Stumbling and Mumbling

Rational consumers

In the day job, I point out that the ratio of consumer spending to house prices has done a reasonable job of forecasting medium-term GDP growth, and that right now it is pointing to weakish growth.

Granted, this might in part be because of the denominator. When house prices are high – a low ratio in my chart - they subsequently fall and this depresses GDP via collateral effects (pdf) if nothing else.

But there might be something else going on. Consumer spending should be forward-looking. If so, low spending will be a sign that consumers expect bad times. And it’s possible that, across millions of consumers, errors in expectations will roughly cancel out: unless there are strong peer effects, the individuals who are wrongly optimistic will be balanced out by those who are wrongly pessimistic. To the extent that this is the case, aggregate spending will predict economic growth.

This shouldn’t strike you as outlandish. In the same spirit, Sydney Ludvigson and Martin Lettau have shown that consumer spending can predict (pdf) equity returns in the US, and Bank of England economists have corroborated this in the UK (pdf).

In fact – given economists’ inability to foresee recessions – it’s possible that consumers, in aggregate, are better economic forecasters than the professionals. Perhaps aggregate spending does what Friedrich Hayek claimed the price system does: it collects the dispersed, fragmentary and partial knowledge of millions of people into meaningful signals. Just as the decentralized price system embodies more knowledge than any central planner, so aggregate spending knows more than any centralized forecaster.

I don’t say this to make an economic forecast – though it’s worth noting that the consumption-house price ratio is sending a similar message to our record current account deficit. Instead, I do so to question the “nudge” agenda. This presumes (pdf) that wise and rational policy-makers can correct the follies of irrational lay-people. What we have here, though, is evidence that lay-people might (on average and in aggregate) know more than experts.

This is not the only evidence. The field of behavioural political economy – and, I guess, world history – reminds us that elites are as prone to cognitive biases as everyone else. As William Easterly has said:

Experts are as prone to cognitive biases as the rest of us. Those at the top will be overly confident in their ability to predict the system-wide effects of paternalistic policy-making – and the combination of democratic politics and market economics is precisely the kind of complex and spontaneous order that does not lend itself to expert intuition.

This is not to defend the simple-minded assumption that market agents are always rational. Instead, I suspect that irrationality, like intelligence, is context-specific: rational consumers (in my very limited sense of the phrase) might be irrational voters. The trick – in our personal lives as well as in economic research and policy-making – is to know when and how particular environments generate cognitive biases and when they don’t.

Labour's economic answers

Tony Blair says of the Labour leadership: “These guys aren't providing answers, not on the economy, not on foreign policy.” I don’t want to discuss foreign policy – others might have opinions on Mr Blair’s ability to judge that – but in economic policy, this seems questionable.

Among our economic problems are: persistently weak capital spending; a fiscal policy which, at the ZLB, cannot cushion the economy from adverse shocks; stagnant productivity and real wages; and unaffordable housing.

And Labour does have some good answers to these. A National Investment Bank can step up investment in new technology and infrastructure; Labour’s fiscal rule increases the flexibility of policy; the pledge to increase housebuilding is self-evidently a good idea; and McDonnell’s claim that “there is a clear boost to the economy from worker ownership and management” is correct; worker democracy can raise productivity.

Granted, Labour’s ideas aren’t fully worked out yet, but this is only to be expected four years from an election. The fact that McDonnell is seeking advice from top quality economists augurs well. As Liam Young says, Labour is building a good economic case.

This is not to say that Labour can solve all our economic problems. There’s not much it can do about the long-term slowdown in world trade growth – which is an especial problem as the current account deficit might become a constraint on growth. It doesn’t seem yet to have a policy about banks and financial stability (hint: nationalization). And it might be under-estimating the power of the forces depressing investment such as low profits; the fear of future competition and the possibility that companies have wised up to the fact that innovation doesn’t pay much.

 However, I suspect that this is not what Blair has in mind; scepticism about the health of capitalism would be out of character for him. So what is he thinking?

