When it comes to making economics understandable, no one does it better that David Smith of the Sunday Times*. Today, he has written a emphatic endorsement of the case for the UK remaining in the EU. As a longstanding admirer of his work, a few points jumped out at me when reading it. Here they are.
Britain’s economy is convalescing from the biggest financial shock in a century. A few years ago we were on the edge of the abyss. We live in the shadow of the crisis. One shock was careless: to impose another, self-inflicted one before we’re over it would be stupid.
Yes, you can argue that now is not the best time. But now is the only time: this referendum is a freak event, promised by a Prime Minister who never thought he’d be re-elected and actually have to call the vote. We have to ask: given the EU’s failure to reform (which he doesn’t look at in his article) will Britain always want to stay in it? If the answer is no, then we have to vote out – because we won’t be asked again. As everyone who has been in a bad relationship knows, there’s never a good time to end it.
There might have been a time when we could happily accept a shock of this kind, with growth strong, the world economy buoyant and interest rates high enough for the Bank of England to be able to cut them aggressively. But this is not that time.
Let’s look at what he didn’t say: oddly, no mention of the collapse in gilt yields bringing UK borrowing costs to a record low. If there’s to be more debt, then it will come at a time when borrowing has never been cheaper. Even the pro-Remain Paul Krugman has pointed out what Smith doesn’t: that a fall in sterling would bring benefits to a nation that borrows in its own currency and has a massive trade deficit. As Smith says later on in his article, he’s not trying to be balanced. Otherwise, he would perhaps have mentioned this point.
What I have tried to do in recent months is take an evidence-based approach to our EU membership…The deeper you dig, the more EU myths — excessive red tape, migrants taking “our” jobs, the idea that if we left we would have more to spend on domestic priorities — evaporate.
Evaporate? Not according to PwC, which envisages a benefit from breaking free from these regulations of about 0.3 per cent of GDP. He’s right to put ‘our’ in inverted commas: immigration doesn’t threaten journalists’ jobs. Or political jobs. It’s more likely to threaten the jobs and wages of the skilled working class, which is perhaps two-thirds of them back Brexit. Those who support mass immigration (myself included) have to remember that it’s great for the well-heeled – but harder for those who compete with immigrants for jobs, housing or school places. To me, the horror in today’s opinion polls lies not in the closeness of the race but the way that it is split along lines of class and wealth.
Had the battle between the two sides been a boxing match, it would have been stopped before the end of the second round to limit the punishment. “Leave” has been outnumbered, out-analysed, out-argued and technically outclassed by the Treasury, OECD, IMF, LSE, PwC, IFS and others.
And how many of the above organisations saw the crash coming? Or the British jobs miracle? None. They’re not clairvoyants, don’t claim to be and ought not to be presented as such. My point: it’s not irrational to be suspicions about the wisdom of soothsaying acronyms. I’d invoke Carrick’s Law of Economics: you can’t predict the future; there’s too many variables. As Matthew Parris said when making his seminal case for Remain, ‘In the end, none of us knows, and we shouldn’t pretend to.’
Another point: such economists reports net off the good and the bad, then declare the net figure for Britain to be positive. You can do this in economics, but not in real life. One man’s gain doesn’t take away another man’s suffering. If the poorest do disproportionately worse out of globalisation, you can’t tell them not to worry because their loss is outweighed by the gains accruing to the wealthier.
In Smith’s article, he uses 2020, the year of maximum hit from uncertainty: pretty much all models envisage a recovery by 2030. The question is how much of a recovery. For example the CBI’s report, by PwC, said that Brexit could end up making GDP per capita as little as 0.8 per cent lower than it would otherwise be by 2030 – which, as he’ll know, is more of a feather-tickle than a knockout. And statistically insignificant given the monstrous error margins in 15-year forecast.
Vote Leave’s laughable response to good, rigorous analysis is to say it is done by creatures of the European Commission. The Treasury, remember, was instrumental in keeping us out of the euro. This column is not, I should say, EU funded.
I agree with him here. Questioning the motives of your opponents is the lowest form of debate.
What about George Osborne’s use of a £4,300 “hit” to households by 2030 — the amount, in terms of GDP per household, that GDP would be lower than under a “remain” scenario? The first use of a GDP per household measure I can find in the referendum came in a pro-Brexit Institute of Economic Affairs report in February. It has been used by the OECD, the LSE and others. It is an explanatory device, nothing more.
