Economics reporting without any economics

Mike Berry explains in this article how the UK media began to see the increase in the deficit in 2009 as a serious problem, and sometimes as a crisis. The government were “court[ing] disaster by borrowing too much”. In terms of basic economics - the economics that anyone doing Econ101 (a first year undergraduate course) would know - there was nothing surprising or problematic about a rising deficit in a recession. It is what you expect to happen. The UK deficit hit record levels because it was a record recession. There was no evidence whatsoever that financing this deficit might be a problem: again basic Keynesian economics shows how in a recession an increase in the supply of government debt is accompanied by an increase in the private sector’s demand for financial assets. [1]

It was a case of economics reporting without any economics. It is a bit like a weather forecaster who reports the weather without any reference to the time of year. (In the Autumn they say ‘Its getting colder and colder - at this rate in nine months time all the rivers will freeze over’) Add politics and you have a dangerous mix, particularly when the partisan press has a significant influence on the non-partisan media.

I have sometimes put this down to a lack of economic knowledge among most political journalists. Of course political journalists talk about economics a lot, yet there seems to be a curious lack of interest in what those that study the subject have to say. I find the story of our ‘lost’ Brexit letter, which I summarised in this piece for The Conversation yesterday, rather scandalous: the mission to educate and inform thrown out of the window. [2]

Which I guess is one reason I started writing a blog. I say I guess because it all happened rather accidentally, so I never had any clear plan. Its success really did surprise me, and I soon realised that I had multiple audiences: many economists in the big economic institutions, but also many interested non-economists. It makes writing challenging and I know I often fail to adequately explain, but I was encouraged by whoever wrote the commentary on my blog in this knowledgeable list of the 100 top economics blogs.

But the people who most need to read economics blogs are I suspect one group that fail to do so: political journalists who talk about economics all the time, and the people who write and research economic news. It is not who appears on Newsnight debates that concerns me, but the unwritten assumptions of those who decide what is news, and write news bulletins. It was these people who decided that the growing deficit in 2009 was ‘courting disaster’, and made the tragedy of austerity possible.

[1] One comment I often get when I say this is that a good part of that deficit has proved to be structural. But if that is the case it is because a large part of the fall in GDP relative to trend following the recession seems to have been permanent. That means you do need to worry about the deficit at some point (after the recession is over), but your immediate focus should be on why GDP has departed from previous trends.

[2] In case you are unconvinced of this: the economic cost of Brexit is critical for most voters, the Remain campaign says this cost will be large but Leave dispute this, and who knows most about the basis and validity of the large cost claim?        

Media, Economics and Brexit

Martin Sandbu at the FT says “It is now fair to say that the debate on the economics has been won by the Remain side.” He was of course talking about what the Bank of England said yesterday, rather than the 196 economists who signed our letter, but together they present an important test for the non-partisan media. The extreme difference between the amount of coverage the Bank got (blanket) and our letter got (practically zero) tells us something important about how media coverage works: the Bank is after all just a collection of economists. [1] (The list of those who signed our letter can be obtained from here.)

The media will not, of course, go as far as Martin and say the economic argument has been won. But what they can say is that all the leading economic institutions and the overwhelming majority of academic economists think that Brexit will involve significant short term and long term costs. That is now a statement of fact, which readers of some very non-partisan tabloids may not be aware of. My guess would be that there are at least 25 academic economists who think Brexit will involve significant costs compared to each one who thinks it will bring benefits. As I said here, that is as close to unanimity among economists as you will ever get. As it is a fact, saying that it appears to be so in no way breaches impartiality.

They could go further. The main response of the Leave campaign has been to say all economic forecasts are hopeless. They are no doubt referring to unconditional macro forecasts of the ‘what will growth be next year’ type. However the assessments made by all these economists and economic institutions are not unconditional forecasts, but conditional forecasts: what difference will Brexit make. They are much more reliable than unconditional forecasts. (This point can be got across with simple analogies: a doctor will tell you that being overweight increases the chance of a heart attack, but not when you will have one.)

So trying to discount the near universal assessment of economists by referring to macro forecasts either represents dangerous ignorance or deliberate obfuscation. But for those with little knowledge of these things, it is a deception that could work. Pointing out the difference does not breach impartiality, but informs the debate.

Brexit in the UK, and Trump in the US, represents a critical challenge to the ‘shape of the earth: views differ’ style of reporting. ‘Balance’ should never involve ignoring facts that are awkward for one side, or not challenging statements that are false. How many journalists (particularly political journalists) recognise this may determine two critical elections for both the UK and the whole world.

