Politicians and experts: austerity, Brexit and the pandemic

 

I’ll be talking about fiscal policy during and after the pandemic at a Resolution Foundation/MMF event in a week’s time: https://www.mmf.ac.uk/resolution-foundation/

I have written quite a few posts on the relationship between policy and expertise, and between expertise and the media. The better ones are in my book, but they were all written before the COVID pandemic. How does the relationship between experts on the one hand and politicians and the media on the other that we saw with economists over austerity and Brexit play out with medics and the pandemic?

All three cases are different from each other. Although the evidence set out in my book suggests that the majority of academic economists opposed austerity (a majority that got larger as time went on), this plurality had no impact on either the media or the politicians pushing austerity. A few well known academics who supported austerity got a lot of publicity, but this was because they supported a policy pushed by politicians and the media, and not because they were influential in driving the policy. An obvious example in the UK was Ken Rogoff, who supported protecting public investment from any cuts while the government did much economic harm by cutting public investment.

The most notable feature of austerity was the almost total disregard by the media of the views of the majority of academics. As Alan Winters in his analysis of experts and Brexit points out, it was David Henderson who said in his Reith Lectures of 1985 “There is no doubt that the policies of governments … are influenced by economic ideas. But … these have not necessarily been the ideas of economists”. This applies with equal force to the media. The media appeared to apply the logic of the household to governments, so that the necessity of paying back debt as soon as possible became common sense, even though saying this would be a fail for any first year economics undergraduate. For that reason I called it mediamacro.

The power of media narratives should never be underestimated, as the Labour party has experienced many times to its cost. Austerity was just another example. It was a particularly devastating example, because in this case the media’s common sense did terrible harm to the economy, and the media was ignoring what it should have regarded as a key source of knowledge, academic macroeconomics. Needless to say, media organisations have never examined their own mistakes in this regard.

Brexit was different in two respects. First, what was a plurality over austerity was an almost total consensus on Brexit. Making trade more difficult, which almost any form of Brexit did, would cause considerable harm to the economy. The second difference compared to austerity was that the broadcast media had less of any common sense to appeal to, and so they played the ‘two sides’ game. On the one hand was the overwhelming consensus of academics, together with all the major economics institutions, and on the other was a handful of pro-Brexit economists the most noticeable of whom was Patrick Minford. (A few media outlets, and particularly the Financial Times, did follow the academic consensus.)

In defence of the broadcast media, this ‘two sided debate’ format is their default on most issues, and it doesn’t normally matter what the expert consensus is (which is typically not mentioned). However as we saw with austerity, there are exceptions. Whereas the exceptions should be based on the expert consensus, they instead seem to be based on common sense narratives. As with austerity, the media has never examined its own mistakes in relation to Brexit. As the referendum was very tight, the actions of the broadcast media in treating the overwhelming consensus of academic economists as just one opinion could well have influenced the result.

This trivialising of expert opinion is not inevitable. Strong pressure from academic bodies can yield results. The obvious example is climate change. When broadcasters began to increasingly ‘two-side’ the climate change issue, academics and others protested, and the BBC trust acknowledged that on this issue the expert consensus had to be followed. Not all BBC programmes have subsequently respected the Trust’s findings, but nevertheless you will generally see broadcasters treating the need to reduce man made climate change as a fact, and not as a controversial opinion.

The obvious difference between austerity or Brexit and climate change is that the former involves economists and the latter involves scientists. Actually the difference in methodology between climate change scientists and economists is not that great: both attempt to predict in a highly stochastic environment, and neither can easily conduct experiments. There are differences in public perception, of course. Besides the insight of Henderson noted above, there are various myths about economics that are part of the public debate. But the most relevant difference in my view is the absence of institutional pressure on the media from economists that matched the pressure over climate change.

Another academic discipline that has similarities to economics is medicine, and more specifically public health and epidemiology. The story of COVID-19 initially appeared to be more optimistic than austerity and Brexit. In many European countries, including the UK, governments took scientific advice, although in the UK with a short delay that probably cost tens of thousands of lives. But as Alan Winters notes, that optimism has been short lived. In most countries in Europe, including the UK, the second wave has been far worse because politicians ignored the expert advice.

The rationale they have given for ignoring the medical experts has been to balance health with the economy. The irony is that once again most economists I have seen who have studied this issue have agreed with me that there is no meaningful trade-off between the economy and health beyond the very short term. Once again academic economists are ignored, this time where lives are directly at stake.

The media have faithfully echoed the excuses for ignoring the expert advice, seemingly ignorant of the fact that they have little basis. From what I have seen they have given air time to experts and particularly politicians pushing the ‘lockdowns do not work’ nonsense, as if this is just another opinion. I suspect once again this is because it is ‘common sense’ that there is a health/economy trade-off, because most people do not think in dynamic terms. I have not seen government politicians questioned in interviews for not following expert advice in a similar manner to the way Labour politicians were questioned for doubting Osborne’s austerity.

