Complex economic analyses haven't won over the publicby Anand Menon / December 29, 2017 / Leave a comment
Eighteen months on, there is precious little agreement in the British popular debate over the possible economic implications of Brexit. Whatever forecasts of economic pain to come the economists produce, they achieve little if any cut through amongst the people who really count—the politicians and their voters—and for several reasons. The first is longstanding and—to an extent—helps explain the outcome of the referendum itself as much as debates over its economic aftermath. It was summed up by a female heckler in Newcastle, who asked acerbically “whose GDP” I had in mind when I mentioned forecasts concerning what might happen to the economy in the event of a Leave vote. Grand economic theory had little to say about her life. This speaks to longstanding suspicion of an establishment whose prognostications cannot be trusted, not necessarily because they lie, but simply because the country to which they refer is not the one inhabited by many voters. A second reason dates back to the referendum campaign itself—the Remain tactics were ridiculed, and indeed continue to be. Earlier this year, responding to claims that Wales might suffer severe economic repercussions as a consequence of Brexit, Welsh Conservative leader Andrew RT Davies said: “According to project fear we should be holed up in a post-apocalyptic wasteland in threadbare clothes eating tinned food by now.” Ever since the referendum, predictions of doom from some in the Remain camp have become the Brexiters’ best friend. This is true in spades of the short-term forecast published by the Treasury on 23rd May 2016. Never one to do things by halves, George Osborne ensured that, on the day of publication, the front page of the Treasury website declared (not wholly in keeping with the report itself) that a vote to leave the EU would “tip Britain’s economy into a year-long recession,” with at least 500,000 jobs lost and GDP around 3.6 per cent lower than it would otherwise have been. Not satisfied with this, on 15th June, in what appeared even at the time as an act of some desperation, the Chancellor appeared alongside his Labour predecessor Alistair Darling to declare that a vote to leave the EU would be followed by an emergency budget in which taxes would rise and spending would be slashed—despite the fact that this would have been both politically impossible and economically illiterate. The damage wrought by these claims has persisted, as Davies’s words underline all too clearly. And the failure of the predicted recession to materialise has merely reaffirmed to those like our lady in Newcastle that expert predictions are not to be trusted. I suspect—like most normal people—she does not spend much time considering the difference between short and long term economic forecasting. But that distinction is crucial. Many Brexiters simply assume that, because the short term Treasury forecast was proven to be wrong, so too will its long term equivalent. The logical non-sequitur at work here has been most clearly pointed out by my colleague Jonathan Portes, who likened long and short term economic forecasting to climate and weather science respectively. The former, to cut a long story short, is significantly more reliable than the latter. “Brexiters have the advantage of what we might call ‘intuitively plausible simplistic thinking’” That, however, is not going to overcome prevailing scepticism concerning predictions of Brexit-related economic damage. And this is all the more so for a number of reasons. First, in the angry debate between those convinced a hard Brexit will damage the country, and those equally convinced it will not, the latter have the advantage of what we might call intuitively plausible simplistic thinking. This was on display during the referendum in claims that reducing immigration would provide more and better paid jobs for indigenous workers—the thoroughly debunked “lump of labour fallacy.” Taking its place in the post-referendum debate have been equally plausible and every bit as simplistic claims about trade. To take one example, Brexiters have argued that the significant devaluation of the pound that followed the referendum would provide a huge fillip to exporters. Liam Fox famously boasted of the boost given to exporters of everything “from ice cream to swimwear.” Certainly some exporters have benefitted. However, the surge in exports has not materialised—it appears that UK exports have a low responsiveness to exchange rate movements, not least as UK firms increasingly participate in global value chains which means that even British exports contain a high proportion of imported content. Moreover, any Brexit effects will be felt over time, and as the time between them and the referendum itself lengthens, it will be harder to argue convincingly about clear causal links—as indeed was the case with EU entry in 1973. Even when it comes to leaving the EU itself, as Times columnist Philip Collins has argued, the economic impact of Brexit will be far less instantaneous than the term “cliff edge” implies. And it is here that narrative matters. Forget the complex economic analyses. To shape politics, what is needed is a good story or, even better, a good line. Remember “fixing the roof while the sun was shining”? That simple metaphor persuaded enough people that New Labour had been responsible for the damage resulting from the financial crisis. And metaphors continue to shape our national debate. The debate around a “no deal” outcome from the Brexit negotiations is a case in point of the way an inappropriate analogy can create public misunderstanding. In most deals as we know them, walking way returns us to the status quo ante. With Brexit, it changes everything (in economic terms) and leaves us in a far worse position. Yet, how to explain this in a pithy sentence? And so, as the arguments heat up about the impact that Brexit will or will not exert on the country, the race is on to appeal to public and politicians alike. Those anxious to oppose or mitigate the worst economic effects of Brexit find themselves at a profound disadvantage. Years of mistrust of predictions, the proclivity of the remain campaign to play fast and loose with the economic data, and the sheer complexity of any Brexit effects to come predispose many to ignore warnings of economic hardship ahead. Remainers need to come up with a good story. Brexit Britain: the future of industry is a publication which examines the future of UK manufacturing through the prism of the recently released Industrial Strategy White Paper. The report features contributions from the likes of Greg Clark MP, Miriam Gonzalez, Richard Graham MP and Frances O’Grady. If you want to know all about where industry is headed in Brexit Britain, you can download the whole Brexit Britain: The future of industry reportas a fully designed PDF document. To do so, simply enter your email below. You’ll receive your copy completely free—within minutes.