Friday, 9 December 2016
More or less - the dismal science
I caught BBC Radio 4's "More or Less" this afternoon featuring Andrew Lilico and Chris Giles, muppet at the Financial Times. It was worth listening to just to hear Chris Giles admitting he and all his sources were wrong about the immediate Brexit fallout. What transpired was that the British economy and our often volatile markets are far less prone to histrionics than our politico-media class. And that really is saying something.
But in the words of Winston Wolfe, "let's not start sucking each other's dicks quite yet". You will get no argument from me that economics is a dismal science and most economic forecasts in regard to Brexit are not worth the paper they are written on, but there was one analysis I did peg to my mast from Douglas McWilliams, president of the Centre for Economics & Business Research. He said...
"Brexit would be quite a shock and we should expect a sharp fall – perhaps 10-15% - in sterling. Inward investment would also be blighted until investors were comfortable with the new arrangements. This hit would last at least two years while any new arrangements were negotiated. GDP would be reduced by the initial effects of the devaluation, by monetary policy that would have to be tighter than otherwise and by the reduction in inward investment – probably there would be negative growth in 2017."
That much seems like it's on course to being correct. That though did not deter me from voting to leave. There was never any likelihood of such a seismic political change not having economic repercussions. Like seventeen million of my fellow countrymen and women, I heard the arguments and made my choice accordingly - taking such estimations in their proper context.
Where economists failed was their inherent pessimism. Part of the job of an economist is to take a guess. They can never agree on a particular scenario and so they produced a number of guesses based on a number of estimations. They took the view that the worst case scenario was the most likely scenario. Some out of pessimism, some out of stupidity and others... pure malice.
That is not to say their work should be disregarded. It should not be forgotten that many expected the hard Brexiteers to have run of the show in the event of winning, and were it left to the likes of John Redwood and his ilk, who would pull the plug without even seeking a negotiation, it is highly likely that the worst case scenario would have come to pass - with all that was predicted by economists.
And so the referendum was a pure gamble that such people would not come to power. That was the basis upon which many of my friends voted to remain. And who can blame them? Can you imagine just how dreadful things would be were Andrea Leadsom in charge?
In the end, my gamble paid off. We have a level headed sensible prime minister who will deliver a fairly pedestrian Brexit from which we can develop any which way we so choose. Though it was a risky gamble, it is no less risky than a general election these days where through a freak accident of numbers, we could conceivably end up with Mr J Corbyn as PM. Increasingly remote I grant you, but all the same, every vote is a gamble.
To this day though, remainers would have it that we leave voters had denounced the experts and voted against our own interests. Personally I don't see that it is in my interests to see my country stripped of its ability to self govern, and I don't think an imbalance of some numbers on a screen should deter me from doing what I believe is in our longer term interests. Nor did we ignore the experts.
All the experts were heard. We heard what might come to pass. Our job was to decide on the likelihood. Our collective optimism proved to be nearer the mark than their collective pessimism. That said, economic metrics are often trailing indicators and we won't get the full picture for a fair while yet. That recession may yet happen.
This is where the British spirit kicks in. Yeah yeah, I know, I'm not supposed to go down the jingoism road, but we're nearly at the end of the piece. The fact is that Britain has known recessions long and deep. The fag end of the Thatcher era for many was no walk in the park. And it should also be noted that when big government welfarists are in charge, a rising tide does not lift all boats. Some have good times in bad times and vice versa. We cannot let marginal statistical dips govern our aspirations and values - and I am pleased to see that we haven't.
In the end, the more middle of the road economists who didn't have a dog in the fight may prove to be correct. Brexit probably will mean we all take a hit. In the short term we will all pay through inflation and I'm pretty sure my unremarkable pension plan didn't do too well this year - and probably won't next year either. Market jitters will be more acute during Brexit talks than immediately after the referendum. Remainers will have a field day. What matters is that we finally resolved a political dispute that has dogged European politics for decades. From there we can move on - and so can the EU.
What should be noted above all though is that it was never a binary choice between certainty and stability and whatever Brexit may entail. Structurally the Euro is not in great shape, the EU has reached the limits of its trade policy and the best case scenario is that the dismal status quo would have limped on for a few more years before we plunge into a new crisis. Britain would be insulated to a degree by way of being the most liberal and dynamic economy in Europe - but that tells you it is British exceptionalism that gives us stability not membership of a decaying political union. The only good argument for remaining is that the EU will miss our leadership.
In that estimation Britain must find its own path. For a long time the EU has promised much and delivered little, and when you look at those areas who voted to leave, it is easy to see why they want to try things another way. When it is ultimately those people we owe the most to, it is time we heeded their wisdom - whether we like it or not. They will likely take us places where frigid economists would never dare to tread.