Why did politicians initially say they were following the science of how to deal with the pandemic, while the same politicians ignored economists on Brexit? It is not because medicine is a science and economics is not. As I have argued elsewhere, the two disciplines have many structural similarities. Henderson’s point about prior beliefs is undoubtedly one reason: not many non-medics thought about pandemics before there was one. For politicians another reason is ideology. With austerity and Brexit it was ideologically convenient, and perhaps even necessary, for its proponents to discount expertise. Initially there appeared to be little ideology involved with controlling a pandemic, beyond libertarian instincts.

One reason attitudes to medical experts changed among government politicians between the first and second wave was the emergence of ideology dressed up as science: the Barrington Declaration and all that, and the influence that has had on many Conservative MPs. Once again, it became in the interests of those politicians to ignore expertise, just as they did with Brexit. The correlation with pro-Brexit and anti-lockdown views is no accident. The lesson is simply not to elect politicians who can so easily cast aside expertise.

Unfortunately that is less likely to happen as long as the media fails to tell viewers what the consensus among experts is. I have made this point before, but I think the lesson of climate change is instructive. The media are not going to change what they do, particularly when some feel their existence may depend on keeping certain politicians happy. What changed the media’s approach to climate change, at least in principle, was pressure from science itself. The reason academic economics gets ignored is that academic economists don’t organise to apply pressure.

I have seen so many accounts of why economics was ignored over Brexit that blame themselves: things should have been presented more clearly, economists should have been more open about uncertainties, and so on. All have some truth, but none will make any difference as long as the media treats the consensus among academic economists as just another opinion. For the media to do otherwise requires the strongest pressure from groups who represent academic economists. At the very least, we need institutions representing economists telling the media what the consensus view (if any) is on particular economic issues. [1]

I suspect that some medics will be beginning to ask similar questions about the pandemic: why did politicians ignore consensus advice, why did anti-lockdown politicians get so much airtime and so on. The answers I suspect are similar to those I have just given for economics. Medics have one big advantage over economists: the bodies that represent them are used to applying public pressure. They should apply that pressure on the media if they want to avoid expert views about the safety of COVID-19 vaccines to be treated as just one opinion to set beside the opinion of anti-vaxxers.

[1] When I make this point I often get comments along the lines that I’m trying to impose conformity, and the public should be told about mavericks opinions because (very occasionally) they turn out to be right. I’m doing neither of those things. What is missing from the media is any sense of what the expert consensus is, and for politicians who depart from the consensus being interrogated on why they think they know better than the expert consensus.

On the use, or not, of expertise by government

I will write some thoughts, next week when I have had a chance to collect them, following an excellent PEF book launch two days ago, with great discussion from Ann Pettifor, Aeron Davis and Maya Goodfellow and a packed audience. In the meantime, as spring turns to summer, I wanted to write about something else.

In a recent post I ask why we were governed by incompetents, and I related that to ideology, which in recent times means neoliberalism. But I think it is a little more than working in a neoliberal context, because I say that the Labour government often did try and do evidence based policy. Not always. I mentioned Iraq but there are other examples, but in comparison to Conservative governments they did evidence based policy a lot. The difference is while the Conservatives had neoliberal zeal, Labour were prepared to intervene in the market, particularly to help the poor. A good example was the minimum wage, which was set by a specific body who aimed to keep it at a level that did not cause significant employment loss.

The Coalition government of 2010-5 contained Liberal Democrats who did often check the neoliberal zeal of Conservative ministers. But they often failed to do so, and one example was abolishing the Agricultural Wages Board (AWB) in England. (The rest of the UK kept them.). It was part of their programme to abolish red tape. The argument was that although Thatcher had spared the AWB in her bonfire of wages boards, the minimum wage made it redundant.

I have spent a lot of my life on or near farms. When we moved from London to rural Sussex some 36 years ago I still remember vividly two conversations. One was with a farm worker. I had already noticed the unsocial hours they regularly worked, and I asked him about it. He told me how when his son was born he worked so much that he hardly saw her during the first three months. It was just a bad time of year from the farm's point of view. I guess I remember that conversation so well because we had quite recently had our first child.

What the AWB did and what the minimum wage doesn’t is regulate pay for anti-social of excessive hours. But what about market pressure from labour scarcity? The other conversation I remember was with the owner of the same farm. He was complaining about how hard it was to get additional labour when he needed it. He told me how far he had advertised but it was still difficult. I suggested he try raising his hourly wage. He laughed and said he couldn’t possibly. Those in his local farmers group would stop speaking to him if he did that.

Farming is a classic monopsony, where firms can fix wages well below the market clearing level. The ability of farm workers to find work elsewhere is limited, particularly when employers operate a cartel on wages. The farm I lived on back then was typical: I have watched farm workers working late at night and weekends everywhere I have lived near farms.

Abolishing the AWB allowed farm owners not to increase in nominal terms payments for anti-social or overtime hours on existing contracts, such that they gradually wither away in real terms. It allows farmers not to offer any of these type of payments on new contracts. Some farmers may even have tried to abolish these payments on existing contracts. The governments impact assessment calculated that AWB abolition would lead to a substantial transfer of income from farm workers to farm owners.

