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.
