UK governments, of whatever party, may finally be compelled to break with the crony corporate capitalism promoted by New Labourby Paul Ormerod / November 13, 2017 / Leave a comment
In this month’s issue of Prospect, Adam Posen articulates clearly the serious damage he thinks Brexit will do to the UK economy. He may be proved right. But the future has a habit of remaining obstinately unknowable. Keynes wrote in the 1930s of the “dark forces of time and ignorance which envelop our future.” This is a more stylish way of making the same point. Keynes used “ignorance” in its literal sense. We face inherent limits to our knowledge of social and economic systems.
One regrettable aspect of the current Brexit debate is the way in which many Remainers appear to believe that their opinions about the future are scientific: their “evidence base” means they are bound to be correct. They do not appear to have learned anything from Project Fear’s referendum projections. Posen bases his arguments on conventional economic theory, in just the same way that the Treasury’s fear-mongering forecasts claimed to be based on a “widely accepted [my italics] modelling approach.” Yet these turned out to be completely wrong. On a “Leave” vote, for example, unemployment was forecast to rise by half a million by the end of 2016. In fact, it has fallen more or less continuously. It is now at its lowest level since the mid-1970s.
Posen places great weight on the argument, shared by almost all economists, that free trade is in general a Good Thing. Of course, reducing trade barriers can destroy some jobs: US manufacturing employment dropped after 2000, due to a more determinedly liberal trade policy towards Chinese imports. But trade, by increasing the efficiency of production, benefits industries by reducing costs, and benefits consumers by reducing the price they pay for goods and services. Different jobs are created, and eventually more jobs overall. Much economic evidence supports this view.
Yet Posen is unwilling to rely completely on economics. He acknowledges that “In pure economic theory, the UK could do away with all of its tariffs, not only those with the EU, but with the entire world, and leave the UK consumer much better off.” However, in his judgment, the disruption would be too great. He does not appear to recognise that this is simply an opinion. Economic theory is correct, except where it does not help him make his case.
The key question facing the UK economy over the next two decades…