#EconomistsforBrexit need serious analysis, not more opeds
UPDATE: Since I wrote this piece on Tuesday, the OECD have come out highlighting the costs of Brexit, and the Economists for Brexit are set to publish their analysis today. Based on Gerard Lyons interview on Wake Up to Money, they’ve opted for the Minford model.
It looks like there’s a new group making the economic case for Brexit: Economists for Brexit.
I welcome their input to what’s been a one-sided economic debate so far. On the Britain-is-economically-better-off-in-the-EU camp we have detailed analysis from:
- HM Treasury, suggesting a £1,000-£2,700 cost per person of leaving the EU. Both the Institute of Fiscal Studies and the LSE have said HMT’s methodology is sound.
- Oxford Economics, suggesting the impact of Brexit would be £40 benefit to £1,000 loss per person.
- LSE Centre for Economic Performance, arguing that Brexit could cost between 6.3% — 9.5% of UK GDP, compared to the HMT central scenario of a 6.2% loss to GDP.
- PWC and the CBI, estimate the economic loss to between 3% — 5% of GDP by 2020.
Others warning about Brexit include the IMF (Brexit would cause “severe regional and global damage”) and eight former US Treasury Secretaries (Brexit would lead to “smaller, slower-growing British economy for years to come”).
And regardless of what anyone says, UK businesses across a range of sectors are united in saying remaining in the EU is better for their business:
This is the army of economists and businesses against which the very reputable Economists for Brexit are trying to fight back.
This week, we’ve seen these economists set out their views in a range of op-eds. It is worth taking these in turn to understand the macro economic impact of Brexit:
First, lets take a look at Patrick Minford’s piece in the Sun on Monday.
Minford suggests that leaving the EU would add 4% to GDP and that prices of goods would drop 8% (you can check his analysis here). Sounds good. But then comes this bombshell:
“Over time, if we left the EU, we would mostly eliminate manufacturing … but this shouldn’t scare us”
There’s been a lot of heat around the 3 million jobs depend on the EU stat used by some on Remain side. But this is an Economist for Brexit saying over 2.6 million manufacturing jobs would disappear if we left the EU.
Now I know that’s a gross number, but I guarantee you those 2.6 million high-skilled manufacturing workers should be scared of that prospect. These aren’t low-wage, low-skill jobs in dark satanic mills. These are state-of-the art, high-value jobs paying over 20% more the national average (and often higher in automotive and aerospace companies). We need more of these high-productivity jobs, not less.
Next up was Roger Bootle in the Telegraph on Tuesday. His main argument is that there are many positive and negative aspects of both staying in and leaving the EU that economists don’t know — and so cannot quantify in the types of analyses listed above — that we can’t really now the true impact, and therefore benefit of Brexit.
According to Bootle, the primary missing element from the HM Treasury analysis is the ‘large potential gains from EU deregulation’. But as Martin Wolf at the FT points out:
“Analyses by the OECD consistently show that the UK economy is among the least regulated of all its members. The strong performance of the UK’s labour market supports this conclusion …”
And remember what businesses themselves say: they are not campaigning for Brexit so that they can break free from the bonds of Brussels bureaucracy. Rather, businesses big and small, across a range of sectors, want to stay in the EU because it’s better for their businesses.
The ‘large, potential gains from deregulation’ that Bootle points to simply don’t exist except in theory.
Bootle’s second criticism of the HMT report was that it didn’t factor in “the congestion and social costs implied by uncontrolled immigration, which are at the heart of so many people’s concerns about the EU.”
It’s true that many people’s concerns with the EU centre on immigration. But Jonathan Portes has run the numbers, and including immigration controls in the HMT study would have increased the economic damage of Brexit:
“…if post-Brexit the UK chose to adopt a restrictive migration policy — that if it chose to use the newly won flexibility afforded by Brexit to significantly reduce migration — that this would significantly damage the UK economy. However, if the UK adopted a relatively liberal policy — that is if we allowed a substantial increase in non-EU migration to partly counterbalance any reduction in EU migration — that any negative impacts would be mostly mitigated and indeed, if sufficiently liberal, there would even be economic gains.”
Given the emotive language Bootle used on immigration (“congestion and social costs of uncontrolled immigration”), I would expect him to dismiss Portes’ analysis.
Maybe he’ll be more inclined to listen to the analysis of his Economists for Brexit comrade Ryan Bourne, who in City AM on Wednesday (do you see the pattern yet?) says:
“Given three of the four European countries with the highest employment rates — Iceland, Switzerland and Norway — are not actually in the EU, and Greece and Spain have unemployment rates over 20 per cent, EU membership is clearly neither necessary nor sufficient for a healthy labour market.”
That’s the same Iceland, Switzerland and Norway that are part of the Schengen Area, meaning they have no control over their borders, reinforcing Portes’ point that free movement of people is likely to lead to stronger economic performance.
So which is it Economists for Brexit? Are we going to control our borders and forsake access to the European Single Market (as Michael Gove suggests)? Or, as Theresa Villiers claims, we’ll have the same border controls post-Brexit as we do now, so we can maintain access to the Single Market? But that makes Bootle’s criticisms of the HMT analysis pointless.
As for their respective claims about the benefits of Free Trade Agreements, these are smart article economists. They should know better than to suggest a trade deal between countries is genuinely free trade, delivers even terms of trade, or will be done quickly.
Now, I’ve played a little fast and loose with the context of Ryan Bourne’s quote above. His broader point was that “What really matters is domestic policy. And what is clear is that a vote to Remain will give the green light to further harmonisation of social, employment, tax and regulatory policy — risking abandonment of more liberal policies that have facilitated robust job creation in the UK.”
Wait. If only domestic policy matters for a healthy labour market, why should we fear the EU boogie man? See what he did there? A vote to Remain isn’t a green light for the EU to do anything. As Bourne himself says: It’s domestic policy that matters and we can have low unemployment and open borders. He’s erected a straw man in the fields to scare us.
Bourne is on more solid ground when talking about the existence of Economists for Brexit:
“a group of eight economists (including professor Patrick Minford, Capital Economics’s Roger Bootle, Dr Gerard Lyons and me) have got together to launch “Economists for Brexit”. Each of us has our own views on the short-term implications of leaving. Where we all agree is that, provided the UK adopts sensible policies outside the EU, there is no reason why we cannot enjoy more robust growth than if we remain in.”
This is potentially true. But to be honest, I can’t tell whether there will be ‘sensible’ measures adopted post-Brexit or not. Messrs Bourne and Bootle seemingly disagree on border controls, and that matters for economic growth.
Professor Minford suggests the loss of 2.6mn manufacturing jobs isn’t scary. While it might not scare him, the vast majority of economists and politicians (never mind, you know, voters and those 2.6mn workers) would not find his plans a sensible (or viable) option for the UK’s future.
And I’ll not start on Bootle’s deregulation fairy.
There is no single set of “sensible policies” being put forth by the Brexit camp. We’ve been told to look to Canada, Norway, Switzerland and even Albania.
The most articulate vision come from Andrew Lilico, though on its own, his Vote-Leave-to-get-a-recession-now-and-maybe-the-economy-will-be-bigger-after-2030 message is unlikely to inspire confidence in voters. (Coupled with Dan Hannan’s more populist patriotism, however, and the Remain camp would be in serious trouble).
This group of Economists for Brexit are smart, serious people. What I would like them to do — what I think voters would like them to do — is to articulate are single set of serious, “sensible policies” of post-Brexit Britain (with detailed analysis)that we can all judge on its merits.
Op-eds alone won’t help them win the economic case on remaining in or leaving the European Union.
