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January 30, 2018

Comments

Dipper

if the Gravity model predicts that the UK will lose out from not being in a close trading relation with the EU, then it will also be true that the EU will lose out from not being in a close trading relation with the EU.

So then we get into "they are stronger than us" argument which basically says that all lesser countries must submit to direct political control from their larger neighbours as a means of continuing to benefit from close trade ties, and this will be in their interest.

Presumably in that basis Ireland should benefit from direct rule from the UK? So why does Ireland continue to refuse political union with the UK and eschew the considerable economic benefits that would ensue?

From Arse To Elbow

@Dipper,

As the metaphor implies, in a gravity model the volume of trade is the product of two factors: distance and mass. Because the EU (as a single trading bloc) is much bigger than the UK, we will lose out disproportionately. The loss is not equivalent because of the difference in mass.

Likewise, the Republic of Ireland stands to lose more relatve to other EU27 states, such as Greece or Poland, because it is geographically much closer to the UK. This is one reason why it so bothered by the prospect of a hard border (i.e. hindrances to trade) with Northern Ireland.

Any increase in the hindrances to UK trade, such as not being full members of the EU Customs Union or Single Market, will lead to a reduction in total trade volumes and values. That, which is the essence of the leaked government report, is a statement of the bleedin' obvious.

To compensate for this loss, Brexiteers need to explain not only how we can secure new trade deals with non-EU countries but how the reduction in value on similar volumes (due to the added costs arising from greater distance) can be offset. The point about this week's flap is not Rees-Mogg's dismissal of gravity models but his failure, beyond exhortation, to explain how UK trade can be boosted.

Richard Ayres

@Dipper - because it is already in an economic union with the UK - the European Union

Dipper

Comments missing the point. Deliberately I assume

The point about Ireland is if this question was simply about economics then Irish Economic professors would be campaigning for Ireland to rejoin the UK on the UK leaving the EU, because due to the gravity model Ireland's economic interests are best served by being in economic union with the UK, and because the UK is much bigger and stronger than Ireland then the UK will be able to dictate terms to Ireland so Ireland will have no choice but to accept them. There is no significant difference in the arguments between Ireland/UK and UK/EU. But Irish economists aren’t making these points (I assume) so why are UK economists?

The Brexit argument is not primarily an argument about economics, it is an argument about national identity, national interest, and democratic politics. In particular it is about the EU being intent on destroying UK national identity (as well as that of other nations), and the concern many have that once that has disappeared then millions of UK citizens particularly in those regions not connected with the Eurotechnocracy will in effect have no political representation and no means of exerting political power to further their own interests, and will just end up being a neglected disempowered mass of people on the geographic and political fringes of Europe. Economists will be okay though as they will be kept well rewarded by the powers of technocracy that run the statist EU machine. Economists have a clear self-interest in this argument and they fool no-one when they act as though they are impartial.

Amb

“The point about Ireland is if this question was simply about economics then Irish Economic professors would be campaigning for Ireland to rejoin the UK on the UK leaving the EU, because due to the gravity model Ireland's economic interests are best served by being in economic union with the UK, and because the UK is much bigger and stronger than Ireland then the UK will be able to dictate terms to Ireland so Ireland will have no choice but to accept them. There is no significant difference in the arguments between Ireland/UK and UK/EU. But Irish economists aren’t making these points (I assume) so why are UK economists?“

Irish economists are making these points; they’re aghast that the U.K. might impoverish them.

Dipper

@Amb to make the obvious point it is not the UK impoverishing Ireland. Leavers are quite happy to have close economic ties with Ireland. It is the EU that is demanding a political and financial price for maintaining a close relationship that many in the UK feel we cannot pay.

Chris E

It's somewhat disingenuous to try and speak about close economic ties on the one hand, and political and financial ties on the other as if they are completely separate, or as if the latter don't facilitate the former.

Blissex

«leaving the EU will make us poorer in every scenario modelled»

Look I am tired of the "Project Fear" bollocks -- even if it were true it has not persuaded the "Leavers", who are voting with their hearts.

While I think that "leaving the EU will make us poorer", the really big question is not "is that true?" but "how much?" and all the sensible projections I have seen say around 8% lower growth over 10 years.
That's the same as a recession, and it is stupid to inflict one on ourselves, but it is eminently survivable. Of course it will hit harder different categories, and it will hit hardest the poorer regions of the UK, those more exposed to international competition. But they voted for it.