One possibility is that he’s just out-of-touch. A globetrotting multimillionaire friend of dictators is not well attuned to the struggles of the low-paid, or to McDonnell’s attempts to solve them. Another is that he’s living in the world of post-truth politics, in which the test of policy is not whether it is a coherent answer to real problems, but simply whether it sells to a biased media and inattentive electorate. A third possibility is that he’s thinking of the economy in BBC mediamacro terms – as a synonym for “government borrowing.” None of these possibilities do him any credit.

Markets as selection devices

One of the stronger defences of free markets is that they act as selection mechanisms. To the allegations that stock markets aren’t efficient because investors are irrational or that firms can’t maximize profits because bosses don’t know what they’re doing, the reply is that this might be so, but the market eliminates egregious irrationality and selects for those firms that have stumbled upon profitable strategies.

This, though poses the question: how does selection really work? A new paper by Pascal Seppecher and colleagues at the University of Paris gives one answer. They show that selection can lead to “wild fluctuations and deep downturns”. For example in good times, the market selects for companies who borrow to expand because these take market share from their cautious rivals. However, high leverage exposes firms to the risk of bankruptcy when an adverse shock occurs, which leads to a sharp downturn as they try to deleverage. You needn’t look far for an example of this; it describes banks behaviour in 00s.

The problem here is that, when faced with selection pressures, firms face a trade-off between what James March called (pdf) exploration versus exploitation. The firm that maximally exploits existing conditions will be maladapted when those conditions change. The firm that invests in exploring alternative strategies might survive change, but at the expense of not maximizing short-term profits.

To put this another way, the best chance of survival in a changing environment is to pursue mixed strategies. But these – by definition – do not maximize “shareholder value” in the short-run. And if all firms in an industry pursue the same strategy, we can have massive systemic instability, as the banking system showed us (pdf).

It’s not just change in the environment over time that can lead to maladaption, corporate death and downturns. A similar problem occurs when businessmen move from one environment to another. For example, the market in sportswear selected in favour of Mike Ashley’s ruthless cost-cutting. But that strategy when applied to Newcastle United proved less successful*. Or to take a more outlandish example, the market selects in favour of property developers who “restructure” their debts and dodge taxes. But it’s not so clear that such strategies are a good way of handling the government’s finances.

In fact, there’s another problem here: markets might select not for sensible behaviour but for lucky chancers. As Armen Alchian wrote in a brilliant paper (pdf) way back in 1950:

The greater the uncertainties of the world, the greater is the possibility that profits would go to venturesome and lucky rather than to logical, careful fact-gathering individuals.

This is surely true in financial markets. Bjorn-Christopher Witte has shown that risk-taking fund managers can attract more inflows and higher salaries than more cautious but better managers. Economists at Cass Business School corroborate this. They show that just six months of good performance (far too short a period to demonstrate skill rather than luck) can attract inflows into funds – and those funds go on to under-perform.

In a similar vein, Brock Mendel and Andrei Shleifer show that investor can chase (pdf) noise – a process which can give big profits to the irrational noise investor who bought over-priced assets early enough.

Now, in saying all this I don’t mean to reject the analogy between markets and natural selection. Quite the opposite. It’s a good one – especially but not only in financial markets. We should push it further, and ask: what exactly is it that the market selects for? How fierce is the selection process; the existence of a “long tail” of badly managed firms (pdf) suggests it isn’t always and swiftly brutal? And: how vulnerable are today’s survivors to the danger of a change in market conditions?

These answers will of course vary from market to market and time to time. But that’s the point. Economics is (or should be) an empirical discipline. Windy talk about “optimality” isn’t good enough. Sometimes, the invisible hand gets the tremors.

* Yes, Ashley did invest in the club last season, but that change came too late.

Prospect theory & populism

Does prospect theory help explain support for Brexit in the UK and for Donald Trump in the US?

The bit of the theory I have in mind is the prediction that people are risk-seeking when they are losing, because they gamble to get even. This explains several phenomena: why the favourite-longshot bias is stronger (pdf) in the last race of the day*; why (pdf) stock-pickers hold onto losing shares; why losing sports teams abandon their tactics in favour of risky all-out attack and “Hail Mary” passes; and why we sometimes get rogue traders – men who try to recoup losses by making riskier trades and so lose even more.

