Wednesday, 31 January 2018

That leaked Brexit report. I think this is what's called "cognitive dissonance"?

From Buzzfeed:

The government's new analysis of the impact of Brexit says the UK would be worse off outside the European Union under every scenario modelled, BuzzFeed News can reveal. The assessment, which is titled “EU Exit Analysis – Cross Whitehall Briefing” and dated January 2018, looked at three of the most plausible Brexit scenarios based on existing EU arrangements.

Under a comprehensive free trade agreement with the EU, UK growth would be 5% lower over the next 15 years compared to current forecasts, according to the analysis. The "no deal" scenario, which would see the UK revert to World Trade Organization (WTO) rules, would reduce growth by 8% over that period. The softest Brexit option of continued single-market access through membership of the European Economic Area would, in the longer term, still lower growth by 2%.

Straight off, it's not the "government's" new analysis, this is something cooked up by civil servants, who have their own agenda (Project Fear/Remain).

Be that as it may, let's take the report at face value. People's responses are a whole mess of contradictions.

1. They can't forecast GDP changes even one year in advance, they don't even know what GDP actually is, it's all based on sampling and interpolation. So doing two forecasts 15 years into the future and then subtracting the difference is pretty meaningless. Even if they are right about 8% lower GDP after 15 years, that's losing half a per cent a year. Instead of GDP growing 2% a year it grows 1.5%. Who'd even notice?

2. The usual suspects are rubbing their hands with glee at this. From The Guardian:

Why are the latest leaked forecasts so damaging?

They spell out that all varieties of Brexit on offer would make Britain poorer, significantly so in the case of anything other than staying very closely linked to the EU through single market membership. While some ministers maintain they can still flout EU wishes and achieve this without full membership, it is telling that this option is not even among those presented to ministers in the “cross-Whitehall exit analysis” obtained by Buzzfeed. The economic modelling used also punctures the still popular claim among Brexiters that new trade deals overseas would more than compensate for lost EU trade.

Hang about, isn't The Guardian full of articles like this:

The idea that GDP growth is the wrong measure of a nation’s progress has become so widely accepted as to be the new common sense. Yet it is still the go-to number for lack of a credible alternative. Measuring happiness or wellbeing is fraught for numerous reasons, not least of which is that such indices make questionable assumptions about what it means to live a good life...

It is a truism that money has no value in itself, only in what it allows you to buy. Money is only a proxy for wealth, and a deeply imperfect one at that. Real wealth consists in what we are able to own or consume, not in the size of our bank balances. Real wealth therefore grows when we can have more of, or better of, the things that enable us to live well. We are truly enriched by warmer houses, better medical care, healthier food.

Sounds a bit like "... let's spend it on the NHS instead" to me. So they can piss off.

3. Labour MPs are clamouring for the report to be published. It has been published - by Buzzfeed.

4. The Conservative Party have an undeserved reputation at being better at managing the economy than Labour (they're both equally bad, and it's down to luck as much as anything). So why are Conservative MPs now in such a hurry to dismiss concerns about the economy? And why didn't they ask the civil servants to do projections for whatever post-Brexit agreements the Conservative government would prefer? That's the economically competent thing to do. Unless they still haven't come up with a plan, even 18 months later (like unilateral free trade, replace VAT with LVT, that sort of thing). And it appears that they haven't.

5. We had Project Fear for a year before the referendum, with predictions far bleaker than the latest "analysis". A lot of "Leave" voters were quite clear about this: they don't care about a percent or two of GDP growth gained or lost, they "want their country back". Be that as it may, people's main concern is that things don't get worse, things don't change too much too quickly, job security etc. Whether your income next year is 2% higher or 1.5% higher than this year doesn't matter, as long as it's not drastically lower.

6. The Home-Owner-Ists, which is most politicians and most of the electorate, Leavers and Remainers alike, can fuck right off, fuck off a bit more and then keep going. They engineered the last land price bubble/credit bubble and were happy for others to pay the price of the "financial crisis". Worse than that, they refuse to learn the most obvious of lessons and are happy for everything to be thrown at maintaining the house price/credit bubble (in London and the South East, at least, rest of the country can go hang) and don't give a shit about how long the recession drags on for.