Sometimes I think that the "Leave" story has to run its course and burn itself out: when most "Leavers" after a few years outside the EU realize that the EU was not the number one obstacle to getting the Raj back, they might wake up and smell the espresso across the channel.

Blissex

«It's somewhat disingenuous to try and speak about close economic ties on the one hand, and political and financial ties on the other as if they are completely separate, or as if the latter don't facilitate the former.»

It is much stronger than that: deep trade integration requires political integration, it is not merely facilitated by it.

What the stupider "Leaver"s don't realize is that "free trade" can have a large economic impact and that economic impacts have political consequences (and many "Leavers" voted that way precisely because of that).

No sensible advanced country will open its markets to another without shared sovereignty and give-and-take on things like regional development contributions and freedom of migration.
Would a poor country like Romania open its markets to far more competitive industries from England or Germany if they could not relieve the consequences on local industry and employment with regional development funds from and migration to the more developed countries? Of course not.

During the golden age of "free trade" the reason why english industry could export freely to so many countries without any conditions was that they were colonies.
In the New England colonies the local manufacture of even *nails* was forbidden by law to protect the "free trade" of nails from the factories in the midlands.

No matter how much the heart of "Leavers" tells them that only when finally freed from the EU can England recreate the Raj and "free trade" 18th century style, that's a delusion.

Blissex

«Leavers are quite happy to have close economic ties with Ireland.»

That's a betrayal of everything the "Leave" vote was about: "taking back control" and recreating hard borders, including with the EU, which includes Ireland.
The "Leave" vote was not a half-assed one for "We want to take back control of borders and immigration but only in some cases but not others": it was about sending the A50 notification, and thus taking back control of all borders, and leave no borders open to a flood of immigrants or imports, be they from Ireland or any other country.

Dipper

@ Blissex - "No sensible advanced country will open its markets to another without shared sovereignty and give-and-take on things like regional development contributions and freedom of migration."

apart from Canada.It is always "apart from Canada"

Seriously, this Remainersplaining stuff does stop being funny after a while. Yes we get that in the big wide world we have to make compromises. But the EU deals haven't been compromises. They've been the kind of fantastic deals where we get to give the EU loads of money, and in return we get to give them loads of fish, or that trade deal for the UK; the one where instead of the exporting country paying tariffs, we negotiate a special deal where its the importing country that gets to pay the tariff. Or that special pensions deal we did with the European Commission where they take 3% of the workforce from the UK, and in return we pay 10% of the pensions bill.

But we had lots of influence in the EU. We know that because they kept telling us how important and influential we were, right before we signed another one of those fantastic deals.

d

@ dipper

Expect Ireland will get English speaking business that would otherwise be in the UK

Magnus

You’re right. It would be refreshing to hear some sort of defence of economics in the mainstream media. Gravity models are portrayed as esoteric/irrelevant by the right, and as neoliberal orthodoxy by the left. The quality of the debate we get is lamentable.

By the way I think existing knowledge on the Laffer curve is more robust than you think. At least I don’t think there are any serious peer-reviewed studies suggesting a peak at 50%.

Dipper

@d but the gravity model says it will be more distant business than the UK business so will be worth less than the UK business. Or are we ditching the gravity model now in favour of another model?

CB

@dipper
'The point about Ireland is if this question was simply about economics then Irish Economic professors would be campaigning for Ireland to rejoin the UK on the UK leaving the EU, because due to the gravity model Ireland's economic interests are best served by being in economic union with the UK, and because the UK is much bigger and stronger than Ireland then the UK will be able to dictate terms to Ireland so Ireland will have no choice but to accept them. There is no significant difference in the arguments between Ireland/UK and UK/EU. But Irish economists aren’t making these points (I assume) so why are UK economists?"

You're right that Brexit and Ireland's relationship with the UK is about more than economics. But on the economic level your analogy doesn't work.

The gravity model doesn't say what should happen, it says what does happen. Trade increases with proximity, just as it decreases the more barriers go up. Ireland and the UK are a good example, both being major trading partners of the other.

If Brexit means new barriers between the UK and EU, UK/RoI trade will probably drop. But why would that mean Ireland joining the UK would be the right thing to do economically? It would mean putting up barriers with all our slightly less close neighbours that Ireland would expect to do a lot of trade with, though less than with UK. (As it turns out, Irish exports to the UK and to Belgium are about the same at c. 13%.)

31 fairly close countries beats one next door neighbour, even in the gravity model.

Tony of CA

At this point, I find must economist's forecast are not very useful. I believe their main job is to cheer lead the current economic system.