The same thing might explain support for Brexit and Trump. It’s generally agreed that both causes draw support from workers and the unemployed who feel that they’ve lost out under the existing order. As Jonathan Freedland says, “the voters rallying to populist insurgents are those who feel failed by conventional politics, left behind either economically or culturally.”

Of course, voting for Brexit, Trump or other populists is risky. But prospect theory tells us that those who feel they’ve lost might want to take risks. This might be because they feel they’ve nothing to lose: the threat of higher unemployment isn’t so scary if you’re already unemployed or if you think there’s a high chance of losing your job anyway. And/or it might be because they think that change carries upside risk.

This mechanism is amplified by another – distrust. The elite’s warnings that Brexit and Trump are risky are true. But many poorer workers and unemployed don’t trust elites – a fact which Brexiteers are cynically exploiting.

My point here is the opposite of Janan Ganesh’s. He writes that Brexiteers are rich enough to be able to ignore the economics of Brexit. Whilst this is true of Boris Johnson and Nigella’s dad, it cannot explain Brexit's support among over 40% of voters.

You might object there that, in theory, there is another mechanism tying impoverishment to political attitudes – resignation. Often, the poor can be apathetic about politics. I’m not sure there’s a contradiction here. The poor can be both apathetic in the sense of not actively seeking positive political solutions to their plight, but also willing to take a risky option should it present itself.

I’m making two points here.

First, we don’t need to invoke xenophobia, small-mindedness or racism to explain the popularity of Brexit or Trump. Such support can also arise from decent people acting as behavioural economics predicts.

Secondly, what we’re seeing here is a cost of inequality. Unemployment, insecurity and low pay has generated constituencies willing to back risky options. And, as Eric Uslaner and Henrik Jordahl has shown, inequality breeds distrust so that even on those (rare?) occasions when elites are correct, many voters don’t believe them. Perhaps, therefore, support for Trump and Brexit are not so much diseases as symptoms of a wider malady.

* Some researchers, however, find (pdf) this isn’t statistically significant, at least in the US.

Bad arguments against Marxism

One of the problems with being a Marxist is that one is the subject of silly misunderstandings. Here are a handful of the bad arguments against Marxism I often see, and my replies.

“Don’t you realize central planning has failed?”

We do.  But if you want to find people who still believe in central planning today, you should look not among Marxists but in company boardrooms. It’s bosses who believe complex systems can be controlled well from the top down, not we Marxists.

In fact, many of us point to the abundant evidence that worker (pdf) ownership and control increases (pdf) well-being and productivity (pdf) as evidence that a post-capitalist society is feasible – in the sense of one in which hierarchical inequality is replaced by more egalitarian forms of control and ownership. For me, central planning is not a part of socialism.

“How can you believe guff like the labour theory of value?”

Simple – because as an empirical theory (pdf), it actually (pdf) works well (pdf). Paradoxically, the theory might be true but irrelevant. John Roemer has shown that it is not necessary for the claim that workers are exploited under capitalism. Instead, he says (pdf), we can say that workers are exploited if they would be better off if they could withdraw from capitalism, taking with them their per capita share of the capital stock. On this conception, the question is: does capitalist rule increase wages (by more efficient organization) or depress them (by exploitation).

“You’re ignoring the fact that capitalism has lifted millions of people out of poverty.”

I don't. It has. And Marx – perhaps more so that his contemporaries – was aware of this. Capitalism, he wrote, “has accomplished wonders far surpassing Egyptian pyramids, Roman aqueducts, and Gothic cathedrals”, “has given an immense development to commerce” and caused a “rapid improvement of all instruments of production.”

However, to assume that this will remain the case is to commit the fallacy of induction. Marx also thought that there’d come a time when capitalist relations of production would become “fetters” upon growth. It’s possible – given the slowdown in growth – that developed economies have reached this point.

 “Marxists are the enemies of freedom.”

Let’s leave aside the fact that this accusation often comes from supporters of political parties that have created over 5000 new criminal offences since 1997. What this ignores is that there is a big strand of libertarianism within Marxism: Marxists are far more sceptical about the benevolence of the state than social democrats, for example. As Jon Elster has written, Marx "condemned capitalism mainly because it frustrated human development and self-actualization." For us Marxists, one of the nastier features of capitalism is that it forces people – for lack of alternatives – into employment relations which are illiberal, coercive and demeaning. For us one challenge is to find ways of increasing people’s real freedom to live fulfilling lives. Such ways might not be compatible with capitalism.

