Uncertainty still rules
One thing we know for certain – the future is uncertain. Economic forecasts are certainly unreliable, as we’ve pointed out before (in Economics and Economic Forecasts are wrong), and any uncertainties in the data dramatically disturb the mathematical models used to predict the outcomes of decisions. Likewise, extraneous events in our uncertain world can blow a models’ results to pieces.
Some organisations, such as our Bank of England, try to include uncertainty in their models, reducing it to a number by counting occurrences of the word “uncertainty” in certain newspapers:
In fact if this posting were to be printed in The Times it might have an impact, lowering the Bank’s forecast for UK growth because of the number of times “uncertainty” was printed (uncertainty being a deterrent to investment and employment). On the other hand if it were published in The Telegraph it would have no impact on the model since that paper is not in the Bank’s reckoning – despite having more readers, including at least as many business decision-makers.
Still, it would certainly be better for the economy if we could reduce uncertainty. One very effective way of doing that would be to end the uncertainty about Brexit and just get on with it!
Mind your language
David Cameron is currently earning a living making speeches in America (as befits the aspiring “heir to Blair”). In his most recent speech at Depauw University, Indiana he claims he lost the Brexit vote due to “populism”, but what was he trying to imply?
Our leaders and experts behave like rabbits caught in headlights, not knowing whether to leap left, right or to stay transfixed by their theory, hoping they might just be OK if they stick with what they’ve been doing. The rest of the burrow knows they must move, even if they’re not sure which is the safest way to jump.
Populism is usually a pejorative term implying ‘right wing’ and pandering to base instincts, though it can also be applied to the Left. Google illustrates the adjective with “populist tabloid newspapers”. Wikipedia notes that “populists … usually reject the term when it is applied to them”; it also quotes an academic description: ‘an ideology that “pits a virtuous and homogeneous people against a set of elites and dangerous ‘others’ who are together depicted as depriving (or attempting to deprive) the sovereign people of their rights, values, prosperity, identity, and voice” ‘ The latter sounds rather like a description of a runaway EU “vehicle” bearing down and blinding us, with lights blazing signals of virtue (peace, brotherhood, prosperity and happiness). Increasingly people are becoming accustomed to the glare and are seeing the danger under the wheels more clearly.
So populism is becoming popular across the West, not just in the UK. In spite of some nasty rhetoric, voters see glimmers of hope in Donald Trump, Marine Le Pen, Geert Wilders and Norbert Hofer. In Italy, Greece and Spain the Left is more often called populist. Cameron and others, by labelling these movements with a dismissive term, hope to deflect blame for their failures onto those who suffer the consequences. They should mind their language and we should not be easily fooled by it.
The Famous Four
In a fully-fledged, federal union – such as the USA – goods, people, services and money have unrestricted freedom to move where they wish. This has been a prime ambition for the EU and its forerunners from the start, hence the high status of the Four Freedoms. But they are far from complete: goods move pretty freely, people fairly freely, capital suffers some protectionism and services are very unfree (see also The Single Market and the Four Freedoms).
To the EU dogmatist the Four Freedoms are irrevocable and irreversible but to the political pragmatist they are as malleable as necessary. The former tend to be the unelected appointees, the latter are voters’ nominees in crucial states under pressure to keep their elected jobs. In these matters the UK is less important than Germany, which is able to adapt the irrevocable to meet its needs; France is less crucial than it was but still manages to get its own way more often than not, whereas Britain is expected to conform absolutely, having annoyed the mandarins, again. In Freedom of Movement we discuss restrictions on the free movement of people and labour; in How would you like your Brexit? we discuss how there is no single market for services. Here we describe some of the actual restrictions on capital movement.
Free movement of capital
Many key UK industries are owned by European companies but the reverse is less common. One reason is that capital doesn’t move so easily into the Continent. In the UK shareholders decide bids and the Government seldom now intervenes, except on grounds of competition. Proposals to create a level playing field across the EU were rejected and British companies seeking to expand across Europe via acquisitions and mergers face many barriers. France and Germany in particular don’t like their industry champions being bought by foreigners, however eager they are to buy ours. On the Continent there are generally wider influences on takeover decisions. In France state monopoly or the ‘golden share’, giving the state a blocking vote, are typical defences. In Germany the takeover of Mannesmann in a hostile bid by Vodafone was a shock and the Germans have put their guard up; in any case directors rather than shareholders vote on the deal with input from employee unions. ‘Poison pill’ share tactics, banned in Britain, are also widespread, whereby conditions are created specifically to make the target less attractive.
We do not say these Continental protections are always wrong but don’t tell us that this Freedom is complete and non-negotiable.
Complexity and Economists
Economies are complex systems. Compare economic forecasting to weather forecasting. Meteorologists use consistent, sophisticated models, economists use inconsistent, sometimes sophisticated models. Meteorologists prefer to declare their assumptions and qualify their forecasts with probability estimates; economists prefer to pretend that they do not depend on assumptions and do not qualify their forecasts. Weather forecasts are good for a few days ahead; we are expected to believe economic forecasts that predict events months and years ahead. Weather forecasts are local; economic forecasts span continents. Meteorologists track events, such as pressure systems, which everyone knows cannot be reliably predicted unless predictions are revised almost continuously; economists track events, such as growth rates, which they believe – and want us to believe – will change consistently and predictably.