Saturday, May 21, 2016
Economists have a century of failure behind them.
Over the past few weeks, David Cameron and George Osborne have been claiming, over and over again, that those of us who support Brexit have lost the economic argument. They want us to concede that we only really care about “sovereignty”, and to accept that this would come at a heavy cost in terms of forgone prosperity.
It’s a convenient narrative for the Remain side, and one which underpins its strategy to win the referendum. It’s also utter nonsense.
“Time and time again, the majority of economists make spectacularly wrong calls, and it is a small, despised minority that gets it right”
Nobody on the sensible Brexit side should accept that quitting the EU would be bad for growth, jobs or wages. The free-market, cosmopolitan, pro-globalisation economic case for leaving is stronger than ever; and the people who would run the Tory party and thus the country in the event of a Brexit largely believe in it.
They are neither nativists nor protectionists. They are not wannabe Donald Trumps. The hysterical studies claiming that Brexit would ruin us are grotesque caricatures, attempts at portraying a post-Brexit Britain as a nation that suddenly decided to turn its back on free trade and foreigners.
As Roland Smith of the Adam Smith Institute has argued, leaving would be a journey, not a Big Bang. In the short-term, a Brexit would almost certainly mean the UK remaining in the European Economic Area (EEA), like Norway: we would be liberated from much political interference, be allowed to forge our own free-trade deals while retaining the single market’s Four Freedoms.
Europe’s shell-shocked corporate interests would demand economic and trade stability of its equally traumatised political classes, and they would get it.
Over the subsequent few years, we would undoubtedly negotiate a proper British model, leading a new (and growing) group of post-EU European nations; a sensible Tory government would seek to stick with as much of the EEA model as possible, while adopting the sorts of liberal, pro-growth but carefully controlled immigration policies pursued by Australia, America or Canada.
Together with supply-side reforms at home, the UK would become more, rather than less, attractive to global capital. The Treasury, OECD and IMF’s concocted Armageddon scenarios wouldn’t materialise.
Remain has only won the economic argument in the sense that most economists and the large institutions that employ them support their side. A recent pro-Remain letter organised by Tony Yates, an academic, collected 207 signatures; by contrast, the admirable Economists for Britain group is only 26-strong. But this merely proves that the truth is not determined by a popularity contest.
Time and time again, the majority of economists make spectacularly wrong calls, and it is a small, despised minority that gets it right.
In 1999, The Economist wrote to the UK’s leading academic practitioners of the dismal science to find out whether it would be in our national economic interest to join the euro by 2004. Of the 165 who replied, 65 per cent said that it would. Even more depressingly, 73 per cent of those who actually specialised in the economics of the EU and of monetary union thought we should join – the experts among the experts were the most wrong. Britain would have gone bust had we listened: we would have suffered an even greater asset bubble and financial collapse. We would have been like Ireland and Iceland, begging for handouts.
The vast majority of economists did not foresee or predict the financial crisis or the Great Recession or the eurozone crisis. Yet they now have the chutzpah to behave as if they should be treated like philosopher kings, an all-knowing “profession” that we are all supposed to bow down to uncritically. It’s dangerous, self-serving nonsense, like all such elitist fantasies.
Remember the Twenties? The economics profession overwhelmingly failed to see the great bubble and subsequent crash and depression. The Thirties? It messed up on just about everything. The Forties and Fifties? It bought into planning, industrial policy and nationalisation.
In the Sixties and subsequently, Paul Samuelson’s best-selling, dominant economics textbook was predicting that the Soviet Union’s GDP per capita would soon catch up with America’s. The Seventies? Most economists didn’t know how stagflation could even be possible. The Eighties? The profession opposed Thatcherism and the policies that saved the UK; infamously, 364 economists attacked Thatcher’s macroeconomic policies in the 1981 Budget and then kept getting it wrong.
Very few economists backed the then prime minister. In the Nineties, they botched the Soviet Union’s transition to capitalism and assumed that Western central bank independence and inflation targeting would end boom and bust.
In the 2000s, they were proved wrong, yet again. Today, they cannot really explain why productivity growth is so weak, why many Westerners are suffering from falling real incomes or why inflation is so low (and whether that is good or bad).
Of course, economists as a profession have also made many right calls on free trade or the need for more competition – but a massive dose of humility should be in order. It is not clear that economics has been getting better over time, unlike biology, physics or medicine.
The scientific consensus, like in all disciplines, is often the opposite of the truth and must be subject to falsification. Most economists are obsessed with market failures yet, bizarrely, assume that the intellectual marketplace, as defined by the majority view of their colleagues, is close to perfect.
The problem this time around is that Remain economists assume that leaving the EU would mean reducing globalisation and halting most immigration. They assume that there are only costs and no benefits from leaving the EU, and thus conclude that we would be mad to leave.
Ultimately, it’s a political judgment: I believe that a post-Brexit Britain, run by cosmopolitan Tories and backed by the West’s most open society, is the best way to enhance and legitimise globalisation in the UK.
I believe that the EU’s anti-democratic institutions are unsustainable and thus pose a great threat to the liberal international economic order its UK supporters claim to be defending. That is why, dear readers, I will be ignoring the majority of economists and voting Leave.