“You want to impose a social engineering dogma onto people.”

No. Insofar as government has a role to play in the transition to socialism, it’ll be through a form of accelerationism or what Erik Olin Wright calls (pdf) interstitial transformation – encouraging and facilitating democratic libertarian egalitarian alternatives to capitalism. For example, a citizens income combined with a meaningful jobs guarantee would be a step towards real freedom, and might kill off the most exploitative forms of capitalism by allowing workers to reject bad jobs. Preferred bidding status might encourage the growth of coops. Credit unions and P2P lending could be encouraged as alternatives to banks. Forms of civic engagement could be encouraged on the basis that small forms of democracy will lead to demands for more. And so on.

In this sense, socialism might evolve as capitalism did – through an admixture of emergence and state intervention.

 “You’re a bunch of utopians.”

In the sense that we believe that a better world is possible, we plead guilty. But we are not alone here. Non-Marxists who claim there’ll be big gains from managerialist policies are also guilty of a form of utopianism. A big reason why I’m a Marxist is that I’m a sceptic about that sort of utopianism, and doubt how far working people’s lives can be improved within the confines of a stagnant late capitalism.

 “Marxism is a pseudo-science.”

This accusation often comes from people who believe in a form of mainstream economics which rests upon numerous unobservable entities such as the natural rate of interest, natural rate of employment, marginal utility and marginal product.

I suppose it is true for some definitions of “science” and some definitions of “Marxism”.  For me, though, Marxism comprises a set of theories which are reasonably consistent with some facts, for example:

 - Technology affects culture. “The mode of production of material life conditions the general process of social, political and intellectual life” said Marx. This has been confirmed, for example, by the work of Jeremy Greenwood. If you want an example of Marxism at the BBC, the strongest is Radio 4’s The Digital Human.

 - Class and power - in the sense of access to the economic surplus – rather than human capital  determine inequality

 - Apparently free markets – what Marx called “the realm of liberty, equality and Bentham” – can disguise rent-seeking and exploitation. Marx had in mind the labour market. Other examples are the markets for CEOs and for many financial “services.”

 - Marx thought that capitalism produced a form of false consciousness; people failed to see its exploitative nature. I suspect a lot of the work on cognitive biases is consistent with this.

 - Marx thought there’d come a time when capitalist institutions – what he called the “relations of production” would act to restrain economic growth. “From forms of development of the productive forces these relations turn into their fetters.” Secular stagnation might be evidence that this is happening. For example, intellectual property laws might do more to increase incumbents’ profits than encourage technical progress. Bosses’ opposition to organizational change might mean that the full gains from IT have yet to be realized. And the difficulty of monetizing innovation might help explain the paradox that techno-optimism co-exists with low investment.

In these ways – to mention just a few – Marxism is, to put it at its weakest, at least a useful perspective on today’s problems.

You might object here that my Marxism is idiosyncratic. Certainly, it owes more to the Marx described by Jon Elster than to the one portrayed by Leszek Kolakowski. But frankly my dear, I don’t give a damn.

TV journalism: no place for Marxists

My first reaction to the news that Noreena Hertz is to become ITV’s economics editor was: isn’t she slumming it? Others, though, have asked whether a leftie can be trusted to report economics impartially.

On this question, Ben is of course right to say that the answer is: yes. I’d add that being a Marxist is actually a qualification for the job, in two senses.

First, some of us Marxists – unlike many of our opponents – are not spittle-flecked fanatics. Instead, our Marxism arises from a cool-headed scepticism about whether capitalism really can maximally advance living standards and real freedom for all. Such scepticism is a virtue in any proper journalist. And it’s surely a vast improvement on the churnalism and unthinking deference to the rich and powerful that passes for most of journalism today.

Secondly, we Marxists know that we are in a minority, so we know which of our opinions aren’t mainstream. This makes us much more aware of potential biases in our own thinking, and so able to slough them off when necessary. By contrast, “mainstream” reporters might be more prone to groupthink and so pass off their own opinions as impartial fact.

