Eight Eurosceptic economists have set out their case for leaving the EU, taking issue with the Treasury’s analysis of the effect of a Brexit on GDP and arguing that Britain could negotiate better deals alone. Giles Wilkes says they are wrong because increasing the extent of a market is a fundamental good. Brokering trade deals is a slow and arduous business and the attempt to suggest otherwise is delusional.
So, too, should it be with economic analysis and the EU referendum. Being clear does not short-circuit the politics of the matter. Economics has robust results over a range of subjects that politicians can still argue about. Do rent controls work? No, they distort markets and this lowers overall efficiency. What do fuel subsidies achieve? They make some better off, but encourage an inefficiently high amount of fuel use. Better to send people money directly.
None of these findings – which economists discover in theory, and confirm empirically– mean that politics is trumped. The elected powers can still decide to put in rent controls or cut VAT on fuel if they choose, but the economists can be clear about the costs of so doing.
Which moves me onto my favourite: it is always better to increase the extent of the market in goods, services, people and capital. It leads to more opportunities, more bargains and more competition. This is the fundamental insight behind those who think membership of the EU is better than exit. In the Treasury’s somewhat lumpen prose, “openness to trade and investment will be a key driver of the UK’s future economic security, boosting the productivity of the economy, which in turn delivers higher living standards, creates better quality jobs, reduces prices for consumers and makes households better off”.
The Treasury analysis paper has proven a lightning rod for those outraged at what they see as Whitehall bias infecting the political bloodstream. Some people try to dismiss it by selective application of radical uncertainty. But no – such analysis about Britain’s 30-year future is not undermined by the difficulty of forecasting growth in the economy two years out. This is like saying that we cannot argue that eating tonnes of sugar makes you fat, just because you cannot predict your weight next year. Forecasting and analysis are different.
A still more fatuous dismissal is that some people in favour of staying in the EU also wanted to join the euro, and look what a mess that has been. Arguments about monetary arrangements are different, attracting nothing like the same consensus that broadening the extent of a market does. The Establishment, whatever that is, was genuinely divided about the euro in the 1990s. Moreover, if we are to play such a puerile game, there are plenty now in favour of Brexit who favoured deeply flawed monetary arrangement in the 1990s, not least Lord Lawson, arch-proponent of the ERM.
But others imply that this the economic near-consensus behind IN is somehow wrong; how dare economists be so unequivocal, when people are so torn? Simple: because broadening the market is good. All the Treasury have done is assess alternative attempts to broaden the market next to continued membership of the EU. To think that you become richer leaving the EU, you have to believe that flouncing out of the world’s biggest trade area will lead to Britain becoming more of a free-trading nation.
It is not impossible, but the assumptions required to believe this border on the heroic. Some of the more passionate OUTers imagine a world swept up in free-trading fervour, and signing swift trade deals because trade is in everyone’s interests. It is, but that timeless observation has not prevented progress on such deals being always and everywhere slow. Others, like Patrick Minford, blankly assert that a post-Brexit Britain will cast aside its own protectionist concerns and just sign up to free trade unilaterally. The purest of economists must applaud. But anyone with the slightest political sense would remember that Leave, unlike Remain, relies for its success on a core of voters implacably opposed to openness, who rank high immigration as the biggest challenge facing the UK. It is unlikely that they would buy unilateral free trade and all it implies. And all the visions generally need continued access to the EU, which brings with it the same immigration requirements as we have today.
The whole cocktail reeks of political implausibility, not least when every other world leader save Kim Jong-un makes discouraging noises about Britain’s post-Brexit position. But people are allowed to spin their fantasies. What they cannot do is overturn the economics, or demand “balance” on something that is actually as plain as the shape of the earth.
This post represents the views of the author and not those of BrexitVote, nor the LSE.
Giles Wilkes worked as four years as special adviser to Vince Cable at the Department of Business, Innovation and Skills, having previously worked on the margins of the financial markets. He now writes about business and economics for the Financial Times.
‘Puerile’ .. ‘delusional’ …’Simple: because broadening the market is good’
It’s not often one gets to read something quite so arrogant, myopic and in some places downright stupid. There are clearly arguments on both sides. Much depends on the time horizons. Even if one accepts the logic of economists that growth for growth’s sake is the only game in town, there are very good reasons for thinking that the EU may implode under the weight of its own contradictions anyway – in which case getting out early might be quite sensible. This is not primarily an economic arena. It is about politics, identity and emotion. But beyond that, the idea that the ever expanding market is the answer to all problems is so stupid it would be comical – were it not for the fact that economists are prone to drink gallons of their own cool aid. Polanyi predicted nearly 50 years ago that left to its own devices the market would erode and destroy the social and ecological preconditions of any good society. Trouble is he has never been on the reading list of the most insular of the social sciences. Giles Wilkes I salute the uncompromising tunnel quality of your vision. I was genuinely undecided. You have just made up my mind. Brexit it is.
………or to accept the opinions of…..”someone who has worked at the margins of the financial markets”.
The EU is just not sound.
We stayed out of the last one [the Latin Monetary Union created in 1854] another wonderful French idea
which was truly delusional.
But, really, to do the same thing again is more than delusional [a good word that, Giles, consider yourself patted on the back].
The EU is not sound.
The EU is owned by the euro-zone.
…or to accept the opinions of…..”someone who has worked at the margins of the financial markets”.
Jim, in Giles’ defence, I believe he worked in probably the only branch of the financial services which plays with its own, rather than its customers’ money, namely the honourable trade of the bookmaker.
Giles, please don’t take this as snide – I’m a fan, particularly of the great butter eating analogy.