It is often said
that the left-right description of politics is not a straight line
but a circle, with left and right becoming more similar as they get
more extreme. It is mostly nonsense, but one thing that can make it
appear so is ideology. If you start to let your view of the world be
dominated too much by a particular ideology or conviction (whether of
the left or right), you tend to exhibit the same characteristic
denial of both reality and the wisdom of expertise.
One of the symptoms
of this denial is the cherry picking of statistics. The example that
quickly comes to mind is output, employment and productivity. Since
the GFC, UK output growth has been insipid but employment growth has
been strong. The counterargument to the claim that the UK’s
recovery from recession was the weakest for more than a century has
been to applaud employment growth. But of course the combination of
weak output growth and strong employment growth is awful labour
productivity growth, which is a major factor behind slow wage growth.
Those that applaud strong employment growth as a counter to
[1] weak output growth are in effect saying what a great thing the
productivity standstill is. (I made fun of this in one of my better posts.)
One of the little
homilies I used to trot out when I taught first year undergraduates
was that economics is not about making lists. In any economic
situation you can make a list of what is good and bad about the
economy, and then make some kind of judgement based on comparing the
lists. For example you might observe that output is strong,
unemployment is low but inflation is rising, and judge that the first
two outweigh the third. But to do this avoids any understanding of
what is going on. Once you try to relate the data to some kind of
framework or model (e.g. of the business cycle) you realise you are
describing a boom which needs to be moderated.
We have seen this in
spades with Brexit. When the economy initially appeared unaffected by
the Brexit vote, those promoting Leave said this was the ultimate
proof of Project Fear. They did not bother to look at the composition
of growth: consumption led, supported by falling savings and higher
debt. This was not sustainable, and sure enough growth in output per
head in the first half of 2017 has been minuscule. Consumers, by
borrowing, had simply delayed the short term Brexit slowdown. But I
have been told that this means nothing: growth has been low in the
odd quarter since the recession, so this is just two of those
quarters together and to suggest otherwise is Project Fear.
I’ve been told
exports are booming, unemployment is still falling (and low by EU
standards), falls in real wages are nothing new and much else. Yet
ask almost any economist what they think is currently going on, and
they will tell you it is a downturn caused by a decline in incomes
(and flat investment) following the Brexit depreciation that has - as
yet - not been offset by strong growth in net exports. I looked at
why Brexit could be the reason for the absence of a net trade boost
here.
I may not be right, in so far as any commentary of this kind based
on limited data as things are happening could prove wrong. This of
course gives ample scope to those who want to see a particular result
to poke holes and stress uncertainties.
In the grand scheme
of things, the short term effect of the Brexit vote are minor
compared to the potential long term impact of Brexit, and of
course a great deal depends on the form of Brexit when it happens.
The short term matters because of what it shows. Those who promoted
Brexit used the Project Fear label to discount economic expertise:
the overwhelming view of academic economists that Brexit would reduce
long term GDP, and cause a short term slowdown before it was implemented. They did this not because they came to a different
view based on the economic evidence, but because they wanted to
believe Brexit would be painless (or, more cynically, because the
pain would be felt by others). Brexit is a classic example of an
ideology driven project that discounted evidence.
Going on to deny
that Brexit has caused an economic slowdown is simply the next step
in denial: denial of past evidence extends to denial of current
evidence. It is just like Trump and climate change (or Trump and much
else), which is why I and others
have related Brexit and Trump. But the reality of Brexit is now being
felt by the UK negotiators. Back in March I said
that the obvious outcome for the immediate negotiations was to stay
in the Single Market and Customs Union for a transition period, but
the UK team would try and dress this up as something else to save
face. What the UK negotiators are doing only makes sense once you
understand that Brexit can cause huge economic damage, but those that
said otherwise must cling on to the pretense of Project Fear.
The use of the term
Project Fear was an attempt to shut out expertise and evidence from
the Brexit debate, just as it was used in the same way during the
Scottish Referendum. [2] Hopefully we will never know what the costs
of a Hard Brexit will be, because we will get a Labour government
which will keep us in the Single Market and Customs Union (or better
still, Brexit somehow collapses before then). But the concept of
Project Fear deserves to be exposed and degraded nevertheless. So,
following on from the spirit of my last post, here is a definition:
Project Fear: a term once used by those who wish to discredit economic evidence and expertise as just the exaggerations of one side in a debate.
