Tuesday, 30 January 2018

What are the right assumptions?

Much of the reaction to the leaked government report on the consequences of Brexit is entirely predictable.  The report made it clear that on none of the scenarios modelled was there a plus side to Brexit in economic terms; the only question was how bad it was going to be.  Remainers have, of course, seized on the forecasts as evidence that Brexit is a really bad idea, whilst Brexiteers have responded with their usual disdain for ‘experts’. 
There’s some truth on both sides.  As the critics have rightly pointed out, any such report can only be as good as the assumptions made in producing it, and the track record of economic forecasting is not exactly one to be proud of.  Two things on which I have no doubt are that the long term is essentially unpredictable, and that plugging in a different set of assumptions would produce a different range of outcomes.  Despite the inherent unpredictability of some factors, and the fact that the degree of unpredictability inevitably increases as we look further and further forward, I still think that making an attempt at modelling the impact is a better way forward than not even trying and depending on blind faith, which is what some of the Brexiteers would seem to prefer.  That means that any rational debate has to concentrate, first and foremost, on the robustness of the assumptions being made – and those who want to challenge the results need to be able to say why and how those assumptions are wrong.
The fact that an increasingly broad range of economists are coming to similar conclusions is not, in itself, proof that they are right.  ‘Groupthink’ can and does cause such convergence in other fields, and it could be a factor here, but the very existence of a clear and growing consensus should be at the very least a cause for giving the matter a bit more thought.  Merely dismissing anyone who disagrees as an ‘expert’ who therefore knows nothing isn’t a very sound basis for decision taking.  The problem which the Brexiteers have in challenging the report was, for me, summed up by the response of the unnamed Treasury source: “It does not, however, set out or measure the details of our desired outcome - a new deep and special partnership with the EU”.
Let’s be clear – this is a source within government saying that the work done by the government (and not just by the ‘government’ in a generic sense – this was work done by civil servants in the department actually charged with negotiating the outcome) doesn’t cover the option preferred by the government.  In any other circumstances, that would be an astounding admission.  In circumstances where the government has shown a complete inability to define what it does want, however, it’s the only possible result.  How can anyone model a situation which is not defined in terms other than a ‘deep and special partnership’  with no detail of what that means, and when those using the phrase consistently refuse to acknowledge the simple truth that it can only mean ‘less deep and less special’ than the partnership which currently exists?
The simple challenge to them should be this:  OK, you’re telling us that the assumptions are wrong – so what are the right ones?  The day that they can answer that question is the day that it might be possible to start modelling what they have in mind.  But they also need to bear in mind that assumptions that the EU27 will simply allow the UK to have all the benefits with none of the costs might well produce a much rosier outlook in a mathematical model, but they will be less useful as a prediction tool than employing Mystic Meg.


Anonymous said...

Quite a few paragraphs to say not very much at all. I'll try and be a little more succinct.

BREXIT wasn't about the country or the population getting richer or poorer. It was about sovereignty, democratic accountability, immigration, giving politicians a bloody nose, the NHS, roads and potholes, hatred of foreigners, and and and.

Who cares about the economics at this stage, not the winning BREXIT'eers.

John Dixon said...

Actually, I agree that "BREXIT wasn't about the country or the population getting richer or poorer." However, those who thought that they could vote for "sovereignty, democratic accountability, [control of] immigration" etc were told, very explicitly, that they could vote for all of those things AND they'd be better off as well. Indeed, the Brexiteers are still telling them that they'll be better off. I'd have a lot more respect for the Brexiteers if they were honest enough to say that they value all the things that you mention more than economic wellbeing, that they know that there's a price to pay for those things (in the short term at least), and that it was the least well-off who were going to pay that price. But as long as they keep saying that people can have all the things they voted for, AND still have all the economic benefits of membership (the simultaneous cake possession and consumption proposition), the lies need to be rigorously and repeatedly exposed.