I wrote about the abolishing the AWB in 2014. I later had a conversation with a SPAD about their decision. He told me the level of analysis in my post was well above anything he had seen in government when the decision was made. You might think the policy was not surprising from Conservatives, who have a close relationship with the National Farmers Union (a farm owner’s club), but there was no attempt to get even the simplest of evidence, and a very short consultation period for this decision.

This illustrates a neoliberal zeal to abolish regulations, with the inevitable transfer of income from the poor to the rich, without even thinking about making a serious attempt to look at evidence on this issue. In the absence of evidence the LibDem Coalition partners chose not to fight a battle on this issue. Scotland, Wales and Northern Ireland have retained their AWBs. The Labour party opposition have pledged to reintroduce them in England.

Experts and Elites

It’s like 2016 all over again. Lots of forecasts of how much poorer we will be under different Brexit scenarios, which if the last time this happened is anything to go by will be ignored or dismissed by around half the UK population. Perhaps I should call for a total and complete shutdown of pronouncements by experts until our country's representatives can figure out what the hell is going on.

More seriously, what has led to this apparent distrust in the words of experts? I want to focus on experts in particular, rather than the more general concept of elites, and even more specifically experts from academic institutions or places directly tied to them. Will Davies has a nice account of the many reasons why distrust in politicians in the UK has increased, but a lot of what he has to say does not really apply to academia.

I have to admit to being completely partial in believing that once society starts ignoring what the evidence says it is on a road to ruin, and academics in the sciences (including the social sciences) have as their raison d'etre trying to understand evidence. And to be fair, much of society understands that. As an IPSOS MORI survey consistently shows for the UK, academics (‘professors’) regularly come close to the top of groups that people trust most.

Furthermore, if anything public trust in professors or scientists has been growing rather than falling over time. The same is also true of social trust in the UK, contrary to many popular accounts.

These results suggest that there has not been any recent decline in how much academics are trusted. But if you replace ‘professors’ by ‘economists’, levels of trust decline sharply. [1] And for good reason. I would have fairly low levels of trust in probably what most economists I see in the mainstream media say, and this is because I most frequently see economists in the media who are not academics. They are typically doing one of two things. The first is making up stories (sometimes plausible stories, but still based on zero evidence) about market movements. The second is describing macro forecasts: a necessary but highly unreliable activity.

Many journalists do not understand the difference between these kind of forecasts (‘unconditional’) and the kind of analysis presented on the economic effects of Brexit (‘conditional’). The analogy I tend to use is between a doctor telling you that you are more likely to die of a heart attack if you eat too much fat (‘conditional’), and a doctor trying to predict your exact time of getting a heart attack (‘unconditional’). This failure to understand the difference between the two activities is the first major reason why academics who say Brexit will reduce living standards are not trusted as much as they should be. It is predominantly a failure of the media rather than economists themselves.

I sometimes wonder, however, if certain journalists and politicians deliberately choose not to understand the difference between the two because it suits them to remain ignorant. This brings me to the second reason that academic economists may be ignored or dismissed over Brexit, and that is because certain elites have an interest in doing so. Here is Stewart Wood reacting to Jacob Rees-Mogg’s comments on Mark Carney after the Bank released some of its Brexit analysis.

The Bank’s analysis is of course not beyond criticism. [2] But the attacks of the Brexiter elite are quite deliberately not economic in character but political: Rees Mogg claimed Carney is a second rate politician (a second rate foreign politician!) and his forecast is designed to produce a political outcome (‘Project Hysteria’). The idea is to suggest that these projections should not be taken as a warning by experts but instead as a political act. Once again, I’m not suggesting we should never think about what an experts own interests might be, but if you carry this line of thought to the Rees Mogg extreme you undermine all expertise that is not ideologically based, which is exactly what Rees Mogg wants to do.

This I think is the second reason why the view of the overwhelming majority academic economists that Brexit will be harmful is going to be ignored by many. Since Mrs Thatcher and the 364 economists, the neoliberal right has had an interest in discrediting economic expertise, and replacing academic economists with City economists in positions of influence. (Despite what most journalists will tell you, the 364 were correct that tightening fiscal policy delayed the recovery.) Right wing think tanks like the IEA are particularly useful in this respect, partly because the media often makes no distinction between independent academics and think tank employees. Just look at how the media began to treat climate change as controversial.

But isn’t there a paradox here? Why would members of the public, who have little trust in politicians compared to academics, believe politicians and their backers when they attack academics? In the case of Brexit, and I think other issues like austerity, these elites have two advantages. The first is access. Through a dominance of the printed media, a right wing elite can get a message across despite it being misleading or simply untrue. Remember how Labour’s fiscal profligacy caused record deficits? Half the country believe this to be a fact despite it being an obvious lie. What will most journalists tell you about Brexit and forecasts? My guess is that forecasters got the immediate impact of Brexit very wrong, rather than the reality that what they expected to happen immediately happened more gradually. Why will journalists get these things wrong? Because they read repeated messages about failed forecasts in the right wing press, but very little about how GDP is currently around 2.5% lower as a result of Brexit, and real wages are lower still.

