Brexit: an unending dream

Simon says Brexit is a fantasy:

There is nothing about the case for Brexit that is based in reality. This is why everything Brexiters say is either nonsense or untrue.

This poses the question: will they ever acknowledge reality? I’m not sure they will.

Let’s say, for the sake of argument, that Brexit proceeds without massive glitches such as hold-ups at ports but otherwise much as Remainers expect (pdf)– that is, we get slower growth in trade and productivity than we otherwise would. This implies weaker trend growth than otherwise. If we are to be five per cent worse of in the mid-30s than we would had we remained, we’d get average growth of (say) 1.6 per cent rather than (say) two per cent per year.

But the thing about counterfactuals is that nobody sees them. In 2035 there’ll be no Jim Bowen saying “here’s what you could have won”. There’ll be no “a-ha” moment of proof that Brexiters were wrong, even if (arguendo) they are.

And this will bring a host of cognitive biases into play. Once we have bought something, we invent reasons to justify our choice. This is especially true for things we’ve strived hard for. As Dan Ariely put it in Predictably Irrational, “the more work you put into something, the more ownership you begin to feel for it.” This is the Ikea effect (pdf). And it’s amplified further by the fact that if a belief is part of our identity, we are especially loath to ditch it.

Brexiters, then, are likely to play up the benefits of being an “independent people”. And they can easily attribute slowish growth to other causes: inadequate infrastructure or training, a lack of entrepreneurship and so on. Such blame will not be wholly wrong.

As Leon Festinger and colleagues showed, even the clear failure of a prophecy does not necessarily cause its believers to recant. This is likely to be especially true of Brexit, as the failure might not be glaringly, irrefutably obvious.

Asymmetric Bayesianism, choice-supportive bias, the endowment effect, ego involvement and dissonance reduction might combine powerfully to stop Brexiters recanting.

There’s more: adaptive preferences. We’ll get used to mediocre growth and resign ourselves to it. As John Band tweeted:

In 30 years time British people will just plain have forgotten that the country used to be about as rich as France, rather than benchmarking itself against Poland and Portugal.

Facts rarely settle political debates. This might be especially the case with Brexit.

Comments

[TickyW]

Actually, a counter-factual may be validly observed from the UK's economic ranking.

If our ranking falls dramatically in GDP terms post Brexit, while other countries remain more or less at their pre-Brexit rankings, then it would be pretty safe to assume that Brexit is the cause.

[Blissex]

«then it would be pretty safe to assume that Brexit is the cause»

By 2030 it could still be the "disastrous consequences of Labour overspending", or the "monstrous Corbyn regime's persistent legacy", or whatever else.

Consider the consequences of thatcherism, the fruits of unleashing businesses to invest and manage as they see fit:

https://www.theguardian.com/commentisfree/2017/may/14/theresa-may-victory-must-not-get-in-way-clear-ideology
«47% of the UK population live in areas as productive as the former East Germany. Outside the south-east, the UK has a massive infrastructure deficit: per head, its just 40% of the OECD average.»

and that in the 35 years after 1980 growth and productivity nationwide have grown rather more slowly than in the 35 years before 1980, despite copious free money from scottish oil.

Committed thatcherites continue to argue that thatcherism has resulted indeed in a massive improvement in investment and productivity, because "motivated reasoning", as instead it has resulted in a debt-fueled asset price speculation that has done nothing for investment and productivity but redistributed upwards fantastic amounts (probably around 2-3 trillions during those 35 years).

[e]

Simon also says “No sane government or parliament will allow an outcome that makes people on average 8% worse off.” It seemed fairly clear to me, back when Ed Miliband was 'forgetting to mention the deficit', that no sane political party, or pundit, would offer a throw of the dice on the issue, yet they did. Ed? sane but oh, so left.
I do hope the current PLP concentrate on getting the results of those impact models published in full. Give us all a chance to ponder how differing sectors might fare.

[Dave Timoney]

While the Brexit ultras are unlikely to recant, I'm not so sure about many leave voters. While it's a simplification, the key issues for the bulk of leavers appear to have been immigration and sovereignty.

Given that Brexit won't affect non-EU immigration, and may well stimulate it if labour shortages in key sectors persist, I suspect many people will feel short-changed, particularly if there is no dividend in the form of cheaper housing, extra school places and shorter GP queues.

As regards sovereignty, there is as little appetite for UK laws being "dictated" in Washington or Beijing as in Brussels, but that is the likely result of new free-trade deals in which we are the weaker party.

Just as Brexit hasn't happened yet, neither has Bregret. It wil come, but probably not much before 2030.