The IFS estimate is that GDP is currently fifteen per cent smaller than it would have been in the absence of the "financial crisis". OK, that's also a projection and subject to a wide margin of error, but at least they are comparing a projection with actual reality and not two future projections. And the IFS are pretty reliable/neutral.

We could add a percent or two to GDP growth each and every year in perpetuity and more or less eliminate recessions by shifting taxes from earnings and output to land values. But that would push land prices down, which the Homeys don't think is a price worth paying.


paulc156 said...

MW. The reason they didn't model the Cons preferred outcome is because the Cons don't know what their preferred outcome is.

Regards people not being fussed about being a little worse off. That's not quite right.Some may not care but when polled most brexiters do not expect to be even slightly worse off as a result of brexiters. Nor are most willing to pay an economic price for leaving. That's according to polls at any rate.

And though no one would notice much a half percent less gdp per year that's besides the point. A half percent less growth per year means some projects don't happen, some workers laid off and some not hired and either somewhat larger deficits or more borrowing/taxation.
It's an aggregate figure after all. That translates to real hardship for a significant minority.
In any case half a percent per year compounded is less trivial than than you suggest.

DBC Reed said...

I do not understand what "cognitive dissonance" means. Is this an example of cognitive dissonance ?
May I offer the true land value-based explanation of the Brexit fiasco? Never mind, I will anyway.
Following much being shouted at by Sayid Javid,(an example of diversity so they couldn't deal with him)the Conservative High Command realised that they had fucked the housing market completely by inflating it to science fiction proportions.( The melt down of the banking system based on mortgages was a bit of a clue.) As Andrew Rawnsley reported somewhere in The Observer, Conservative grandees were fearful that they would be out of office for a generation because so many younger generation types couldn't afford to buy a house which for the party whose identity lay in being the party of popular homeownership was a bit of a facer.With signs of leakage of non socialist voters to UKIP, David Cameron applied his mighty public school intelligence to the problem and determined to call UKIP's bluff with a referendum on Europe.Oh dear, another old Etonian gets his just desserts, sadly without any concomitant physical abuse.
With magnificent lack of principle, the Conservatives decide there are nasty right-wing votes in Brexit and change overnight into a party of hard Brexit abandoning a traditional identity as the friends of cheap snob homeowners.Carried away with their own real politik brilliance, they decide to cash in and increase their majority with a snap Fuck Europe election.
But the electorate does not oblige and many seem more interested in Corbyn's 50's retro Socialism.Now the Tories don't have any policies any more: they have had to abandon homeownerism because of land price inflation and now they are abandoning hard Brexit and playing around with Brexitino options. (The correct spelling: shun cheap imitations such as Bino and Brino).
I thang yew.

Mark Wadsworth said...

PC, good first point, I have updated post to clarify that that is what I meant.

"Regards people not being fussed about being a little worse off. That's not quite right"

No, you are not quite right. The point is not that people will be worse off in absolute terms, they will be better off, even the flawed forecasts admit that, it's just that the increase in better-off-ness won't be as much (allegedly).

"Nor are most willing to pay an economic price for leaving. That's according to polls at any rate."

Plenty of Leavers said openly, "I don't care about a few per cent of GDP, I want my country back". Certainly a lot of the anti-immigration people said this.

Some Leavers says this because they genuinely believe we will better off. We certainly could be (free trade, no VAT and LVT instead).

And some Leavers are engaging in congnitive dissonance of their own (the have my cake and eat it brigade).

And the Remainers are sticking to their original Project Fear script. At least they are consistent (apart from the Guardianistas who say GDP growth is irrelevant unless it isn't.

"A half percent less growth per year means some projects don't happen, some workers laid off and some not hired and either somewhat larger deficits or more borrowing/taxation."

Possibly true, there's nothing the UK government can't fuck up. But we both know that the UK is a wealthy country and the problem is distribution of wealth and income, not the absolute amount. If we spread it around a bit more fairly, there'd be no poverty, and if we only spent taxpayers' money wisely, there'd be no deficit.