The second is that the elite often plays on a simple understanding of how things work, and dismisses anything more complex, when it suits them. Immigrants ‘obviously’ increase competition for scarce public resources, because people typically fail to allow for immigrants adding to public services either directly or through their taxes. The government should ‘obviously’ tighten its belt when consumers are having to do the same, and so on. In the case of the economic effects of Brexit, it is obvious that we will save money by not paying in to the EU, whereas everything else is uncertain and who believes forecasts etc.

As the earlier reference to Mrs Thatcher suggests, there is a common pattern to these attacks by elites on experts: they come from the neoliberal right. If you want to call the Blair/Brown years neoliberal as well, you have to make a distinction between right and left. The Blair/Brown period was a high point for the influence of academics in general and academic economists in particular on government. As I note here, Iraq was the exception not the rule, for clear reasons. Attacks by elites on experts tend to come from the political right and not the left, and the neoliberal right in particular because they have an ideology to sell.

[1] See this YouGov poll. Thanks to John Appleby for finding this for me. 

[2] For example, including a ‘worst case’ No Deal scenario designed for stress testing banks in a graph alongside more standard projections of the impact of the Withdrawal agreement is just asking for misinterpretation of the former.

Governments of fools?

Dominic Raab was widely mocked for his remarks about only recently understanding the importance of the Dover-Calais crossing (I defy anyone not to laugh at this from Artist Taxi Driver). The derision may be a little over the top, as it was when Gove was misquoted as having had enough of experts, but they and more serious admissions of ignorance are ridiculed because they reveal a deeper truth. As in the US, those ruling us in the UK do not really know what they are doing to a much greater extent than in previous years (see George Eaton here).

That last sentence perhaps requires clarification. They are not fools without any purpose. Brexit is a triumph of the heart over the head. They know what they want, and just do not care too much about the damage it will do. But the ‘misunderstanding’ by Brexiters over what they signed up to in December 2017 that persisted for weeks shows how dangerous not paying much attention to facts (in this case the words of an agreement) can be. Theresa May wasted at least a year completely misunderstanding the EU, and firing those in government that did. Perhaps her biggest act of ignoring the obvious was embarking on the Article 50 process without any prior discussion of what was possible and what was not, which as many people noted at the time was a sure way of ensuring the EU got pretty well what it wanted. If you do not believe all this, read Chris Grey here.

If you are tempted to put this all down to the unique stupidity of Brexit, or the uniqueness of Donald Trump, you really need to read my new book (short summary here). These traits were there with austerity, or the ‘hostile environment’, if you did the research. Economic historians of the future will discuss at length which did more needless economic harm to the UK economy, austerity or Brexit (assuming Brexit goes ahead). The only real debate about George Osborne, who committed the UK to pro-cyclical fiscal policy in the middle of the Global Financial Crisis, was whether this reflected deliberate deception or unforgivable economic ignorance (chapter 1.13 of my book), and if the former whether it was all about shrinking the state or a more superficial search for political advantage. In later years it became simple deficit deceit for neoliberal ends. In the US the priority of the Republican party for years has been tax cuts for the rich paid for by reducing state services for the poor, and a selective concern for the deficit combined with imagining tax cuts pay for themselves have been useful devices (lies) to achieve that. .

If politicians on the right display wilful ignorance to achieve their goals, they have knowledge of a kind that exceeds their opponents on the left by miles. They are extremely well versed in the arts of political spin, or more generally of getting votes by disguising the true objectives of their policies. Part of this works through think tanks, and part through the right wing press. In turn both these groups, plus politicians themselves, put huge pressure on the media (in the UK the BBC in particular), and that pressure works. The table below comes from this study and shows how often the BBC used political sources in 2007 and 2012:

Whereas the bias towards Labour was small in 2007, and was perhaps expected as they were also the government, by 2012 Conservative sources were almost double Labour sources. (Ironically LibDem sources declined in 2012, despite being in government.) Something similar happened to think tanks, according to this study comparing 2009 and 2015. For example in 2015 the IEA was referenced about 3 times more often than the IPPR. The detail in the paper of where the right wing bias was most prevalent is noteworthy although not that surprising.

Even when the BBC does manage to maintain balance, as it did in the 2016 referendum, this is often at the expense of facts and expertise. (Much the same occurred in the US before Trump was elected, as I recount in Chapter 7.8 of my book.) This leads to an obvious danger which we can see the political right exploiting more and more in both the US and UK. Whereas spin used to involve distorting the truth by selective use of facts or inventing clever but misleading slogans, it can now involve simple lying, as I experienced with my own work recently. Has this really got worse over time? I cannot cite any hard evidence for the UK, but there does seem to be that impression (see the first few tweets of this thread and this article by Stephen Bush). In the US there can be no doubt things have changed: not just Trump but with much of the Republican party over issues like health care or climate change.

This emphasis on the right of getting people to vote for you at the expense of examining the impact of your policies is reflected in the careers of many of the Brexiters, as William Davies points out. Trump was a TV star before he became President. Reagan was a movie star, although he at least was a Governor before becoming President. It is hard not to see these trends in right wing politics as starting with Reagan and Thatcher, and that much abused term neoliberalism. It was Thatcher that really began the politicisation of and disdain of the civil service, when being ‘one of us’ was valued over expertise.