Background. Initially used by Scottish Nationalists in an attempt to hide the short term fiscal costs of independence, and then in the European referendum to hide the economic costs of leaving the EU. Fell out of use after Sterling’s depreciation following the Brexit vote, and the subsequent decline in real incomes and economic slowdown.
[1] Given weak
output growth, strong employment growth and a decline in real wages
may be preferable to stronger productivity growth and high
unemployment. But that is to talk about the characteristic of a weak
economy. I am talking here about employment growth being used to counter
the claim that the recovery is weak.
[2] Please, no more comments about how the SNP did not invent the term. The desperation to show (correctly) that ‘they used it first’ indicates a recognition that the term was used in that referendum to hide reality from the voters.
I hope it reaches the point where Brexit can be stopped by Parliament through one or two general elections not another referendum.
ReplyDelete«output, employment and productivity. Since the GFC, UK output growth has been insipid but employment growth has been strong»
ReplyDeleteThe usual two points:
#1 F Coppola has reported that P Wales of the ONS has data showing that most of productivity slowdown has been since 2006, clearly before the GFC, and in oil extraction, and secondarily in finance: www.coppolacomment.com/2016/07/the-untold-story-of-uks-productivity.html
#2 It just so happens that in 2006-2007 by coincidence the UK became a net oil importer after 25 "a-go-go" years as a net scottish oil exporter: mazamascience.com/OilExport/output_en/Exports_BP_2016_oil_bbl_GB_MZM_NONE_auto_M.png
Looks like to me that “Since the GFC“ means using the GFC as a time marker ("Gordon and Alistair being consuls") while suggesting that as a cause while not actually saying it.
As to "Project Fear", I agree with our blogger that “major economic cost will not become apparent until years after we actually leave the Single Market” and that some minor ones are already apparent, but sensible assessment has little political traction, it is a pretty weak "Project Fear" :-).
Like in the scottish referendum what could really shift attitudes is fear of a house price crash, or an actual house price crash, as that looks like clear and present damage to southern voters, but I doubt that "The Establishment" will allow one to happen before its time just because of Brexit; but if we are "lucky" one will happen before March 2019.
«The use of the term Project Fear was an attempt to shut out expertise and evidence from the Brexit debate»
The real "Project Fear" was not some Economist predicting long term damage of some 8% lower GDP growth over 10-15 years, but the G Osborne's predictions of a collapse in public finances and worse in case of "Leave" victory, something that did not happen, because the damage will be long term and significant but not a collapse.
The counter argument to labour growth (despite negligible wage growth) is that Roman slaves had labour..that does not mean that there is no problem.
ReplyDeleteI hope you are as good with predictions as you are with understanding the economy
ReplyDeleteWhilst it is true that cherry picking statistics that support any given ideology, is a game and serves no other useful purpose..... but it does seem to that anti Brexiteers can also fall into the same category.
ReplyDeleteThere is never a mention from anti Brexiteers about the rigging of political institutions, the secrecy in which it conducts its business, and the lack of real political accountability, due to the fact that it is a free market Neo-liberal institution that serves business interests above those of the people it was supposed to represent.
The clearest indication of this has been the way it treated Greece and the personal meeting between Wolfgang Schaeuble and Yanis Varafoukas where Yanis asked him would he sign the same agreement that he expected Greece to, Schaeuble answered he would not sign it as a German patriot, but that Greece will.
http://www.politico.eu/article/greek-economy-minister-says-wolfgang-schauble-dishonest-on-debt-relief/
There is also lots of statistics here that show all is not well in the European unbalanced economy:
http://bilbo.economicoutlook.net/blog/?p=36809
We must all be careful to take a wider perspective on the benefits or losses to any political system, but to assume that Europe will have long term implications that will be the detriment of the British economy is to ignore the very real long term problems facing Europe.
Very good. I lived thru both referenda. The destruction of objectivity, undermining of truth and character assassination are so effective in winning votes that this is the future. Like locusts we will destroy that which sustains us (civic society) for short term gains. You are flat wrong to think it will fall out of favor, look at the hurricanes hammering the USA. Their destruction is amplified as predicted by climate change. The phoney Limbaugh runs from the Irma at the same time denouncing it as an exaggeration. The science has been clear for years and effects are here in real time. Has it changed people’s views? Not yet. So if death and destruction don’t break the tribal post truth society, being worse off by 10% won’t, I fear. As a parent I am depressed by the future society I see for my kids.