In this context, the problem with Ms Hertz is that she’s NOT a Marxist. I fear instead there’s a danger that she’ll import bien-pensant Primrose Hill dinner party sentiments into her reporting.

Rather than ask: are Marxists fit to be impartial TV journalists – to which the answer is obviously yes – we should turn the question around and ask: Is TV journalism a fit job for any intelligent, sceptical person? I suspect not - at least in economics - for three reasons:

 - Impartiality has come to mean not impartiality between economists but rather impartiality between politicians. This leads to systematic biases in reporting on subjects such as austerity, Brexit or immigration because the consensus of economists is not adequately conveyed.

 - The news agenda, being set by politicians, is also biased. Non-problems such as “the nation’s finances” get attention whilst real economic issues such as low trend growth, the collapse in productivity growth and capture of the economy by the 1% are under-reported. I'm not sure how far one can fight this bias.

 - High-profile reporters come under pressure from hysterical bigots. One of the big reasons why I work at the IC is that my readers – unlike those of newspapers – want good economics rather an echo chamber for their own neuroses.

It was pressures such as these that forced Paul Mason out of the industry. Perhaps, on reflection, my immediate reaction was right: the job is beneath Ms Hertz.

Farage's argument for Remain

Nigel Farage’s demand for a second referendum if Remain wins has met with the same reaction with which the famous heckler at the Glasgow Empire greeted Mike and Bernie Winters: “Och, Christ. There’s two of ‘em.*” In fact, though, it has a serious implication – it means undecided voters should vote Remain.

The reason for this is simple. If Mr Farage gets his way then if you vote Remain and regret it, you’ll have a chance to change your decision. If, however, you vote Leave and regret it, you’ll have to live with your regret; nobody is proposing a re-match in this case.

 If you regard both possibilities as equally likely – as I guess many undecideds do – then voting Remain is obviously the thing to do. It gives you a chance to change your mind whereas voting Leave does not.

To put this another way, if you vote Remain you retain an option to leave. But if you vote Leave, you have no such option: your choice is irreversible. Common sense – and real options theory if you want to be fancy – thus says that undecideds should vote Remain. Remain plus an option to leave is, for anyone roughly undecided, a better choice that Leave with no option.

For me, this is one of the strongest arguments for Remain that I’ve heard. (It’s so powerful that it should lead to such a strong Remain vote that even Mr Farage won’t demand a re-match, but let’s leave aside this paradox.) The fact that it comes from an ardent Leaver only confirms my prior, that the Brexit debate is characterized by a lot of counter-advocacy.

* Other accounts have a more realistic description of Glaswegian argot and the Winters’ talents.

Sources of biased journalism

There’s much discontent at the state of journalism, not least at the BBC. What’s insufficiently appreciated, however, is that bad journalism doesn’t just arise from individual incompetence and time pressures. There are also systematic structural forces towards bad and biased reporting. Here’s a list of some of them: I make no claim to completeness; some are more applicable in some news organizations than others; and these are in no order.

 - Low pay. The problem here isn’t just that if you pay peanuts you get monkeys. It’s that journalists are often paid less than PRs. This leads to many of them being insufficiently critical of their sources simply because they might want to work in PR later.

 - Cost-cutting. Foreign correspondents have disappeared, as has much investigative journalism, and has been replaced by cheap celebrity gossip and cobbling stories together from a few tweets. What Ben Rhodes says of the US echoes in the UK:

All these newspapers used to have foreign bureaus,” he said. “Now they don’t. They call us to explain to them what’s happening in Moscow and Cairo. Most of the outlets are reporting on world events from Washington. The average reporter we talk to is 27 years old, and their only reporting experience consists of being around political campaigns. That’s a sea change. They literally know nothing.

 - Class. Over half of top journalists were privately educated. This generates a host of distortions, such as a greater sympathy for the rich and powerful than for the poor, and a lack of understanding of economics: “Money? That’s what comes from daddy!”

