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Helene Rey made AEA Foreign Honorary Member
14 January 2020
I have a professional confession to make. I was dreading the Brexit referendum from the moment it was announced. That foreboding has ended up an unusually accurate forecast by this particular economist. Why this unease over such a crucial macroeconomic question? After all when the financial crisis of 2007-8 hit, macroeconomics was launched to the head of every debate. Everywhere I went people wanted to talk to me about the crisis, what it meant and what could be done about it.
The sense of importance, the sense of people wanting to understand why the crisis had happened and the urgency of finding a policy solution was a reconfirmation why I had devoted my studies, my research and indeed my career to macroeconomics. So surely after the monotony of near zero interest rates and ever more arcane and elaborate discussions of ever more obscure means of trying to make monetary policy work I would have welcomed the arrival of another huge and important macro topic – Brexit?
Don’t misunderstand me. Brexit is hugely important as an economic and political issue. Further, economics has much to say that is coherent and based on good research – see for instance the work by the Centre for Economic Performance at the London School of Economics. I am also clear in my own mind that Remain is best for the UK – both the uncertainty around the Leave scenario and any likely reality are significantly bad news for the economy. I just really wasn’t looking forward to the debate because I knew that it would stifle what are the really important issues, it would become partisan rather than insightful and that the economic voice and argument was vulnerable to being politically sidelined. Right now those fears seem to be playing out.
So my first problem (and I stress this is all written from the perspective of a professional economist) is that the whole referendum strikes me as being like a bad exam question. Basically the overwhelming majority of economists answering the question will come up with the same answer – Remain is good for the economy and Leave is bad. Broadly most economists believe (subject to a bunch of caveats around scale and limits) that trade in goods and services and the free flow of capital and labour are a good thing, that uncertainty is bad, transitions are painful and that as a small, open economy the UK is better placed to maximize its global trading activities through the EU rather than as a standalone. So not surprisingly the vast majority of economists support Remain. It’s a bad and uninteresting exam question where nearly everyone comes up with the same answer. Of course the fact that amongst academic economists the majority behind Remain is overwhelming doesn’t necessarily mean they are right.
The best argument I have heard from the Leave camp, that made me stop and reassess my own position, is to be suspicious when everyone agrees with something. The trouble is that in most circumstances when everyone agrees on something it means they are right.
Now of course the referendum isn’t an exam question so perhaps it doesn’t matter if as economists we all come up with the same answer. But then again it does. Because whilst I am firmly in the Remain camp I do worry that society is struggling with a number of issues that arise from our membership of the EU and globalisation. Chief amongst these is of course immigration. Professionally as economists we can assess theories and evidence and point to the gains that immigration has brought to the UK but we know there are distributional issues as well as broader social and political issues. What is an important question is how can we combine the obvious gains of EU membership with other policies that mitigate the economic and social challenges? However, because of the referendum that isn’t an option.
We have a binary decision to make – Remain or Leave – any debate at trying to think what can be done to improve on the current situation isn’t allowed. It runs the risk of being seen as anti-Remain and when the stakes are so high that can’t be risked and so the debate becomes partisan – Remain or Leave. As a result a broad ranging debate is stifled which bodes badly for policy whatever the vote on June 23rd decides. The electorate runs a very real risk of being badly served by this referendum.
What is also depressing from a professional perspective is how the fact that the vast majority of economists support Remain doesn’t seem to filter through into the public domain or debate. Why when there is such agreement is this not more apparent in the media? In some cases, and the BBC seems the best example, the desire to be impartial means equal air time given to both sides of the debate. If air time was based on the proportion of economists supporting Remain the balance of reporting would be very different.
Why, in a debate that seems to have economics at its core, has more coverage been given to the consensus views of business people, historians and even actors than that of economists? One possibility is because if study after economic study reports negative effects from Brexit the news value diminishes. It’s also likely that the public is beginning to expect or even tire of the usual approach of writing a letter with a long list of signatories in support.
More worrying possibilities are that economists aren’t good at communicating or even that the public doesn’t believe economists’ views. On communication we definitely have problems. The profession as a whole is much better than it used to be at outreach and trying to disseminate views on economic issues in a non-technical way – see the excellent voxeu.org. But communication is about listening to what people want to know and then thinking how to explain to them your own views. Like most professional experts, economists’ attempts at communication are hindered by too much focus on their own concerns and issues, and technical language and statistics that are too vulnerable to mistranslation or misunderstanding. In other words the usual challenge of a democratic referendum on technical subjects. In a world of rising populism this challenge becomes all the greater.
For me more distressing is the possibility that the public simply doesn’t trust economists’ views on economic issues. I think there are two aspects to this – one about the state of knowledge and the other about vested interest. Regarding the state of knowledge, economists still struggle with the public perception of “two handed economists” and a belief that the ability of economists is best measured by the accuracy of our forecasts. The curse of the image of the two handed economist is considerable. If as a profession we cannot communicate our logic and reasons but just state our conclusions then any minority can nullify the majority by simply loudly stating their opposing results.
The public sees a disagreement between economists but doesn’t hear any debate, only clashing conclusions, and so goes looking to the views of non-economists to get insight. The situation is made worse by a belief that the knowledge of economists should be measured by our ability to forecast the future. Given we are bad at forecasting how can we predict the impact of Brexit? Of course my doctor is terrible at forecasting my health into the future. So bad that I don’t ever ask them for a forecast. They are however very good at telling me what will happen to me if I smoke, eat or drink too much or how my body will respond to various treatments. The analogy holds for economists’ views on Brexit but these are undermined by a belief that being bad at forecasting means you are bad at counterfactuals. A problem that afflicts the economics but not the medical profession.
The other possibility is the public discounts economists’ views on grounds of vested interest. Economists are always keen to point out that incentives matter and coming as we do from an industry that is a major recipient of European research funds, a major exporter of educational services to the EU and composed of many non UK EU nationals it is perhaps not surprising we are keen to Remain. Trade and immigration have distributional effects and economists as a group have probably benefited more than most.
Of course there is another possibility why the consensus view of economics has had such a seemingly disproportionately small impact on the debate. It may be that ultimately this isn’t about economics. Perhaps that’s why the public and the press give more attention to letters supporting Remain from actors and historians than from economists. It seems clear to me that through leaving the EU the UK gains very little additional sovereignty in practice. But one thing economics tells us is that the less you have of something the more in general you value it.
In a globalised world, as a small open economy, the UK has relatively little sovereignty. Does that perhaps make Brexit all the more valuable to those campaigning for Leave? Economics is about trade offs after all and for me the incremental rise in sovereignty that Brexit produces isn’t enough to warrant the substantial economic costs that Leave produces. Perhaps the real debate here is less around the economic costs and more about how to value any putative gain in sovereignty.
So how is my sense of foreboding as we enter the final weeks? Even though the opinion polls are showing a significant lead for Remain they still don’t reflect the overwhelming support economists have for Remain. That means either economists are bad at communicating or it’s not really about economics. If it’s about bad communication then economists need to think about what are the issues that are bothering the electorate and how we can explain the logic of results rather than state conclusions about economic aggregates. How can we get people to understand how this will affect them personally in an everyday way? If it’s that this isn’t really about economics, which increasingly I think is the case, then we need to engage and point out the costs of achieving non-economic benefits or make suggestions about how those benefits can be achieved in less costly ways.
Crucially economists need to work harder on devising and communicating policies that preserve the undoubted gains of trade and immigration with measures that mitigate the costs they exert on some parts of society. Failure to do that means that the polarizing nature of the Brexit debate will continue globally over a raft of related issues to the detriment of the economy and the potential irrelevance of economists.
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