[1] Of course letters are not random samples, but it is not often you get letters from 170+ academic economists. The letter is important because academic economists are hardly part of the establishment, and indeed academics are usually able to say what they think without fear of any consequences.

Economists say no to Brexit

Today the Times has published a letter about Brexit. It is short and sweet.

Focusing entirely on the economics, we consider that it would be a major mistake for the UK to leave the European Union.

Leaving would entail significant long-term costs. The size of these costs would depend on the amount of control the UK chooses to exercise over such matters as free movement of labour, and the associated penalty it would pay in terms of access to the single market. The numbers calculated by the LSE’s Centre for Economic Performance, the OECD and the Treasury describe a plausible range for the scale of these costs.

The uncertainty over precisely what kind of relationship the UK would find itself in with the EU and the rest of the world would also weigh heavily for many years. In addition, there is a sizeable risk of a short-term shock to confidence if we were to see a Leave vote on June 23rd. The Bank of England has signalled this concern clearly, and we share it.

The simplicity of the letter was deliberate, as it was designed to show the extent of the consensus among economists on this issue. In a relatively short space of time Tony Yates, Paul Levine and I got 196 signatories, most of whom are UK academic economists. (The letter was originally intended just to focus on academic economists, but others wanted to sign.)

Why bother? After all doesn’t everyone already know that nearly all economists think Brexit would have significant costs? Only yesterday NIESR published their own estimates of costs, nicely summarised by Martin Sandbu. There are two important points here. First, a large section of the print media is committed to Brexit. Second, the BBC has pledged to be balanced, which means always matching stories about the economic cost with those who believe it will be a benefit.

Some may have noticed the disparity in the standing of those anti and pro Brexit, but equally others may have used attempts at balance to say to themselves that economists are always disagreeing and therefore dismiss warnings about costs. There are two reasons why you will never get unanimity from economists: it is a science about people and therefore inherently uncertain, and the views of a few economists are influenced by their politics. There is the joke that if you put 10 economists in a room you get 11 opinions. Which means that when all but a handful agree about something, you can be pretty sure the theory and evidence are strongly pointing in one direction.

There is therefore a huge disparity between the overwhelming majority of economists that say we would be worse off with Brexit and the handful that say otherwise. That is as near to unanimity among economists as you will ever get.

A letter to Tony Blair

Dear Mr. Blair

We have not met, but I have talked to your former colleague Gordon a few times and I did some academic work on his 5 tests for Euro entry. I saw a report that you were mystified by the popularity of Jeremy Corbyn and Bernie Sanders. I have an article today in The Independent that might help you understand your puzzle.

I know you find it strange that people that appear to you like those your predecessor Neil Kinnock did battle with over the future of the Labour Party in the 1980s are now running the party. It must also seem strange that in the US where socialism once seemed to be regarded as a perversion, large numbers should be supporting a socialist candidate. You suggest some explanations, but you do not mention the power of finance, inequality and the senselessness of austerity. You say that these new leaders will not be electable. But if the alternative is to try and elect leaders from the centre who will do nothing to confront these great issues, and will instead cut spending, accept stagnation and wait for the next financial crisis, is it any wonder that many people would rather take their chance with someone different?

Please do not take this the wrong way. I generally look favourably on the achievements of your government when you were Prime Minister (that war apart). I hope, by reading my piece, or articles others have written, you will understand that the situation today is not the same as the early 1980s. At that time the expansion of the financial sector had only just begun, and the income share of the 1% was only beginning to turn upwards. If you can see this, I would ask that you do one final thing for Labour party members and for those, like me, who try and challenge the damaging policies of the current government.

There are many Labour MPs and left leaning journalists who seem to share your puzzlement, and have decided that they have to fight again the battles of the 1980s by doing everything to undermine their new Labour leadership. For example your friend Peter has recently reaffirmed that Labour is a broad church, but it seems for him it is like a church where those once in charge cannot countenance others being in the priesthood. Rather than celebrating the enthusiasm and interest of the many young people that have recently joined (even if they regard some of their aspirations as naive), and who will be vital in future election campaigns, this overtly anti-Corbyn group seem to regard them as a threat.

You know the electorate above all else hates divided political parties. You might note that the strategy of this group, by creating division at every turn as a means of achieving what they see as their ultimate goal, is not so different from that of some of the left wing militants that you and your predecessors had to deal with. Please tell them to stop. I fear they need someone they respect like you to point out the foolishness of their actions.

Yours

Simon Wren-Lewis