Winner of the New Statesman SPERI Prize in Political Economy 2016

Tuesday 22 October 2019

Brexit is a denial of economics as knowledge

A well known Brexiters said it was almost worth doing Brexit because of the anger I feel about it. He is right about the anger. The prospect of Brexit has filled me with the same horror as austerity did. The connection between the two is obvious. Both involve subjecting the whole country to a policy that basic economic ideas tell you will do nearly everyone harm.

We have seen nothing like this in my lifetime. The only person to try austerity (by which I mean fiscal consolidation in a recession) was Thatcher, and the policy was reversed (not stopped, but the consolidation was undone) within two years. Every government, and especially Thatchers, has pursued regulatory harmonisation and tariff reductions to increase trade. Now in just one decade we have seen both austerity for seven years and an attempt to dramatically increase trade barriers.

Imagine you were a doctor, and the government had appointed anti-vaxers to key positions who proceeded to reduce the vaccination programme. How would you feel as more children fell ill. Imagine you are a climate scientist and your government says it does not believe in man made climate change and encourages coal production. You don’t have to imagine of course, because exactly that is happening in the US and elsewhere. And you can ask the doctors and the climate scientists how they feel about it.

What we have seen since 2010 in the UK is the equivalent for economics. I would argue that this is no accident, but comes from the same source as climate change denial and anti-vaxers. Some people may not accept that comparison, and argue that economics is not a real science or some-such. And I agree that with austerity they had ammunition from within economics itself. There are still some macro economists around, nowhere near a majority but because they say things right wing politicians like they are ‘prominent in the public debate', who deny the validity of what Keynes wrote after the Great Depression. But we see the proof that Keynes was right today: a Great Recession followed by a limp recovery as the government squeezed demand. A minority of academic economists supporting austerity was no reason to largely exclude the views of the majority of academic economists, and all the evidence is that their views were almost completely excluded from the broadcast media. 

There is no such ambiguity with trade. We know trade between two people benefits those people because otherwise the trade would not happen. The very basis of the economy is trade. Every day we go to work we trade our labour for goods that go to someone else. Our work represents specialisation that allows everyone to benefit. If we had to produce everything we consume ourselves we would be much poorer.

This is why governments try to encourage trade agreements between countries to make trade between them easier. Greater trade is like technical progress, because it allows countries to focus on producing things they are good at producing. Now it is possible that such agreements, although they make the country better off, may not make everyone in the country better off. But every academic trade economist agrees that getting rid of the EU Customs Union and Single Market will make almost everyone in the UK a lot poorer. (Patrick Minford, whose analysis has an uncanny habit of always supporting hard right policies, is not a trade economist.)

Brexiters know this, which is why they came up with the idea of global Britain. It is a farce, which can be refuted in at least two ways. First, every analysis based on academic research I have seen suggests the gains from trade deals with other countries outside the EU come nowhere near the loss due to less trade with the EU. Nowhere near. Second, if you want good trade deals with other countries, the best way to achieve them is to get the EU to negotiate them on your behalf, because the EU is more experienced and has much more clout in any negotiations than the UK. That is why the EU has so many trade agreements with other countries. 

All this knowledge about the impact of trade on productivity and incomes was dismissed by Brexiters with two words: Project Fear. All the knowledge that Keynesians have accumulated for 80 years was dismissed with a few more: the government has maxed out its credit card. Others have dismissed the knowledge of doctors and climate scientists with similar home-spun homilies.

Yet many, including many in the media, still refuse to think of economics as knowledge. People who wouldn’t think twice about saying a fall in the supply of coffee will raise its price say all economics is just dressed up political opinion. People who would not dream of ignoring doctors just because they cannot predict when you get a cold say all economics forecasts are worthless. Of course there are some things, like whether the Euro was a good idea in economic terms, where there are pros and cons and therefore economists’ views may differ or change. But the evidence that making trade substantially more difficult with our immediate neighbours will be harmful is so overwhelming that only 1 in 22 UK economists disagree. I have yet to meet an economist who specialises in trade who disagrees. 

So when a woman on Question Time said we just do not know what will happen after Brexit, she was repeating an idea pushed repeatedly by the Brexit press and implicitly supported by most broadcasters. The BBC accepts that climate change is happening (most of the time) because that knowledge comes from ‘proper scientists’. The BBC does not accept that Brexit will make the UK worse off in economic terms because it is knowledge predicted by economists, and they think economics is not knowledge.

The right in the UK and US are now set on a course where they are prepared to defy science itself for their own interests. But this can only succeed when some of those who think of themselves as in the centre let them. In this case it has been allowed to happen in part because political journalists and those above them at the BBC decided economics where the overwhelming majority of economists agree was not knowledge but just another opinion. As I have spent my working life examining how economics can improve policy choices it is hardly surprising I find that simple ignorance outrageous.

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