with two major right-wing parties both representing the economic interests of the rentier ("aspirational") upper-middle and middle ("conservatory-building") classes, one socially conservative and against the "single market", the other socially progressive and for the "single market", representation of low income manual workers left to UKIP. Lots more fun. :-(

    3. Ah l'"esprit de l'escalier"... One aspect of the Labour drama has been neatly and fairly accurately described an author (J Doran) as that O Smith and the blairites are effectively aiming for the "pasokification" of Labour. This article describes one take:

      but I rather disagree with the facile reasons given in it for the collapse in Greece's PASOK vote.

  11. So if it weren't for brexit BoE rates would be soaring by now because the economy would be overheating. Of course makes perfect expert sense :-))) That's what AllanW is telling you Simon, you are far too embedded in the prevailing ideology that you are confusing it for scientific analysis. This in fact is the most dangerous of ideologies, the one that insists it isn't one.

    1. What is ideological about

      1) Making trade more difficult reduces trade
      2) The well established empirical relationship between trade and productivity growth

      Calling something ideological because you do not understand it is not very clever.


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