You do not need experts, or you are only interested in experts who are one of us, because you have an ideology to guide you to the truth, or you are suspicious of any expertise that does not share your ideology. One of us is one who shares an ideology, in this case the ideology of neoliberalism. Neoliberalism wants as much as possible to be organised as a market. If that includes democracy itself (democracy is just a market for votes) then there is nothing preventing you employing all the tricks of advertising, preferably not encumbered by any regulators. Politics becomes the art of selling, rather than the assessment of policy. [1]

Why do I call the period after 2010 in the US and UK neoliberal overreach, as opposed to straight neoliberalism in the 1980s? After all there are some similarities in the UK between the two periods. Both Osborne and Thatcher started their terms in government with economic experiments that went against received economic wisdom. Both tried austerity (a fiscal contraction in a recession). I don’t want to minimise the harm Thatcher did to parts of the country, but her austerity was temporary [2] and the monetarist experiment was quickly abandoned, with the result that the recovery was only delayed by a year or two and the economy in aggregate eventually recovered in the true sense of the term. In contrast the slow recovery in the UK, US and Europe since 2010 seems to have had permanent and large negative effects. An interesting question is how much this difference between the two periods in the UK reflects different degrees of control over the media.

But the main reason I call what happened after 2010 overreach is that the neoliberalism of both Reagan and Thatcher was in many ways popular, and so there was less need to dress policies up as something they were not. In 2010 there was no popular demand for a reduction in the size of the state, so it required a form of subterfuge: what I call deficit deceit. Tight targets for immigration made no sense for neoliberals who wanted to reduce red tape for firms, but it was useful as a way to deflect anger over austerity and win votes.

A better way to describe Brexit than heart over head is the triumph of ideology over knowledge. Neoliberalism isn’t the only ideology behind Brexit. There are elements of English nationalism that William Davies discusses in his piece noted above and Anthony Barnett discusses so well in the Lure of Greatness. But the disinterest in facts or experts  and the absence of shame in telling whatever lie is required to get what they want is very much part of what I call neoliberal overreach. To those to whom evidence based policy is natural they appear fools, but they know exactly what they are doing and in terms of deception they are rather good at it.

[1] In this particular sense Labour from the 1990s to 2015 were not at all neoliberal. For example contrast Labour's 2003 Five Test analysis with the current government's lack of interest in the analysis of different types of Brexit. The glaring exception was Iraq, and that reflects what happens when you erroneously believe the national interest is to follow neoliberals in the US.

[2] Fiscal policy was tightened from 1980 to 1982, but this was almost completely reversed by 1984. In contrast fiscal policy was tightened in 2010 and it continued to be tightened until the present day.

Business Brexit Blues

Project Fear was the device that allowed those arguing for independence for Scotland to ignore the short term fiscal realities [1], and it was the device used by Leave to discount the countless warnings that Brexit could make the UK significantly poorer. The device was indulged by the broadcast media, who now duly quote it back at businesses who warn that jobs are at stake with any kind of hard Brexit.

There are good reasons why so many businesses have finally decided to make their concerns public. They have lost all faith that the government knows what it is doing, and they have recently lost faith in parliament restoring any kind of sanity. Hence the warnings from Airbus, BMW, and the society of Motor Manufacturers. This is no posturing, as figures for car industry investment show. These numbers will only jump back up once Brexit uncertainty ends if the final deal is a positive one as far as car makers are concerned. A UBS survey suggests that car makers are not unusual in this respect. 

So why are firms not excited by the opportunities a Tory Brexit will bring in terms of less regulation and ‘global Britain’? They know global Britain is a myth: they can export perfectly well outside the EU as it is, and they are more likely to get a good trade deal with third countries by being in the EU than outside it. Those who say that a post-Brexit UK could do trade deals tailor made to UK business misunderstand what trade deals are mainly about nowadays. They are about harmonisation of regulations. And if a country is going to harmonise its regulations, it will do this with the EU rather than the UK because the EU is a much larger market.

Which is why the prospect of a regulation free post-Brexit UK has little appeal to businesses that trade. What business wants is harmonised regulations, giving them less costs and a large market. The EU is really all about harmonisation of regulations. These include regulation on working hours or the environment because all these things are required to get a level playing field for business and therefore a true single and very large market.

As Anthony Barnett in a very interesting essay argues, the sovereignty argument for Brexit involves a huge misconception. What the EU does (human rights aside) is harmonise regulations. Most people, including Leavers, have little problem with that. What Brexiters did was relabel this as giving away sovereignty, which sounds bad. I often ask Leavers if they can name any EU law ‘imposed’ on the UK that they do not like, and I have yet to get anyone to respond with one. It is the principle, one said. But their inability to quote an example of loss of sovereignty reveals an underlying truth. The EU is about harmonisation of regulations, regulations that most people have no problem with.

I do not think this was just a deliberate bit of Leave deceit, although there was plenty of that. I suspect this was also a genuine lack of understanding among our out of touch, privileged elite. Partly as a result, when businesses ask for harmonised regulations in the form of the single market they are nonplused. Hence the response of the government to these warnings. They include the “fuck business” of Boris Johnson and Jeremy Hunt saying the warnings were “completely inappropriate” because it could undermine the prospects for a good deal! These replies reflect the bewildered fumbling of an elite that thought they were pro-business and suddenly finding that they are doing it considerable harm.