 - Exchanging favours. For years, the relationship between the police and media has been too cosy: the police feed stories to journalists who in return downplay or ignore stories of police malpractice. This is one reason why it took years for the brutality of the police at Orgreave or Hillsborough to become properly known. In the same way, advertisers buy not just advertising space but a cooperative silence, broken only by the occasional brave maverick such as Peter Oborne.

 - Misplaced deference. The problem here isn’t just what Adam Smith called the tendency to respect the rich and powerful more than the wise and virtuous. Younger inexpert journalists often need help, which causes them to seek expertise where little exists. Fund managers, for example, are often presented as well-informed when in fact many are simply rip-off merchants. Similarly, their habit of being at the end of a phone with a ready quote about latest market moves or economic releases gives City economists more influence over journalists than academics have.

 - Laziness. It’s easy to get a story by getting quotes from talking heads. It’s harder to find out what’s really going on. This leads to a bias in favour of those talking heads, and against groups which aren’t so rich or organized as to have spokesmen; compare, for example, coverage of banks to coverage of anti-capitalist protestors or of the rich to benefit recipients.     

 - Overcompensation. The problem with trying to balance is that you can sometimes overdo it and topple over – hence, for example, the Today’s programme’s otherwise odd decision to interview Ann Coulter and its giving more coverage to Conservative than Labour voices. Similarly, in the 90s the BBC’s liberal arts bias led to it being unsympathetic to business but in recent years, it has over-corrected and become insufficiently critical. I’ll plead guilty myself here. I might have sometimes been too uncritical in the day job of Brexiteers or active managers, as I’ve tried too hard to be “fair”.

 - Libel laws. As Nick Cohen has shown, the cost of defending libel writs is so high as to have a chilling effect upon journalism; the misdeeds of the rich and powerful simply don’t get reported at all. This helps sustain inequality by leading the public to under-estimate the venality and corruption of the rich.

 - Wanting the scoop. Journalists’ healthy urge to get a story leads to a reliance upon sources who have their own agendas. We see one baleful and widespread effect of this in the advance leaking of speeches; “the Prime Minister will say today…”. Such leaks mean that analyses of the speech are quickly out-of-date and stale, with the upshot that the speaker gets less critical coverage than he should.

 - Cognitive biases. Every profession is prone to deformation professionnelle. One of journalists’ biases is the fundamental attribution error – the tendency to over-emphasize personal factors and under-rate environmental ones. For example, politicians are described as “weak” – think of John Major in the 90s – when in fact circumstances, such as a fractious party, make them so. It’s this failure to put things into context that led John Birt in 1975 to complain of the BBC’s “bias against understanding” – a bias which, says Steve Richards, still exists today.

  - News itself. “Dog bites man” is not news, “man bites dog” is. This means that everyday tragedies such as the fact that tens of thousands still die of poverty are underplayed, whilst the most trivial of first world problems are covered in depth. Also, news prizes “human interest” stories. These are almost equivalent to committing the base rate fallacy – of failing to ask “how common is that?” This can lead to a class bias: lively stories of benefit fraudsters get covered whilst the millions of decent people living in desperate conditions get ignored.

These biases tend to have the same effect: they lead to insufficiently critical coverage of the rich and powerful. In this sense, the claim that because the BBC is doing a good job because it is criticized from left and right is dubious. In fact It can be biased leftwards because of individuals’ occasional maladroit judgments, and biased rightwards for the above reasons.

You might object here that I’ve missed the obvious – that journalists do what their billionaire bosses tell them. That, though, is my point – that even without such pressure and without any conspiracy, journalism is biased to support the existing order.

Regulation, & BBC bias

A group of “business leaders” writes to the Telegraph:

Britain’s competitiveness is being undermined by our membership of a failing EU…Brussels’ red tape stifles every one of Britain’s 5.4 million businesses.

The BBC gave uncritical coverage to this claim (01’22” in). However, it raises several questions:

 - If it is membership of the EU which is undermining competitiveness, why is it that Germany is doing so much better at exporting to China than the UK? Last year, its exports (pdf) to China were €71.4bn (£51.7bn) compared to the UK’s £12.8bn, which meant such exports represented 2.4% of GDP against 0.7 per cent for the UK.