DBC, broadly agreed, but "the Conservatives" on the whole are not a hard Brexit Party, for every Rees-Mogg there are two Mays or Hammonds.

Physiocrat said...

Scrapping VAT in a few tranches would increase GDP by at least 5% ie 0.25% for each 1% of VAT. The IFS assumed 0.5% increase in retail trade per 1% cut in VAT (2009 Green Budget)

VAT is an extravagance no country can afford.

Loss of UK sales of goods and services to the E27 is billions of pounds worth of real wealth that will not go to those countries and may not be created at all. Goodness only knows how much wealth from the rest of the world does not come into the EU because of its trade policies. And almost nobody has mentioned this because mercantilist thinking rules.

jack ketch said...

As one of the more Remainiac here I'd just like to say that the report itself is not the problem, even the most frothy of the BrexSShiteurs will admit that however BrexSShite goes down it will weaken the economy-at least in the short term.

The problem is how the Government has dealt with this 'leak' and what that says about it's attitude towards us all and towards MPs.

L fairfax said...

Civil servants in the 1980s predicted that we would be better of it we joined the ERM, I believed them then - I certainly don't now.
Normally you check a forecasters past records before you believe them, I wonder why the Guardian didn't in this case.

Lola said...

It seems to me that the of economic 'science' has been bastardised by the idea that any 'economist' (or econometrician) is able to make a 'prediction', probably driven by the incentive that said econometrician will get a bigger pay packet if he can back up his bosses/politicians latest wheeze with some numbers.

The fact is that there is no way on this planet to make these predictions with any sort of reliability. Just look at the perennial failure of the Bank of England with the setting of base rates.

And as we have been saying on here for some time there is less than a fag paper between the Tories and Labour on economic policy, especially post Blair. It's been a universal homeownerist love fest.

In regards to wealth creation what can be said is that is a certain set of conditions appertain, then wealth will be created more quickly or destroyed more quickly. For quicker wealth creation we want more laissez-faire. For the wealth destruction we want more of the opposite of laissez-faire - red or blue socialism/fascism.

Therefore our politicians are in a box as both sides of the House of Commons (and the Lords) - with some honourable exceptions on both sides - are broadly stuck in a world of punk Keynesian claptrap. Backed up by a bureaucracy whose sole incentive is more bureaucracy and therefore has a huge vested interest in not embracing economic liberty.

This all leads to the 'cognitive dissonance' that MW quotes. They are all trying to reconcile fundamentally contradictory economic arguments. Which is what is leading to the current vacuum of policy ideas (or preferably the scrapping of most of the policy ideas).

As far as people like me are concerned, Brexit is about liberty and personal responsibility and democratic accountability. These are anathemas to the ruling class, and especially the EU, as it broadly means they don't have much of a job and can be held to account.

Furthermore, I am perfectly aware that in the short term there will (may?) be some disruption to production, but I also know - the evidence of history confirms - that if laissez-faire is not prevented then wealth will expand - for everyone. The short term price is worth paying for the long term gains of both liberty and wealth creation.

Mind you the tax reforms required are completely beyond the current government or Parliament, so I am not hopeful. However, by having a more concentrated and homogeneous electorate (as opposed to having to the reform the whole EU) I am more confident that changes can be forced on the Government, whom let me remind you, is our servant not our master. (Something else Cameron and Co loathe having pointed out to them).

L fairfax said...

@" I am more confident that changes can be forced on the Government, whom let me remind you, is our servant not our master. (Something else Cameron and Co loathe having pointed out to them)."
In theory they are our servant but in reality I am not sure. IMHO if the population cannot call for a referendum to overturn Government decisions they are in reality voting for different masters not servants.

Lola said...

LF. That's why I support recall for MP's.

Lola said...

Lest we forget:-

“Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism, but peace, easy taxes, and a tolerable administration of justice; all the rest being brought about by the natural course of things. All governments which thwart this natural course, which force things into another channel, or which endeavour to arrest the progress of society at a particular point, are unnatural, and to support themselves are obliged to be oppressive and tyrannical.”

DBC Reed said...