If it’s an innocent ‘explanatory device’ how come David Smith himself has never used the phrase ‘GDP per household’ before, in a lifetime of explaining economics? Because it’s inherently misleading. It’s is a verbal device intended to allow the Treasury to mislead, allowing Osborne to say ‘£4,300 worse off’ and deceive voters into thinking this was a) household income and b) poorer. Rather than a choice between two versions of richer.
Where ‘GDP per household’ has been used before, in obscure HMT documents like this one from July 2015, it carries a clear warning: ‘GDP per household is not a household income metric as GDP also includes Gross Operating Surplus of corporations and other measures of domestic income/production.’ I have a question for David: why does he think this necessary explanation was included not in the humongous 200-page Treasury Brexit document? Lack of space? Or might it have been that the aim was to confuse, rather than clarify – in direct violation of civil service rules? Ask David again this time next year, and I think he’d concede that the Treasury cooked up the £4,300 figure in a deliberate attempt to mislead.
Every properly conducted business survey shows a majority of firms in favour of continued membership.
The David Smith I know and admire – the one who’s not in campaign mode – would have written something like ‘The business surveys show between 63 per cent and 80 per cent of firms in favour of continued membership.’ That would have given readers a more accurate view of the split of opinion. Significantly behind Remain, but not unanimously so.
In recent weeks I have travelled around the country and met many dozens of business people, from tiny “micro” businesses through serial entrepreneurs to family firms and large quoted companies. I can count on the fingers of one hand, with some to spare, those who wanted to leave the EU. They may not love the EU — they do not love Whitehall or Westminster — but they know their best interests are served by being inside it. And they recognise snake oil when it is being sold to them.
A shame he didn’t get to talk to the 37 per cent of small businesses who do (according to the slightly larger sample by TNS) say that they do support Brexit, and presumably do not recognize snake oil when it’s being sold to them. It’s amazing they’re still in business at all, come to think of it.
Since the single market began in 1993, Britain’s GDP is up by 62% in real terms on OECD figures, compared with 42% in France, 35% in Germany and 15% in Italy. Switzerland’s GDP has risen by 48%… I would be the first to say our growth performance reflects many factors, including the Thatcher reforms of the 1980s and Bank independence in 1997.
I’m glad he put the second bit in: even he doesn’t dare pretend that UK economic growth has been down to EU membership. Yesterday’s half-hearted Times leader and today’s Mail on Sunday leader don’t mention the other factors that happened since we joined the Common Market: like the Thatcher economic revolution and the 1976 IMF bailout.
Finally, let me again mention immigration, which is driving support for leaving the EU. Yes, we need to build more houses and increase investment in infrastructure, but it is wrong to use immigrants as a scapegoat for our failings in these areas. EU migrants more than pay their way. EU migration responds to economic conditions in Britain and complements our flexible labour market. In 2008, when the crisis hit, net migration from the rest of the EU halved. It fell again in 2009 and did not exceed 2007 levels again until 2014. Replace that with a system under which parliament decides an annual migration total and the economy will suffer.
I’d agree with him on all of that – it’s a shame he didn’t have space to refer to (for example) the OECD’s estimate that Brexit would shave 84,000 off net migration figures. Not much in relation to today’s 330,000 net migration figures but I look to his columns to arm me with such facts, and decide for myself if an 84k reduction is significant or desirable.
Campaigns do tend to airbrush out nuance, and make people thing the facts are unanimously aligned on one side or the other. When Jeremy Warner describes himself as a reluctant Remainer, it’s less dramatic but more persuasive. (Except to me, a heartbroken Europhile). I also admire Jeremy Corbyn’s candour in saying he’s 75 per cent for Remain: for most of us, it’s a tough balance.
Anyway, I would agree with him that the weight of economic studies would suggest that Brexit is the riskier option overall. But there is more to the Brexit economics debate than one might otherwise deduce from his column.
* I’m quite serious about David Smith’s brilliance – and, when it comes to writing for the layman, peerlessness. Anyone who’d like to understand economics a bit more should buy his brilliant book, Free Lunch.
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