ReplyDeleteYou make a very good point that brexit negotiators are still very much bought into the ideology of Project Fear, and therefore cannot possibly be objective regarding the UK'S negotiating position.
ReplyDeleteI think the Remain campaign walked right into the project fear trap. That moment when the treasury and others rolled out quantified impact to GDP, they started to look less like economists and more like soothsayers. No doubt the models used are incredibly complex, but given brexit is itself unprecedented, the goal was left wide open to criticism. Made worse still by the Chancellor (perhaps deliberately) confusing GDP per capita with household income, leaving only the bad taste of contempt for the electorate. Leave were laughing all the way to the polling booth.
Labour is now making a lot of sense. But difficult to see how they can have much effect without first forcing a GE. Corbyn and McDonald remain a liability. Their presence only hardens the DUP's support for the Tories. And I cannot see disenfranchised Tory voters turning to Labour with them at the helm.
We're in for a rude awakening. My only hope is that the voice of business now comes to the fore, and starts withholding party donations until we see more sensible behaviour.
I don't get this argument. Economists believe leaving trade agreements will make people considerably worse off. How else are they meant to express this except by numbers?
DeleteAlso the Chancellor did not confuse GDP per capita with household income. This was Leave misinformation that unfortunately the BBC factcheckers swallowed without asking any economists.
Can cherry-picking skills be used for picking strawberries?
ReplyDeleteYour depiction of the Scottish version of 'Project Fear' is rather myopic and therefore your definition is wide of the mark too. Project Fear was not restricted to macro-economic factors in the Indyref – very far from it. No warning was too dire or too ludicrous not to be thrown at the Scots – from no more blood transfusions to a Russian invasion, from warship building to watching Eastenders, from tax-office closures to oil-exploration, from energy subsidies to border guards, nothing was off limits.
ReplyDeleteHere’s a more neutral definition:
“Project Fear: A term used by one or more sides in a major debate to encompass and dismiss all projected negative outcomes associated with their preferred result. Often associated with initial hyperbolic warnings, it is often depicted as being used opportunistically to dismiss all criticisms.”
A slightly less neutral Background: "Initially used by Scottish Nationalists to encapsulate the relentlessly dire warnings made by the ‘No’ campaign (who had initially coined the term to refer to their strategy) during the Scottish Independence referendum of 2014.. Maintained it’s potency north of the border when it became clear that most of the dire warnings of a Yes vote came to pass anyway even though the No campaign won.
Briefly criticised for it’s use by the Leave Campaign in the 2016 Brexit referendum following a short-term speeding of the decline in real incomes that had been going on for years inside the EU and a similarly not-atypical economic slowdown. However, this slowdown was later forgotten following the Second Global Financial Crisis of 2019 (GFC2.0), when the immediate implementation of capital controls, direct government intervention, Overt Monetary Financing (including the so-called ‘Green New Deal’) and bank and utility nationalisations were considered a major part in allowing the UK to return to growth very much more rapidly than would have been the case had the UK remained within the EU. In subsequent years the maintenance of these policies allowed the UK to maintain levels of growth that had only been seen periodically since joining the EC in 1973, but this time without the hugely destructive volatility and inequality associated with the period of market fundamentalism.”
Adrian D.
When I complained about the FT describing 2013 growth as 'vindicating Osborne's austerity', I was told this was true because politician X or economist Y had said that growth would not return if austerity continued. You can always find an X or Y, but that does not mean the FT were right in what they said.
DeleteIf the SNP had come clean about the short term fiscal costs of independence you would have a strong case. They did not, and instead talked about Project Fear. The fact that No over did the gloom does not make that right either.
I can name 10 territories classed as in Northern or Western Europe that are not EU members. One of them has an income per head ( PPP ) that is lower than its nearest EU neighbour. So on the balance of probabilities becoming a self-governing territory not being in the EU is a good thing.
ReplyDeleteIf it turns out bad, we can only blame government management of it, not the decision to cease EU membership itself. Imv, of course.