Thursday, 24 August 2017

The answer really isn't in the stars

There was a report published last week by a group of Brexit-backing economists suggesting a significant economic boost for the UK following a so-called ‘hard’ Brexit, whilst suggesting that a so-called ‘soft’ Brexit would leave us no better off than we are now.  This report stands out from the crowd in that most other economists suggest that the reverse is likelier to be true; and another group of economists has drawn attention to what they see as the flaws of the pro-Brexit report.  All the various predictions are based, obviously, on models and assumptions, including assumptions about how all of us as consumers and spenders will respond to various events.
That question of assumptions and models is at the heart of the reason why economic forecasting has a bad name.  That is the underlying truth which gave rise to Galbraith’s claim that: “The only function of economic forecasting is to make astrology look respectable”.  Sometimes an economist gets it right and gets feted for doing so; but whether getting it right is a tribute to the correctness of the model used or a result of simply having enough ‘monkeys with typewriters’ is another question.  Based on historical experience, the safest assumption is that both sides in this particular debate about the consequences of Brexit are likely to be proved wrong in the long term.  (As I’ve posted before, the argument was never primarily an economic one for me.)
There is also a sense in which both sides could be regarded as being right, despite the wide variation in their conclusions.  What I mean by that is that their answers are probably ‘right’ in terms of the application of the assumptions and models: an argument which follows logically from a given set of premises isn’t in itself illogical just because those initial premises are wrong.  It’s just not very useful in real life.
This doesn’t just apply to Brexit, of course.  A recurrent theme of any discussion of Welsh independence is a demand that those of us supporting independence provide a definitive set of figures spelling out the economic consequences, with the implicit assumption that failure to do so means either that we have something to hide or else that the numbers will never stack up.  But, with a little effort, I could produce a range of numbers showing a range of outcomes, from Wales as a land of milk and honey to Wales as a complete economic basket case.  And any of those sets of numbers would be entirely valid and correct (discounting any simple arithmetic errors!) in the context of the assumed starting point, the assumed policies of an independent Welsh government, the assumed responses to those policies, and the assumptions made about external events.  And all of those sets of numbers would, in all probability, prove to be wrong after the event – not because of any errors in the process of deriving them, but because of the invalidity of the assumptions made, and the sheer impossibility of knowing in advance which assumptions are the correct ones to make.
What we can say, with a high degree of confidence, is that countries which become independent usually end up better off than they were beforehand, invariably set economic policies to suit their needs rather than the needs of the larger entity of which they were previously a part, and don’t ask for their independence to be reversed after the event.  But the reasons for seeking that independence are rarely, if ever, primarily economic in nature.  In the same way, whilst much of the argument about Brexit has been about the likely economic consequences, and whilst both sides seize on reports produced by ‘their’ tame economists to justify their position, their real motivation is rarely about economics. 
There’s something apparently inherent in British politics which demands that we pretend that everything comes down to economics, and that the debate revolves around that question, but the result is that the very different world views which really drive the debate are insufficiently scrutinised and challenged.  The selection of economic forecasts which fit the initial belief is more to do with a rationalisation of that belief than anything else. 

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