Ogden Wernstrom

"The point about Ireland is if this question was simply about economics then Irish Economic professors would be campaigning for Ireland to rejoin the UK on the UK leaving the EU, because due to the gravity model Ireland's economic interests are best served by being in economic union with the UK, and because the UK is much bigger and stronger than Ireland then the UK will be able to dictate terms to Ireland so Ireland will have no choice but to accept them. There is no significant difference in the arguments between Ireland/UK and UK/EU."

The difference in arguments might be in the timing. Maybe Irish Economists expect that the weaker UK which will result from Brexit will be LESS able to dictate terms - but they also know that tipping their hand now might hurt the future bargaining position of Ireland. They can wait for the UK to start begging.

If you raise the question of national identity and such, it appears you must make a similar parallel with Ireland. Is the UK intent on destroying Ireland's national identity and leaving them disempowered?

Keith

You are right of course. But the Tory government and the coalition before, have been blatantly doing irrational things defying evidence and economic theory for more than a decade. Just like trump. lots of people seem impervious to reason, science, and facts so long as they can indulge their personal greed and prejudices. So long as other people ( the suckers ) get it in the neck they do not care. Ethical incontinence as someone I know likes to refer to it.

Keith

Also the crank dipper who ever they are is wrong. Ironically he has demonstrated the validity of the opening post: As a matter of fact the brexit campaign did make a lot of wrong claims about the economic benefits of brexit, such as the absurd 350 million pounds extra for the NHS every single week, and imaginary trade deals with timbuktu recreating the Raj and colonies. The extreme nut case brexit brigade constantly lied during the referendum campaign about trade, economics and immigration, and constantly try to rewrite the history in a Orwellian fashion as if none of us can remember past last week. Both the cultural and economic cases made for brexit were invalid; Involved deliberate falsehoods and pandering to racism, xenophobia, and ill informed ignorance. The different pro brexit groups made claims that were contradictory and untrue, and largely were allowed to do so by the media. This whole process shows how not to make political and economic decisions and makes a good case for Parliamentary government, except our Parliament seems decidedly ineffective as well. A minority of far right cranks like dipper inside a party which has lost its majority at the last election is holding the entire political, legal, and economic system to a kind of randsome. Exploiting the consequences of the leading political figures having no moral courage. Indulgence is a dangerous weakness, at least John major stood his ground when PM.

Oldcobbler

"... only very deep trading agreements that go far beyond mere low tariffs (such as the EU’s single market) significantly boost trade."

The single market might boost trade, but does it significantly boost GDP per capita ? According to Table 7 in this - https://tinyurl.com/yc7odmw9able - it's made a difference in the UK of 1.3% after 25 years. Is that "significant" ?

From Arse To Elbow

@Dipper,

The Republic of Ireland will suffer from Brexit because of the proximity of the UK, but this loss is outweighed by the gains of its continuing membership of the EU. In other words, mass (the single market) trumps distance (the border with NI) in this instance.

"The Brexit argument is not primarily an argument about economics". I think everyone would agree with that, but that is why Brexiteers like Rees-Mogg are undermining their own cause when they try and dismiss gravity models as "comprehensively wrong".

An honest position would be to admit that trade will suffer but insist that this will be a price worth paying for non-economic reasons. Trying to claim that Brexit will lead to a boost in trade is beyond cakeism and into the realm of fantasy.

Blissex

«apart from Canada.It is always "apart from Canada"»

Canada has only two significant trading "deals": that with the EU is very limited, and that with the USA is very extensive.

Yes, within NAFTA both Canada and Mexico have next to no representation and yet there is significant integration with the USA economy. But that's simply acknowledging the facts: they are both vassal states of the USA with no representation regardless; that's simply "realpolitik".
Because of the obvious differences in power, even the post-WW2 leaders of England, Churchill and Attlee, gave up english sovereignty on security, military, foreign policy matters to the USA, without representation; that's "realpolitik" too.

Blissex

«The Tory government and the coalition before, have been blatantly doing irrational things [ ... ] So long as other people ( the suckers ) get it in the neck they do not care.»

Their "Blow you! I am alright Jack" policies have not been irrational at all, even if they have quite ruthless and nasty. There is a difference...

Dipper

@ keith "the crank dipper".

Takes one to know one.

Dipper

@ Ogden Wernstrom "Is the UK intent on destroying Ireland's national identity and leaving them disempowered?"

No. Absolutely not. Lots of fringe UK politicians hold all sorts of opinions but I'm not aware of anyone who has suggested that. Been there, done that, completely screwed it up, not doing that again.