[redpesto]

"And [Brexiters] can easily attribute slowish growth to other causes" ...such as 'immigrants'. Yet again.

[Dipper]

The post is right for the wrong reasons.

Firstly, the counterfactual is the UK remaining in the EU and we don't know how that would have developed. Even the economic figures don't give a valid measure because with significant immigration lilkely if we remain in the EU it is not possible for anyone to say that a higher GDP would translate into a higher living standard for an individual in the UK; they might have had a lower living standard because they had fewer opportunities.

Secondly, Brexit is an opportunity to carve out new relations; both between UK and the rest of the world, and within the UK itself. If we don't make the most of those opportunities that will be down to us and our decisions, not because of Brexit per se.

I think of Brexit as an adult child leaving home and leaving the family firm. You may be better off, you may be worse off, but it will be your life not the life given to you by higher powers over whom you had no power.

[Blissex]

«"There is nothing about the case for Brexit that is based in reality">

SimonWL is as usual a "Remainiac", because like EU membership is not 100% a good thing or 100% a bad thing, "Leave" also is not wholly bad -- it is quite bad *on balance*, but there are some positive aspects.

However a lot of the "Leave" vote was delusional, and their imagination of the post brexit future might look like this:

https://78.media.tumblr.com/9490b17160064dd8098d4c97ba153e62/tumblr_p3hd2t4Ur91wxfua8o1_540.jpg

[Blissex]

«Given that Brexit won't affect non-EU immigration, and may well stimulate it»

This is what D Davis promised on immigration:

https://www.theguardian.com/politics/2017/mar/27/immigration-levels-will-sometimes-rise-after-brexit-says-david-davis
«Immigration levels will sometimes rise after Brexit, says David Davis Brexit secretary says on BBC Question Time special that number of immigrants will go up ‘from time to time’ according to economic need ...
Pressed on whether the target of reducing net migration to below 100,000 still applied, he said: “I think we will get there, but the simple truth is that we have to manage this properly. You have got industries dependent on migrants, you have got social welfare, the NHS, you have to make sure they can do the work.”»

If kippers thought that "take back control" meant "less immigration" they deluded themselves.

[Blissex]

«As regards sovereignty, there is as little appetite for UK laws being "dictated" in Washington or Beijing as in Brussels»

I have never read a kipper arguing for "taking back control" of english sovereignty and independence over military, security, foreign policy from the USA. J Rees-Mogg in article in "The Times" documented how the USA minister of defense or national security adviser sack the UK foreign minister, but he did not comment on it.
Apparently the sovereignty and independence of England matters only as to banana regulations, but does not matter for military, security or foreign policy.

Note: I don't necessarily object to USA suzerainty over the UK, and to some degree it is inevitable, and at least remaining USA allies is desirable, the point I am making here is that kippers seem to be strictly focused on the issues made up by B Johnson when he was an EU affairs reporter.

[Jim]

"There is nothing about the case for Brexit that is based in reality. This is why everything Brexiters say is either nonsense or untrue."

I could say the same thing about Jeremy Corbyn's economic policy (such as it is). Yet if the UK votes for it, it deserves to get it, good and hard. Thats what democracy is.

If voting for something can be vetoed because the 'clever people' don't like it, then just go the whole hog and forget calling the UK a democracy, and be honest about what it really is, its a dictatorship of the middle class liberals who infest the State and Third sectors. Anything the masses happen to vote for that those self appointed arbiters of right and wrong don't like, sorry, not going to happen.

I mean if you're going to be an authoritarian dictator at least have the balls to admit it, rather than pretending to be a democrat.

[Gulliver Foyle]

"with significant immigration lilkely if we remain in the EU"

Given that most of EU immigration has come from the Eastern European countries, especially Poland, and that wages are rising in these countries, especially Poland I would suggest that this is possibly incorrect, at least as far as EU immigration is concerned.

"but it will be your life not the life given to you by higher powers over whom you had no power."

I continue to find this a risible argument, that the UK had no power within the EU. The single market and expansion to the East were driven by the UK.

[Blissex]

«but it will be your life not the life given to you by higher powers over whom you had no power.»

This echoes very well T May's argument for Scotland to exit from the UK from her Florence Speech:

“The profound pooling of sovereignty [ ... ] means that when countries are in the minority they must sometimes accept decisions they do not want, even affecting domestic matters with no market implications beyond their borders. [ ... ] electorate made a choice. They chose the power of domestic democratic control over pooling that control”

:-)

[GivitaRest]

"but it will be your life not the life given to you by higher powers over whom you had no power."