 - If EU membership determines business regulation, why is it that the volume of regulation varies so much from country to country within the EU? To take one of several indices, the Heritage Foundation puts the UK 15^th on its index of business freedom, whilst France is 32^nd and Italy 62^nd. As Rick says, whether you look at product or labour market regulation, “compared to most other countries the UK is lightly regulated.” 

 - Which EU-imposed regulations do you propose to scrap? Although the letter is silent on this, Tim Congdon at least has been more honest, citing energy policy, the working time directive and caps on bankers’ bonuses as examples. For some reason, though, few Brexiteers seem keen to argue that Brexit will allow us to shut down green energy producers and build coal-fired power stations; make employees work longer; and pay bankers more.

 - If Brexit really will make us more competitive, we’d expect to see sterling rise as expectations of Brexit increase, in anticipation of the smaller current account deficits that Brexit would produce. But this is not what has actually happened. Sterling’s fall since the autumn is widely blamed upon the increased risk of Brexit. And most economists, including the Bank of England and NIESR think Brexit would depress sterling. Why are most economists and financial market participants wrong?

Such questions raise a suspicion. It might be that some businesses are blaming Brussels for what is in fact their own inability to export and grow.

In this context the contrast between the BBC’s uncritical coverage of the letter and its ignoring the pro-Remain letter from over 200 economists looks not so much like a reasonable if mistaken editorial judgement but a brazen piece of ideology. It is symptomatic of a deference to business opinion – a deference which inhibits it from asking why it is that business is, in some respects at least failing.  

The trouble with the Brexit debate

How should the Brexit debate be structured, and presented in the media? Two things I’ve seen today pose this question: Vote Leave’s anger at ITV inviting Nigel Farage to debate against David Cameron; and the letter from 196 economists in favour of Remain.

These raise two general issues, which I’m not sure the media handle well.

One is: what to do about counter-advocacy, the fact that some proponents of a case are so awful that they detract from what might be a strong argument?

Vote Leave’s unhappiness at their case being represented by Farage is, I think, justified. He is likely to put the case for Brexit as a means towards immigration controls rather than – as at least a few of its advocates hope – as a step towards the UK becoming an open free-trading nation. For me, this would detract from the Brexit argument.

This is by no means the only example of counter-advocacy. When I see the Brexit case put by Andrew Lilico or Gerard Lyons, I see good intelligent men making arguments that require thought. When I see it put by Boris Johnson, I see only a blustering buffoon. For me, the prominence of the latter over the former weakens the Brexit case. And seeing this disgraceful display of arrogant disingenousness from Dominic Cummings shifted my position from being mildly opposed to Brexit to strongly so.

Not that the counter-advocacy is all on one side: Cameron’s claim that Brexit would increase the risk of conflict in Europe seems to me to be silly hyperbole.

The second question, raised by Simon’s letter, is: how to tackle the imbalance of numbers? For example, a debate on the economics of Brexit between (say) John van Reenen and Patrick Minford would no doubt be intelligent and informed. But it would be horribly misleading to viewers insofar as it would omit a key point – that for every one economist who agrees with Patrick there are perhaps five or six who agree with John.

All this makes me wonder whether TV or radio debates are a good way to inform the public. On top of the problems of how to avoid counter-advocacy and how to represent imbalances of expert opinion there are two other problems.

One is that debates are a lousy way of presenting facts. A downright false claim – such as that the EU costs us £350m per week – can be met only with denial, leaving the undecided listener none the wiser as to what the truth is.

The other is that debates are naturally polarizing; partisans are expected to advocate that all benefits lie on their side. This disguises what might be crucial facts, that either position has costs. Reasonable people might believe any of the following: that a small loss of GDP is a price worth paying for increased national self-determination; that short-term uncertainty is the cost of what might be a shift to freer trade in the long-run; or that being tied into undemocratic and sclerotic institutions are the price we must pay for the benefits of access to the single market.  Nuanced positions such as these tend to get ignored in simple pro- and anti- debates.

In saying all this, I’m not just making a point about Brexit. There’s a deeper question here, touched upon by Simon: do we have the institutions that best enable informed and rational political decision-making? I fear we don’t, and that the old media – even those parts of it that aspire to impartiality – are a big part of the problem.