But this is the point. Due to historical and geographical reasons, an open border with Ireland is a no-brainer, and free trade too. But no-one is suggesting that Ireland needs to adopt UK law as a price for that, or pay the UK money to enjoy free trade with us. That would be considered an act of colonialism that would be completely counterproductive and inappropriate. So why are so many people saying that the EU demanding the same from the UK is a reasonable approach for them to take?

Dipper

This forecasting thing. It is not just that economic forecasts are often wrong, it is that the whole notion of economic forecasting is at best completely wrong headed and at worst value destroying and primarily in this instance about who has power.

Economies are evolved ecosystems, and the thing about evolution is that it is completely unpredictable. The complexity of interaction and the role of chance and opportunity make forecasting a waste of time.

The history of technology is full of things that no-one expected. From the "we will only ever need 4 computers" onwards no-one has predicted anything accurately. The five biggest companies in the world today are different to the five biggest companies in the world five years ago. Good luck forecasting the five biggest companies in five years time.

So what should a wise government do to maximise wealth in an unforecastable ecosystem? Well, give economic evolution the best chance to succeed. Enable things you haven't thought of to develop and grow. Foster interaction and co-operation to produce innovation and creativity.

Forecasting destroys this. It forces you to predict how things will evolve, and makes you commit to it without any good reason, and it shuts you off from successful evolutionary branches because they are not part of your plan.

So why do authorities like forecasts? Because they are the modern equivalent of shamens and witchdoctors, giving social credibility to power. And they lend their "authority" to those who will reward them, predicting success for their paymasters and failure for those who oppose their paymasters.

And as for the EU, it should be reminder that the EU was not constructed to make people richer; it was constructed to stop Germany slaughtering them and their families at regular intervals. It is an economically sealed zone that enables Germany to prosper in peace and removes from them the urge to wage war on their neighbours. It has been a centre of low growth and a hub of non-innovation. I understand that in an ideal world we would be better off being close to our European partners, but they have chosen a route that does not suit us, and we should leave them to it whilst we engage with a dynamic creative rest-of-the-world.

From Arse To Elbow

@Dipper,

A free trade agreement between the UK and RoI would invalidate the latter's membership of the EU Customs Union. This is because goods imported to the UK from a non-EU country tariff-free could then be trans-shipped via Ireland to any other EU country, thus avoiding the common external tariff of the CU.

If the UK remained a member of the CU then there would be no need for a UK-RoI FTA, but this would mean accepting EU law in respect of the CU. If the UK doesn't wish to remain in the CU then there will need to be a hard border between the RoI and NI to enforce the CU's common external tariff - i.e. prevent smuggling.

Free trade does not mean abandoning tariffs and regulation altogether but conditionally extending them on a reciprocal, usually bilateral basis to another country. This requires laws that must be synchronised in both countries, which is a partial concession of sovereignty by each. The EU Customs Union is simply a multilateral free trade agreement.

Dipper

@ Arse2Elbow I feel we have been round this argument many times in the past 18 months, and so once more we go.

If the RoI wants to enter into an agreement with the EU that means it is unable to have a Free Trade agreement with the UK if the UK departs the EU then that is the RoI's responsibility. The rules of the EU were not carved in stone and delivered by Moses, they were agreed by member states of which RoI is one, so effectively RoI has greed rules which bind its economy. Perhaps they can persuade their new friends in the EU to help them out.

Lots of people don't think there needs to be a hard border. Many industries have complex rules and regulations with systems of verification that do not involve a bloke in a shed on the Dundalk-Newry road. a hospital cannot by drugs off a bloke in the market and say that because they were sold in the EU they assumed Customs had approved them for sale - they have to do checks themselves. so I think the hard border stuff is just the EU rattling its cage.

The EU Customs Union is not simply a multilateral free trade area in the same way that FOM is not simply a way of meeting labour requirements. the stated aim of the EU is Ever Closer Union, and it is achieving this by creating a super-state of which the customs un ion and FOM are enabling parts. And yes I get the bit about sharing sovereignty but there are ways and means of doing that that do not involve respecting not destroying nationhood.

