The best economic case for exit I’ve seen comes from Patrick Minford, who estimates the gains to leaving at around 10 per cent of GDP: these come from less regulation and freer trade with non-EU countries. On the other hand, John Van Reenen and colleagues think Brexit might cost us up to 10 per cent of GDP, as we face trade barriers with the EU.
There are big uncertainties here, such as what sort of trading regimes we’d face outside the EU, and how big are trade multipliers: to what extent does trade (pdf) encourage innovation?
Two things make me sceptical about big estimates, however. One is a paper by John Landon-Lane and Peter Robertson. They point out that, give or take a standard error, rich national economies grow at pretty similar rates over the long-run. This, they say, implies that “there are few, if any, feasible policies available that have a significant effect on long run growth rates.”
The second concerns the maths of economic growth, described by Dietrich Vollrath. Even if Brexit does raise our potential growth rate, it would take many years for the economy to reap those gains. He says:
Even if [insert policy here] opens up a big gap between potential and actual GDP, this doesn’t translate into much extra growth. In fact, the effects are likely so small that they would be unnoticeable against the general noise in growth rates year by year…Massive structural reforms are not capable of generating immediate short-run jumps in growth rates.
Let’s, though, put my scepticism aside and put those 10 per cent-ish numbers into context. Even 10 per cent might well be less than the cost of the financial crisis and subsequent bad economic policy: if GDP per head had grown at its 1990-2008 rate since 2008, it would now be 14 per cent higher than it actually is.
Which poses the question: why is the Tory party fixated on the former whilst paying so little attention to the latter? The most respectable reason is that Brexit isn’t just an economic issue at all, but is instead about sovereignty and national identity. A less respectable one is that it is about tribal fissures within the Tory party, and careerist manoeuvring to exploit those divisions.
This is one reason why, if we must have a referendum on this matter, I would rather it were a demand-revealing referendum in which people vote not simply “leave” or “remain” but rather a sum of money to express their estimate of the cost of them of leaving or staying.
One great virtue of such a scheme is that it forces the protagonists to maintain a sense of proportion. Picture the scene. Someone on the Today programme is putting the case for leaving. John Humphrys then asks: “OK Mr Gove/Farage/whoever. How much will you pay to leave?” The nature of the debate is thus transformed, from high-blown hyperbole to a sober assessment of the costs and benefits.
As it is, I fear we’ll be hearing too much hyperbole and misplaced certainty and not enough perspective and doubt. Worse still, I suspect that the media – including much of the BBC – will be complicit in this distortion of the debate.