The irony is that any deal that is done will involve the UK still being subject to EU regulations, only without the UK having any effective say in how those regulations evolve. For the leavers who equated regulations with sovereignty, we will be less sovereign as a result of Brexit than we were before. Brexit as a project has failed. We continue with it simply because of a flawed referendum and because politicians cannot admit the truth to save their own reputations and for fear of the reaction of the Brexiter press.. 

It should also be the end of Project Fear, for those at least who still have an open mind and who do not believe everything they read in the Brexit press (which I admit may rule out around a third of the UK population). Project Fear, in the two main contexts that it has been used, is equivalent to the claim that we don’t need experts. Just as Faisal Islam reacted to Gove when he first talked about having enough of experts, so other journalists should react when Project Fear is used to bat away major expected costs based on expert analysis. Otherwise we just normalise a kind of Republican anti-science attitude that is now official US policy.

[1] although, to save a lot of comments, the term itself was invented by those arguing against independence.

How do you access unbiased expertise: follow the money?

Anyone can claim to be an expert nowadays. How do we tell real experts from fake experts, and what does that even mean? And even with real experts, how do we tell which are the ones we can trust and which are telling you what they are paid to tell you? These are big questions, but I want to look at what seems like an increasingly popular method of judging whether expertise is biased, and that is to look at who funds the experts.

There are clearly occasions when this method makes sense. A medic who promotes a drug who receives income from the company that produces the drug, for example. You would also be right to be suspicious about any think tank that is not transparent about the sources of its funding, such as Adam Smith Institute, Centre for Policy Studies, Centre for Social Justice, Civitas, Institute of Economic Affairs, Policy Exchange or the TaxPayers’ Alliance. It is not clear to me why the broadcast media gives a platform to think tanks that do not disclose who funds them.

However when various academics and research institutions produced analysis suggesting negative long term effects from Brexit, some suggested that we should treat this finding with suspicion because they received EU research funds. I have also seen the IFS described as tainted by the fact that it receives some corporate income. In fact the IFS can be accused of being in hoc to all kinds of vested interests. When it published a report estimating that Brexit could lead to a increased budget deficit of £20-40bn, Vote Leave dismissed the IFS as a “paid-up propaganda arm of the European commission” because it received funding from the European Research Council (ERC). But it actually receives more funds from the Economic and Social Research Council (ESRC), which is funded by the UK government, so by the same logic it is a ‘paid up propaganda arm’ of the UK government.

The IFS example shows the danger of taking a naive approach to linking funding to positions taken. The idea that funding from the ERC or ESRC should influence the position taken by the IFS is absurd. Government research funding is dispersed through organisations like the ESRC in part to ensure that money is given to researchers on their merits (as judged by other academics) rather than because researchers might please the current government. Because the IFS is essentially an academic research institute there is no way that who funds any research (directly or indirectly) would influence the outcome of that research. If that started happening, the IFS would begin to lose its academic reputation and therefore its core funding from the ESRC.

This point is also true of academia as a whole. However being part of academia or a professional body does not preclude a pecuniary influence on any particular academic or groups of academic’s opinions, as our example of a medic funded by a drug company illustrates. When it comes to economics an even greater problem than money may be ideological or political bias. That means, unfortunately, that you cannot rely on every academic economist to give you a reasonable idea of where the consensus or plurality of opinion lies. And you cannot rely on finding some monetary link to indicate how much you can trust a particular academic economist.

So how do the public tell when views from economists can be trusted as genuine results of expertise and research untainted by bias due to money or ideology? It is a question that is increasingly asked, but I remain surprised that more people do not point to an obvious answer.

The solution to this problem is to use polls of experts to find out if a consensus on an issue exists. There are already some regular polls of selected academic economists (interest declaration: I am part of the CFM surveys of macroeconomists). Here is the latest IGM poll showing that not a single one of the 40+ panel members think imposing new US tariffs on steel and aluminum will improve Americans’ welfare. These polls are one reason I can claim that most economists do not support austerity. (Guess who was the only IGM panel member that did not think the Obama stimulus reduced unemployment.)

Invaluable though these polls are, they are selective, and a journalist or member of the public cannot be sure that the selection method did not bias the result. I have argued in the past that it would be in the profession’s interest for professional national bodies like the Royal Economics Society (RES) or AEA (American Economics Association) to conduct polls of its own members themselves. The pre-referendum Brexit poll is an excellent example of what could be done, but it was commissioned by the Observer newspaper and not the RES. I remain unclear whether this thought has occurred to either institution, and if it has why it has not led to action. Until it is done, the absence of such polls as a resource means academics cannot really complain when individual overworked journalists take insufficient account of true expertise. [1]

[1] An important caveat here. The existence of such polls is a necessary but not sufficient condition for journalists to acknowledge expertise: see the BBC's treatment of Patrick Minford's Brexit analysis, and ignoring the polls that already exist on issues like austerity and Brexit.  