Somehow by giving up a swathe of personal freedoms - the freedom to live, study, work and retire anywhere in the EU - and our democratic rights to vote in European elections, participate in European democracy and enjoy the protections of the European court, we are gaining ... something.
Can you explain what?

[Blissex]

«Somehow by giving up a swathe of personal freedoms [ ... ] we are gaining ... something.
Can you explain what?»

I can and it's easy: England (plus Wales) regains the ability to take away those same freedoms from the EUSSR/Fourth Reich/New Napoleonic Empire people.

[Jo Park]

Great to speed read another blowhard on leaving EU membership who can't bring himself to mention the EU's primary fiscal purpose.
And is ignorant of the Fournier/Johansson analysis as to why that activity makes us poorer.
Ok, the average Leaver may have a lower IQ and education, but the intellectual Remainers are wilfully ignorant. I'll take the ones with their hearts in the right places, thanks.

[Dipper]

Remainers like to pose as the realists against Brexiter fantasists, but the ultimate fantasy is thinking that a vote to Remain was a vote for the status quo. The EU has a clear direction of travel towards a super-state which GivitaRest clearly wants (which is his/her right), and if we had voted to Remain, and if we concede on the single market now, that is where the UK will end up. the EU will see we can be cowed and bullied and simply bulldoze us into submission. With mass immigration by mid century the notion of a nation will have gone and there will be no way of getting it back, and as a subsidiary state on the periphery of Europe we will be just a lump of resource. This is all obvious, everyone I know understands this. Remainers are just fooling themselves about their power to control the future.

[Blissex]

«as a subsidiary state on the periphery of Europe we will be just a lump of resource.»

But to whose benefit? Who is going to steal away that lump of resource?
Will polish and romanian stormtroopers do the rounds to shake down the undefended people of Shropshire? Will the finnish and greek tax police with their trucks line up outside the BoE to take away its remaining gold reserves? Will the spanish galleons with swedish marines sail up the Thames to loot the great museums?
Will the UK become the sole source of plunder in the EU, as every one of the other 27 governments agree to drive the english to poverty to fund their vices and luxuries?

[Dipper]

@ Blissex.

You really haven't been paying attention have you. The EU is having desperate arguments about making up the shortfall when the UK leaves. They are already taking loads of money and dumping their surplus people and goods. I don't know why you find this a difficult analysis.

[Bill Posters]

It's going to take years to sort Brexit out.

Lets hope Thersa May comes back from China with a decent 5 year plan.

[GivitaRest]

@Dipper

"the notion of a nation will have gone and there will be no way of getting it back"

This appears to be the nub of your argument.

Can you explain why this is a bad thing? Why is being "British" good but being "European"bad?

Or, for that matter, just "human", with no nationalist overtones?

[Blissex]

«The EU is having desperate arguments about making up the shortfall when the UK leaves.»

That shortfall is the net payments of 8.5 billions a year, and the GDP of the EU27 is 15,000 trillions, the shortfall is 0.05% (half of one percent) of EU GDP.
That must be why "desperate" are the arguments about it. :-)

[Blissex]

«Why is being "British" good but being "European"bad?»

N Tebbit explained that in the "Daily Telegraph":

http://www.telegraph.co.uk/news/2016/05/16/its-time-for-britain-to-get-off-its-knees--freedom-awaits-us-out/
“It is time that the Brexit campaign seized its chance and set the scene for the debate: it's time for the British to get off our knees. .... Our record of successful self government, democracy and the rule of law is far, far superior to that of the other Member states of the EU. Time and time again, we have rescued the people of the continent from the follies of their leaders. They have never rescued us. ... Freedom beckons. Will a generation of politicians who have never fought for it betray the many thousands who died for it?”

That "get off our knees" is a powerful feeling, ever more intense than the feeling of disenfranchisement and oppression in words like "the life given to you by higher powers over whom you had no power" and "we will be just a lump of resource".

[GivitaRest]

Blissex
Do I really need to point out to to you that "we" are not on our knees?

[Dipper]

@Givitarest

yes that is pretty much the nub of the argument. It is not about British being good and European bad, it is that our government has a responsibility for all UK citizens and historically that UK-based dialogue is one that has delivered a lot of benefits across the UK. The EU as constructed is about containing German expansion. Looking after the citizens of Sunderland as an example is simply not on the map.

The other reason why the UK is better off on its own is because other European nations have developed an immune response to their neighbours primarily through language. They say they all believe in the European stuff, but their language allows them to look after each other first at the expense of those who don't share their language . The obvious example is Belgium which has two languages and is divided along those lines. In the UK we do not have that defence as everyone speaks English and we do not habitually discriminate against outsiders.