If I may repeat myself: Brexit is a dead cat strategy .(See Boris Johnson for a learned disquisition on this term's Australian origins).None of the political parties can operate electorally (bribe totally corrupt electorate) within the present land value hyperinflation: Tories least of all.Jumping off an economic cliff is a patriotic distraction.
Another existential problem is money. I have been dumbfounded by MMT articles, one of them on the Positive Money site, that present Nazi policy in the 30's as being based on Sovereign Money principles: the German state created fiat money without "borrowing" from Banks. The Brit political parties would rather line up at Brexcliff on Sea than confront such real issues.

jack ketch said...

Brexcliff on Sea

I am so nicking that one ,although it has a slight 'Krähwinkel' feeling to it!

Lola said...

DBCR. I think that's a bit confused. Broadly agree with the land value hyperinflation meme. And - as you know - I am apoplectic about the state of money in the UK (and globally). My reasoning is that there is zero chance of resolving any of this within the EU, but there is a slightly better than zero chance of sorting outside the EU, therefore Brexit is a Good Thing. IMHO a lot of out voters know the same things we profess to know but lack the language or education to express them, the referendum gave them a voice.

BTW I am not an MMTer.

DBC Reed said...

@L If the Brit political parties and ruling class, or should be caste, had any idea how to deal with the runaway land value inflation they would have cooked up some way by now.There is, now, zero appetite for peaceably deflating the land value bubble among the odious electorate (not their fault: they've been trained that way).Any party admitting that its a priority to bring down, or even stabilise, land values is presently doomed.There is no logical reason it should be any better after Brexit.(We are already not in the Eurozone , have our own currency and are therefore not governed by the EU's Growth and Stability Pact.Nor are we in the Shengen Zone which is why the nice kind French hold immigrants up at the Channel).
As to Sovereign Money Creation , as a war baby, I was truly shocked to discover that it was the Nazis who created their own new money ; that in matters of basic monetary practice we were on the wrong side.The implications are just too awful to contemplate: it might even mean Ezra Pound was right to say that American soldiers were dying on the Normandy beaches for the right of the banking system to create money, then lend it to governments at interest.In the present Brexit balls up it would help if the government could issue its own money.Taking back control doesn't mean anything if the unelected banks keep control of new money creation.

paulc156 said...

L. "For quicker wealth creation we want more laissez-faire."
Doesn't really match up with rapid post war expansion of wealth creation in the US and Western Europe which happened to coincide with more activist government and powerful trade unionism. That's the trouble with 'cognitive dissonance'. It's always easier to spot in others... ;)

Lola said...

Paul156. Nope. You have to correct for inflation, and you have to factor in the false growth created by having to rebuild stuff
destroyed in WW2.

I found a graph the other day that I can't now find that corrected GDP for inflation...stand by

DBC Reed said...

It is pointless talking about laissez faire because the plausible Adam Smith version demanded massive redistribution by the state of land tax income, unless you are one of those who would throw the tax income in the sea ,as I have seen "argued".

Lola said...

DBCR. Eh? From memory AS was a land taxer. Land taxes, as the least economically damaging form of taxation, are absolutely and entirely compatible with laissez-faire. In fact they make LF more possible by removing the burden of economic rent, in which I include taxes on capital and income (same thing actually) and lots of what constitutes the current UK tax code. And LVT also conforms nicely with the primary duty of government - defence of the realm, the preservation of land values if you like.

Similarly, Citizens Income makes redundant pretty well all of the welfare state and is entirely equitable, and that deals with the last vestige of the socialist eugenic motivations for setting up the WS in the first place.

DBC Reed said...

Your memory is hazy about AS the land taxer?You obviously were not following the thread on here about the AS Institute misrepresenting AS by rarely mentioning LVT. I drew attention to the corrective shot across their bows from one Mark Wadsworth who published in their bulletin an article on tax simplification which printed out the vital
quote from Wealth of Nations showing that ,as good governance increased land values, the State had the right to a Land value tax AND NOTHING ELSE.This would make his original brand of laissez faire massively redistributive.For the sake of clarity please refer to it in future as Massively Redistributive Laissez faire instead of just laissez faire which has come to mean No tax on land because lazy degenerates have appropriated money due to the government.
Laissez faire is a meaningless expression.