Stewart

Possibly ignorant question, but I thought there were decent historical examples where gravity models didn't work e.g. late 19th century Britain traded more with the Empire (obviously), the U.S. and Argentina (?) than Germany and France.
With regards to the government forecasts, we obviously cannot tell until we see them, but the impression seems to be that the forecasts only take into account changes on the UK side and assume the E.U. will effectively be static. This is, however, unlikely. There seems to be a desire for further integration which is more feasible now that the biggest brake on the idea is leaving. So, if that were to prove economically beneficial, the increased size of the European economies could compensate for the reduction in trade due to the trade barriers imposed. Equally, reduced reliance on trade with Europe could be beneficial if, in a few years time, the Italian banking sector collapses and sets of a Europe-wide recession. Both of these could be benefits of Brexit to the UK which could only be realised by leaving the E.U., but wouldn't be captured by forecasts which look at the UK alone. I realise that there are limits to what economists can reasonably be expected to forecast, but surely Project Fear which predicted no cuts from the BoE shows that failing to consider all the relevant actors can lead to significant error.

ronin

@ Dipper
"But this is the point. Due to historical and geographical reasons, an open border with Ireland is a no-brainer, and free trade too. But no-one is suggesting that Ireland needs to adopt UK law as a price for that, or pay the UK money to enjoy free trade with us. That would be considered an act of colonialism that would be completely counterproductive and inappropriate. So why are so many people saying that the EU demanding the same from the UK is a reasonable approach for them to take?"

Do you actually understand what free trade and open borders mean?
For the purposes of the goods and services you do have to adopt common laws and standards - it's OK the UK can adopt Irish law in that respect (thanks for the paternalism). Otherwise you end up with regulatory or tariff arbitrage by manufacturing to lower standards and so on. And as regards open borders, I am sure you understand the need to have common external entry standards.
All of the above are also known as having the same laws. And hey, guess what, you need a common enforcement mechanism.
You already have free trade and open borders with Ireland, its just that it comes lumped in with a whole load of other countries you obviously don't want to be involved with.

You also have convinced yourself that the EU is on a mission to "destroy UK national identity". With the greatest of respect, I would look in the other direction across the Atlantic to see the country that has done the most to destroy UK national identity via cultural domination.

Dipper

@ronin

did you read what I wrote? Checking that immigrants have a right to work, or that goods meet regulation is not done at the border; the modern world is simply too complex for a border check to have any real significance. Canada is in a free trade association with the USA and still has its own laws.

There are loads of quotes from people like Verhofstadt and Juncker on their dislike of the nation state in Europe. Lots of interviews. They haven't hid their wish to destroy nations in Europe, and they keep getting more power, and no European significant leader has disagreed with them. Since the referendum their voice has become louder.

Gulliver Foyle

"the modern world is simply too complex for a border check to have any real significance. Canada is in a free trade association with the USA and still has its own laws."

And yet despite 'border checks being too complex to have any real significance' and despite both countries being signatories to the same FTA a hard border still exists between Canada and the USA: -

"Your first point of contact at the border consists of “Primary Inspection.” If all of your paperwork is in order and was processed ahead of time, you will be released at the primary lane and this may be your only stop. If your paperwork is not in order, you must visit a customs broker or, if you are selected for examination, you will be directed to “Secondary Inspection”. Your best chance of passing through customs at Primary Inspection, saving several minutes or hours of time, is to have all your paperwork in order before you arrive at the border"

https://www.truckingsafety.org/Portals/0/GuideBooks/Border_Crossing_Guide.pdf

GivitaRest

Dipper arguing from personal incredulity, as usual.

"I can't believe we need border checks", therefore we don't need border checks.

https://ukcivilservant.wordpress.com/2016/10/30/post-brexit-bureaucracy-rules-of-origin/

Dipper

@ GivitaRest.

What is your point? Do you believe the UK should be able to leave the EU? And if you do believe that choice should be available then, given we have voted to Leave, how is that choice to be implemented?

Dipper

@GivitaRest

Actualiy on reading that link I've changed my mind; it is clear the EU will have to erect a hard border at the RoI/NI border.

We will not have to do that in the UK. We can inspect any item crossing the sea between NI and Great Britain and the local authorities can take care of what goes on in NI.

So if the EU fail to deliver an acceptable agreement, they will have to erect a hard border. Oh well.

GivitaRest

@ Dipper

"Do you believe the UK should be able to leave the EU? And if you do believe that choice should be available then, given we have voted to Leave, how is that choice to be implemented?"

The UK can leave the EU, whether I believe it or not.
I have no advice on how it is to be implemented.

"Actually on reading that link I've changed my mind; it is clear the EU will have to erect a hard border at the RoI/NI border."

Hallellujah.

"Oh well"

Spoken with the blithe irresponsibility of the truth Brexiter. "If I release my bull in a china shop, it's up to them to put up crash barriers inside, otherwise everything will get broken. Oh well."

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