By all means try for a single world government, single world judicial system. Somehow i don't think it will be Europeans running that particular show. Good luck getting a hearing in those corridors of power.

[Blissex]

«the shortfall is 0.05% (half of one percent) of EU GDP»

Oops, 1/20th of one percent... As half of one percent would be half the EU budget, and the UK contribution is roughly 1/10th of it.

[Blissex]

«Do I really need to point out to to you that "we" are not on our knees?»

That's completely beside the point; what matters to a large number of voters is that it feels as if "we" were.
My personal theory as to that tebbitian feeling is that the "master-servant" relationship is a core part of english culture, the foundation of almost every social relationship in England (hint: nobles called only themselves "peers") and that many voters feel that if England is not the master of the EU (as instead it is the master of the UK and was of the Raj), then it follows that it is their servant. This is how a "Leaver" describes it:

http://nihoncassandra.blogspot.co.uk/2017/02/on-eu-brexit.html
«But our Continental partners pushed on with a different vision: a nation called Europe within which Britain would be merely a "member".»

That is, it is so obviously against the natural right of England to be "top dog" like in the UK and the Raj that being «merely a "member"» can only be explained by having been pushed onto "our knees".

[Bill Posters]

Some great comments on here. Very entertaining. What was the origianl post about again?

Brexit increasingly reminds me of the repeal of the Corn Laws. Theresa May doing a passable Robert Peel impersonation.

[Dave Timoney]

More like Robot Peel.

[Blissex]

«What was the origianl post about again?»

I guess it was delusional "Leave" arguments, but I would add also about dissembling "Remainiac" ones like this from our blogger:

«We’ll get used to mediocre growth and resign ourselves to it.»

First, as our blogger has mentioned in other posts, the UK has got used to mediocre growth since Thatcher, as growth rates in the 35 years since 1980 are nearly half those in the 35 years before, even with the help of lots of scottish oil (which has now pretty much run out).

Second, it shows that the "Remainiac" argument from March 2019 onwards will be that every issue with the english economy will be down to exit.
But even if I believe that exit from the EU will significantly reduce UK growth rates, I also think that pre-exit issues with the UK economy are much worse than exit will be. Recently I had a look at electricity consumption, and a neat summary is this graph from Google on per capita electricity consumption in some major countries:

https://www.google.co.uk/publicdata/explore?ds=d5bncppjof8f9_&ctype=l&strail=false&bcs=d&nselm=h&met_y=eg_use_elec_kh_pc&scale_y=lin&ind_y=false&rdim=region&idim=country:DEU:ITA:POL:GBR:FRA:ESP:CHN:JPN:USA&ifdim=region&ind=false

It is pretty clear that something really big started happening in some major economies like the UK starting 2003-2004 and that was well before the financial crisis and exit, and it is not over.

[rogerh]

So, so depressing.

As said this will be a slow burn decline, but a little faster and less evenly spread than had we remained in the EU. Slowly our graduates will see they are short changed in a third division country and emigrate. Bright people will not come here, our top universities will slowly lose their gloss.

I do look in the right wing blogs and read how such wonderful things will happen once we leave, but no one says what or how, not even the merest hint. I am sure chlorine chicken, GM beef and seeds will all be jolly good. I am sure the slow loss of the NHS will scarcely be noticed if done slowly, but loss it will be. TBH the supposed benefits look a fantasy. Thankfully I will be dead by 2035.

I have the sense that one way and another much of the West is in economic trouble. My feeling is that all over the middle class has grown too large and is engaged in not very productive work. I suspect they are in for a nasty surprise as they get forced down into less grand jobs and surplant the working classes. Up goes the benefits bill and up goes taxes (except at the top).

At the upper reaches we may see the old Regency period revive with a very wealthy upper class, a middle class scrambling for a position, a poor working class and rookeries for those at the bottom of the pile. The snag being there is no industrial revolution to look forward to. Every day we get a little closer.

But then the world is flattening out economically speaking. There seems no reason why UK workers should be better off than third world workers unless there is investment in industrial and social infrastructure (and I don't mean mere bridges and houses). The work goes to the cheapest and the best, we are taking the cheapest road, it requires little investment.

The alternative is a much more expensive and extensive social and academic education strategy probably requiring selective boarding education for the masses. Additionally the extension of industrial cities to match the mega cities of Asia. We won't do that, we will stay a museum full of NT properties, heritage centres and national parks. Pretty but poor. Brexiteers will find the Sunny Uplands come at a very high price, a price that will never be paid.