Beliefs about Brexit

I have nothing to say on yesterday’s agreement that cannot be found in what Chris Grey or Ian Dunt writes. The difference in tone between the two seems to me to depend on different assessments of how far down the road the Irish border issue can be kicked. What I want to do instead is ask why public opinion seems oblivious to the failures of all those claims before the negotiations that ‘we hold all the cards’ compared to the reality that the UK has largely agreed to the terms set out by the EU.

I think as good a place to start as any is this poll result from ORB.

The view of the overwhelming majority of economists, and all the analysis from serious academics, the OBR, IMF, OECD, and now even the government, is that leaving the EU will involve significant economic costs. Yet despite all this the poll above shows as many people think we will be better off leaving as think we will be worse off. This is the kind of polling that should stop everyone in their tracks, much like the polls before the US election that said more people trusted Donald Trump than Hillary Clinton.

The result in this poll is all the more incredible because so far people are worse off as a result of Brexit. They are worse off because a depreciation immediately after the vote led to higher import prices that have not been matched by rising nominal wages. We have moved from the top to the bottom of the OECD growth league table. A belief that we will be better off has to involve Brexit in some way reversing what has already happened.

I can think of two classes of explanation for this apparent paradox. The first is that people are fully aware of what experts and the government thinks, but ignores this because they simply do not trust experts. Instead they fall back on simple ideas like there will be less immigrants after Brexit so they will be better off. Ideas that experts also say are wrong, but where experts are again ignored.

If that is the line you want to take, then it has a clear implication. The implication is never hold a referendum on anything. It is not normally a good idea to take decisions where you ignore all expertise.

There is however a second and much simpler explanation for the poll result shown above. I know about the view of the overwhelming majority of economists, the analysis from serious academics, the OBR, IMF, OECD and now even the government, and so do most people reading this blog or who read the Financial Times and a few other newspapers. But do people who pay far less attention to economics and politics know this? How would they know this?

They will know very little about it from reading the papers that campaigned so hard for Brexit in the first place. At best the information will be reported in a dismissive way with some reference to how economists always get things wrong. (Hence, by the way, a distrust of economists, because most of the media is either unable or unwilling to make the distinction between conditional and unconditional forecasts.) Against such reports will be a constant stream of comment and reporting extolling the imagined benefits of Brexit.

This propaganda could be countered by informed and informing reporting by broadcasters. Unfortunately, with the exception of Sky News, the standard of reporting by broadcasters on Brexit has been very poor. In particular the BBC treats Brexit like any other Westminster based issue, with an additional touch of nationalism. We hear a great deal from May, Fox, Johnson etc, with virtually no expert analysis of what the true state of negotiations are.

I’m not an expert on international trade, but because I read some of the now numerous people who write stuff on Brexit who are experts, or who have made themselves experts, I feel I am reasonably well informed. I have never seen the same level of expertise from the broadcast media. If I just listened to the BBC or read any newspapers bar two or three, I would know almost nothing about what was really going on in the negotiations.

Let me give a personal example. I missed the importance of the Irish border until September last year. I do not think I was unusual in this respect. I suspect I did so because I was influenced by the UK line that this issue was really a phase 2 problem, a line we heard over and over again on the MSM. What the MSM rarely did was ask what people in Irish Republic felt about the border, and hence why it got to be a first stage issue in the first place.

Once I realised its importance, I could see that the Irish border issue would have a fundamental influence on any final deal, and so could many other experts. But the BBC in particular seems unable to incorporate expert opinion, either directly or indirectly, into its coverage of the negotiations, in much the same way as they failed to do so before the referendum. As a result, most voters are left with bland and uninformative coverage. I see the same Brexiter MPs over and over again being interviewed by the broadcast media, but I cannot recall any occasion in which they have been reminded of the false claims they made before the vote.

The idea that the media can heavily influence popular opinion is not new. It has been widely acknowledged that people think crime is always rising, and overestimate the number of immigrants in the UK, the extent of benefit fraud and so on. These mistakes are almost always in the direction you would expect if people were far too influenced by newspaper headlines. We also now have published papers that demonstrate that the media influences rather than just reflects voters views. (See here for Fox News, and here for the UK press. Here is another study that also finds the Murdoch switch to Labour had large effects. Here is a study about how the media influenced attitudes to welfare after the 2011 riots.)

I also think this is not the first time in recent memory that the media has failed to accurately report what was going on and what experts thought. Before the 2015 election the media accepted the idea that getting the budget deficit down was the most important goal of macroeconomic policy, and that the economic fundamentals were strong. Few experts would agree with the former, and the latter was simply false. What I call mediamacro swung the election for the Conservatives.

The UK government wants a Brexit that will involve the UK not just ending free movement, but leaving the Single Market for goods and services and leaving any customs union with the EU. It is a form of Brexit not dictated by the referendum result but by the wishes of the Brexiters in the Conservative party. The only people who can stop this happening are other Conservative MPs, but many have said that these MPs will only be able to defy their government if public opinion swings against Brexit.

