Designed by | Gooyaabi

Cherry picking economic statistics and Project Fear

It is often said that the left-right description of politics is not a straight line but a circle, with left and right becoming more similar as they get more extreme. It is mostly nonsense, but one thing that can make it appear so is ideology. If you start to let your view of the world be dominated too much by a particular ideology or conviction (whether of the left or right), you tend to exhibit the same characteristic denial of both reality and the wisdom of expertise.

One of the symptoms of this denial is the cherry picking of statistics. The example that quickly comes to mind is output, employment and productivity. Since the GFC, UK output growth has been insipid but employment growth has been strong. The counterargument to the claim that the UK’s recovery from recession was the weakest for more than a century has been to applaud employment growth. But of course the combination of weak output growth and strong employment growth is awful labour productivity growth, which is a major factor behind slow wage growth. Those that applaud strong employment growth as a counter to[1] weak output growth are in effect saying what a great thing the productivity standstill is. (I made fun of this in one of my better posts.)

One of the little homilies I used to trot out when I taught first year undergraduates was that economics is not about making lists. In any economic situation you can make a list of what is good and bad about the economy, and then make some kind of judgement based on comparing the lists. For example you might observe that output is strong, unemployment is low but inflation is rising, and judge that the first two outweigh the third. But to do this avoids any understanding of what is going on. Once you try to relate the data to some kind of framework or model (e.g. of the business cycle) you realise you are describing a boom which needs to be moderated.

We have seen this in spades with Brexit. When the economy initially appeared unaffected by the Brexit vote, those promoting Leave said this was the ultimate proof of Project Fear. They did not bother to look at the composition of growth: consumption led, supported by falling savings and higher debt. This was not sustainable, and sure enough growth in output per head in the first half of 2017 has been minuscule. Consumers, by borrowing, had simply delayed the short term Brexit slowdown. But I have been told that this means nothing: growth has been low in the odd quarter since the recession, so this is just two of those quarters together and to suggest otherwise is Project Fear.

I’ve been told exports are booming, unemployment is still falling (and low by EU standards), falls in real wages are nothing new and much else. Yet ask almost any economist what they think is currently going on, and they will tell you it is a downturn caused by a decline in incomes (and flat investment) following the Brexit depreciation that has - as yet - not been offset by strong growth in net exports. I looked at why Brexit could be the reason for the absence of a net trade boost here. I may not be right, in so far as any commentary of this kind based on limited data as things are happening could prove wrong. This of course gives ample scope to those who want to see a particular result to poke holes and stress uncertainties.

In the grand scheme of things, the short term effect of the Brexit vote are minor compared to the potential long term impact of Brexit, and of course a great deal depends on the form of Brexit when it happens. The short term matters because of what it shows. Those who promoted Brexit used the Project Fear label to discount economic expertise: the overwhelming view of academic economists that Brexit would reduce long term GDP, and cause a short term slowdown before it was implemented. They did this not because they came to a different view based on the economic evidence, but because they wanted to believe Brexit would be painless (or, more cynically, because the pain would be felt by others). Brexit is a classic example of an ideology driven project that discounted evidence.

Going on to deny that Brexit has caused an economic slowdown is simply the next step in denial: denial of past evidence extends to denial of current evidence. It is just like Trump and climate change (or Trump and much else), which is why I and othershave related Brexit and Trump. But the reality of Brexit is now being felt by the UK negotiators. Back in March I saidthat the obvious outcome for the immediate negotiations was to stay in the Single Market and Customs Union for a transition period, but the UK team would try and dress this up as something else to save face. What the UK negotiators are doing only makes sense once you understand that Brexit can cause huge economic damage, but those that said otherwise must cling on to the pretense of Project Fear.

The use of the term Project Fear was an attempt to shut out expertise and evidence from the Brexit debate, just as it was used in the same way during the Scottish Referendum. [2] Hopefully we will never know what the costs of a Hard Brexit will be, because we will get a Labour government which will keep us in the Single Market and Customs Union (or better still, Brexit somehow collapses before then). But the concept of Project Fear deserves to be exposed and degraded nevertheless. So, following on from the spirit of my last post, here is a definition:
Project Fear: a term once used by those who wish to discredit economic evidence and expertise as just the exaggerations of one side in a debate.

Background. Initially used by Scottish Nationalists in an attempt to hide the short term fiscal costs of independence, and then in the European referendum to hide the economic costs of leaving the EU. Fell out of use after Sterling’s depreciation following the Brexit vote, and the subsequent decline in real incomes and economic slowdown.

[1] Given weak output growth, strong employment growth and a decline in real wages may be preferable to stronger productivity growth and high unemployment. But that is to talk about the characteristic of a weak economy. I am talking here about employment growth being used to counter the claim that the recovery is weak.

[2] Please, no more comments about how the SNP did not invent the term. The desperation to show (correctly) that ‘they used it first’ indicates a recognition that the term was used in that referendum to hide reality from the voters.


Post a Comment