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Economists and political advice April 14, 2016

Posted by WorldbyStorm in Uncategorized.
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Interesting points here raised on the political limitations of depending upon economists for political advice. This from the Observer business section where Katie Allen suggests that the interventions in respect of Brexit are problematic for a raft of reasons, not least:

Economics is seen as a great simplifier, and we all love simplicity when faced with a decision. Wouldn’t it be nice if economists could plug some numbers into a spreadsheet and come out with a cold, hard figure: how much Brexit might cost, or benefit, the UK?
Plenty of economists have tried, and their calculations have been lapped up by the media and campaigners alike.

But while:

BlackRock, the world’s largest fund manager, has warned about potential losses to the exchequer if the financial industry is depleted by Brexit. If 10% of workers in financial services lost their jobs after a vote to leave, it says, the government could lose up to £3bn in annual employment taxes.
The CBI has gone further, seeking to pinpoint what each household would lose. Analysis it commissioned from accountant PricewaterhouseCoopers claimed that Brexit would cause a serious shock to the UK economy that could lead to 950,000 job losses and leave the average household as much as £3,700 worse off by 2020.
PwC examined two exit scenarios: one at the optimistic end of the range, and the other assuming difficult trade negotiations that eventually result in trade deals being concluded. It also said that much more pessimistic scenarios could be envisaged.

The problem being:

No accountant or economist can tell voters what trade deals would be negotiated in the event of a vote to leave. Nor can they tell us what immigration rules will be hammered out, which international firms will leave Britain or how UK government bonds will fare on international markets.

And is this such a surprise. In broad brushstrokes it is possible to suggest various outcomes, in the specific it is possible to point to others. But knitting the two together into a cohesive picture is much much more difficult. There are too many variables. I’d think, on balance, Brexit is going to be hugely problematic for the UK (and for a variety of reasons, not least a restless Scotland and possibly Wales). It’s going to cause serious headaches on this island too and one would have to wonder if it wouldn’t actually impinge even more sharply on partition – strengthening it in various ways both predictable and not. And I’m saying this as one who has moved from a pro-EU position to one which is deeply critical of much, but not all, of the ‘project’.

Moving beyond Brexit Allen makes further excellent points:

…still we turn to economists for answers, making oracles of people who can’t even agree on what the UK’s trend rate of growth is, who can’t predict what inflation will be from one month to the next – and who largely failed to predict the biggest financial crisis in living memory. Much as voters and politicians would like economics to be an objective way of quantifying the effects of staying in or leaving the EU, it is not.

And ultimately that’s why politicians do, and should and have to take the lead in these matters. What, of course, we’ve seen though is a lamentable credulity on the part of many as to the predictive power of economics allied with a wish on the part of many politicians, driven by an ideological adherence to forms of economic liberalism that sees retreat from and of the state as a feature not a glitch.

Small wonder we’re in the states we’re in.

Comments»

1. benmadigan - April 14, 2016

Talking about UK governance – holding the Brexit Referendum is its biggest mistake ever.

Whatever way it goes spells problems for the UK – but not necessarily for the ” Celtic Fringe” as the other nations were once called

https://eurofree3.wordpress.com/2016/02/14/the-british-question-faq/

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2. CL - April 15, 2016

A relation of mine works in a large meat processing plant in County Louth. He informs me that some time ago the ESRI sent in a large order for chicken entrails.

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Gewerkschaftler - April 15, 2016

And that’s all that most macroeconomic models come down to.

Court soothsayers who would conveniently see the long life of the king in a goat’s giblets at least had a certain style.

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3. Gewerkschaftler - April 15, 2016

The IMF predictions are always worth a chuckle, I find.

Although they are continuously revising growth rates down it’s always the case that the year after next will always be better than next year and so on.

I haven’t crunched the numbers but there must be a pretty strong negative correlation between IMF growth rate year on year growth predictions and what has actually occured. At least since the onset of this latest crisis.

But does that stop them churning out predictions? No.

Does it stop ‘serious’ journos from unquestioningly quoting these predictions? Of course not.

Economics is always political economy.

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