But that is not going to happen. So far the shift in the public’s view of Brexit has been small, and is largely down to previous don’t knows making up their mind. This is not surprising if as many people think they will be better off after Brexit as think the opposite. The most obvious explanation for this is that people remain unaware of the overwhelming expert opinion that they will continue to become worse off after Brexit. That in turn represents another victory for right wing press propaganda, and another critical failure from most of our broadcast media.

Forecast errors compared

And a coda defends experts against Aditya Chakrabortty

A recent conversation got me thinking about different types of macroeconomic forecast error, and what implications they might have for macroeconomics. I’ll take three, from a UK perspective although the implications go well beyond. The errors are the financial crisis, the lack of a downturn immediately after Brexit, and flat UK productivity.

The immediate cause of the Global Financial Crisis (GFC) was the US housing market crash, but that alone should have caused some kind of downturn in the US, with limited implications for the rest of the world. What caused the GFC was the lack of resilience of banks around the world to a shock of this kind.

Were there any indications of this lack of resilience? Here is an OECD series for banking sector leverage in the UK: the ratio of bank assets to capital. The higher the number, the more fragile banks are becoming.

UK Banking sector leverage: Source OECD

The first and perhaps most important problem with forecasting the financial crisis was that macro forecasters were not looking at data like this. For most it was not on their radar, because banks, let alone bank leverage, played no role in their models. It was a sin of omission, a big gap in our macro understanding. (Whether, if forecasters had been having to forecast this data, they would have predicted a crisis is improbable, but some would have at least noted it as an issue.)

Moving on to the second mistake, it is often said (correctly) that forecasters are very bad at predicting turning points or dramatic changes. But many did predict such a change immediately following the Brexit vote: a sharp and immediate slowdown in demand caused by the uncertainty of Brexit. It didn’t happen. The main reason was consumption, which held up by more than people were expecting, given the fall in real incomes that was likely to come from the Brexit depreciation. There are two and a half obvious explanations for this. First, because of Leave propaganda half the population thought Brexit would make them at least no worse off. Second, those who did anticipate the rise in import prices may have taken the opportunity to buy consumer durables made overseas to beat the prospective price increase. The half is that the Bank cut interest rates a bit.

None of these effects are very new. They may not have been incorporated into the forecasters’ models, but they could in principle have been incorporated using the forecaster’s judgement, although getting the quantification right would have been very difficult. In the end we got the slowdown, but delayed until the first half of this year, as Leavers began to face reality and the higher import prices came through, so it was an error of timing more than anything else (although it was apparently enough to make MP Liz Truss change her mind and support Brexit!). You could describe it as an unchallenging error, because it could easily be explained using existing ideas. It is the kind of error that forecasters make all the time, and which makes forecasting so inaccurate.

The third error was UK productivity, which I talked about at length here. Until the GFC, macro forecasters in the UK had not had to think about technical progress and how it became embodied in improvements in labour productivity, because the trend seemed remarkably stable. So when UK productivity growth appeared to come to a halt after the GFC, forecasters were largely in the dark. What many like the OBR did, which is to assume that previous trend growth would quickly resume, was not the extreme that some people suggest. It was instead a compromise between continuing no growth and reverting to the previous trend line, the second being what had happened in previous recessions.

My point of writing about this again is that I think this third error is much more like the GFC mistake than the post-Brexit vote mistake. In both cases something important that forecasters were used to taking for granted started behaving in a way that had not happened since WWII. Standard models were used to treating technical progress as an unpredictable random process. Now it is just possible that this is still the case, and the absence of technical progress in the UK and to a lesser extent elsewhere is just one of those things that will never be explained. But for the UK at least the coincidence with the GFC, austerity and now Brexit seems too great. As as I showed in the earlier post growth has not been exactly zero but has oscillated in a way that could be related to macro events.

If there is some connection, both in the UK and elsewhere, between the decline in economic productivity growth and macroeconomic developments, then this suggests an important missing element in macromodels. And like the financial sector, there is an existing body of research that economists can draw on, which is endogenous growth theory. There are examples of that happening already.

But I want to end with a plea. After the financial crisis too many people who should have know better said that failing to predict the financial crisis meant that all existing mainstream macroeconomics was flawed. It was rubbish, but such attitudes did not help when some of us were arguing against austerity on the basis of standard macroeconomic ideas and evidence. Now with UK productivity, we have Aditya Chakrabortty saying that experts at the OBR “are guilty of a similar un-realism and they have proven just as impervious to criticism” as people like Boris Johnson or Liam Fox. Not content with this nonsense, he says “This age of impossibilism is partly their creation”.

This is just wrong. Look at the elements of neoliberal overreach. Economists didn’t start calling for tight immigration controls and using immigrants as a scapegoat for almost everything. Most academic economists did not call for austerity. Almost all economists did not want to get rid of our trade agreements with the EU. Even if economists had warned about the financial crisis they would have been ignored because of the political power of finance. If all economists had thought productivity would continue flat we would have just had more austerity. [1] And in making this basic mistake, it is ironically Aditya Chakrabortty who has joined Michael Gove and other Brexiteers in having had enough of experts.

[1] Less expected productivity growth means lower future output which means lower future tax receipts which means, given the government’s austerity policy, more cuts in public spending.