It’s Not Rocket Science (It’s Only Economics)

In one month, three years will have passed since the UK finally left the European Union yet still many experts (plus media and social media commentators) bombard us with distorted facts and figures. Economics is rife with this behaviour, although science itself is not immune.

Ask a rocket scientist how long it would take to reach Saturn if you could travel at a given speed and s/he could tell you. If you could take the trip you would almost certainly find the prediction was accurate, allowing for all the known variables such as take-off and landing. Ask the scientist when and at what cost per MWh we will have have power stations generating electricity from nuclear fusion and you would only get an expert opinion – in some fields physics is known as an ‘exact science’ but not in all.

Economics is not rocket science, its forecasts are based on theories and models with incomplete parameters and many approximated data values. Opinions vary and are often influenced by the economist’s desired result. It may help to look at track records but that’s no guarantee. However the Bank of England, Office of Budget Responsibility, the International Monetary Fund, etc. do not have good records for predicting Brexit outcomes so far and shouldn’t be relied upon.

Even science is not necessarily the absolute truth, nor is it the case that what a majority think is true makes it so. We discovered this when we followed “the science” in dealing with the covid pandemic. There were alternative opinions expressed by eminent scientists: professors Carl Heneghan, Karol Sikora, Sunetra Gupta and 43 other signatories to the Great Barrington Declaration for example; they were ridiculed, ignored and even suppressed (e.g. by Twitter [1]). Sweden followed an alternative path to that imposed on the authority of the preferred experts with no worse covid outcomes, fewer ‘excess deaths’ and a lot less debt.

If we look back 5 years to January 2018 when the House of Commons Exiting the European Union Committee produced its Exit Analysis, Cross Whitehall Briefing [2] we see how politics can affect predictions. The briefing begins very diffidently:

Results are always assumption-dependent”; “Analysis is made more difficult by the lack of precedents … which means we have to simplify our assumptions”; “Excessive weight should not be given to single-point estimates, given uncertainties, ranges of opinion on assumptions, global and sector trends and a variety of end states.

At that time the majority opinion of MPs was strongly anti-Brexit and the “ranges of opinion” in the Committee clearly reflected that. A diagram from the report assumes that UK growth was on course to increase by 25% over the following 15 years but that leaving the EU would reduce this by various ranges depending on the type of withdrawal to be negotiated. An EEA/Norway deal might reduce growth by as little as 0.6% whereas No Deal could reduce it to only 16.1%, around £160 billion pounds less per annum. We could fund another national health service for that amount, perhaps Remainers should have hired a bus with a slogan saying so.

Even in 2032 we won’t know what the UK’s GDP would have been had a different deal been agreed with the EU. The Committee could not know that Biden would become President of the USA and refuse the UK an FTA unless it guaranteed to stick with the flawed Northern Ireland Protocol. Had Trump won the (very close) vote instead a free trade agreement might well be in place already which might add a few points to the growth outcome.

How would businesses have adapted to the changes wrought by each scenario considered in the Briefing diagram? We have seen how quickly new supplies of energy have been sourced since Russia began its war in Ukraine, an event the Committee could not have predicted. Nor could it foresee the pandemic or the current wave of union strikes. All these exogenous events have masked the effect of Brexit on the UK economy. The world is not static.

The ‘facts’ can also be manipulated. Robert Tombs [3] argued that the UK’s economic growth has closely followed the USA’s ever since 1945, regardless of whether it was inside or outside of the EEC/EU. Tombs measured prosperity in terms of ‘growth per capita’ and ‘purchasing power parity’ so that population size and dollar/sterling exchange rate changes do not distort the picture. Choosing the period or unit of measurement can radically affect a result and so affect the desired outcome.

Let us all hope that the New Year reveals some light at the end of the dark passage the UK and all the world is going through at present.

[1] https://www.aier.org/article/twitter-files-confirm-censorship-of-the-great-barrington-declaration/

[2] https://www.europeansources.info/record/eu-exit-analysis-cross-whitehall-briefing-january-2018/ (scroll down and click on ‘Primary Source’ to download the briefing)

[3] The Spectator, 8th July 2017

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