[Django's Dad]

What most surprises me about blogs like this (and more so, the ever excitable S W-L's) is the apparently absolute lack of any humility about the demonstrable weaknesses of the macro modelling trade. You name it over the last few decades, they called it wrong. And yet here we are again, treating long term Brexit projections as rock-solid before the laughably wrong-headed short term ones have even congealed on the plate. Funny old world.

Declaration of interests: skeptical and unenthusiastic Remainer.

[Doug]

Won't most of us have the same amount of power and control over our lives as we had before we joined the EEC i.e. fuck all unless we get together and fight for it (through unions etc). Will we get a vote about being made redundant or not, if we're in that situation. We'll still have the rich and powerful running things.

My concern is also that the (self) deluded will cling to an updated version of the post WW1 German 'stab in the back' crap - 'it's traitors deliberately sabotaging a free Britain'

[GivitaRest]

@ Dipper: "The EU as constructed is about containing German expansion. Looking after the citizens of Sunderland as an example is simply not on the map."

This is risible. Germany has had no plans to expand anywhere beyond its borders for at least seventy years.

In the same period the UK has fought colonial wars in Malaya, Aden, Cyprus, Northern Ireland and the Falklands. And you seem hellbent on kicking off Northern Ireland again.

As for Sunderland, perhaps you should read the local press:
https://www.chroniclelive.co.uk/news/north-east-news/what-european-union-ever-done-11480870

The rest is half-baked nonsense.

[Blissex]

«I have the sense that one way and another much of the West is in economic trouble.»

That to me is refreshing optimism, that I try to maintain while looking at the fall in electricity consumption in many "mature" countries in the link above...

«At the upper reaches we may see the old Regency period revive with a very wealthy upper class, a middle class scrambling for a position, a poor working class and rookeries for those at the bottom of the pile.»

This is really rose-tinted spectacles optimism because it is like that already in the present, not a future threat.
To check what the present is like B Judah's "This is London" is an interesting and realistic account.

[Blissex]

«cling to an updated version of the post WW1 German 'stab in the back' crap»

That seems to me 80% of the Conservative strategy for exit negotiations: since the outcome won't be pretty, just do blame management.
The other 20% seems to me just trying to disgregate the EU by making it appear as if a "special deal" which is better than membership is going to be available.

[Blissex]

«What most surprises me about blogs like this (and more so, the ever excitable S W-L's) is the apparently absolute lack of any humility about the demonstrable weaknesses of the macro modelling trade. You name it over the last few decades, they called it wrong.»

It is my impression that many Economists called it as their sponsors would be pleased with, using weasel words like "in my model", or putting "assuming X, Y,Z in the small print".
I have been particularly impressed by the blatant anti-german synchronized campaign of a few years ago about Greece, to which almost I think only a certain set of anglo-american public Economists "contributed", and which seemed to be based on attacking Germany, France, Italy as providing too little free money for Greece, while ignoring that the UK had vetoed any help for Greece and the USA had refused to provide any.
That campaign seem to have persuaded many english voters that the EU is a viciously exploitative dictatorship, as described by Y Varoufakis and his many accomplices.

All this said, estimates of the impact of trade restrictions and the costs of distance are one of the few aspects of macro for which pretty reasonable data are available, and the predictions of the economic impact of exit are also about modest consequences, about as bad as those of a recession, and these happen. Consider at least the arguments in this paper:

https://www.niesr.ac.uk/publications/assessing-impact-trade-agreements-trade

[Django's Dad]

Yes well, the world weeps at the sight of poor old Germany being oppressed by Varoufakis et al. If only the shiftless latins would quietly swallow their teutonic austerity medicine things would certainly be simpler.

Meanwhile, gravity trade models are fine so far as they go, but the usual GIGO provisos apply. Some issues with their implementation have been pointed out. e.g.:

http://www.cbr.cam.ac.uk/fileadmin/user_upload/centre-for-business-research/downloads/working-papers/wp493.pdf

Short version: needs a bit more work.

[Blissex]

«the world weeps at the sight of poor old Germany being oppressed by Varoufakis et al.»

That's a laughably stupid comment as no allegation of "oppression" was made, simply of propaganda designed to influence UK (and USA) voters in an anti-EU (and anti-German by association) feeling, something that P Krugman, Y Varoufakis and many others have been quite clear about.

Mission accomplished: many "Leavers" have indeed mentioned the fantasy of "huns" bullying the poor innocent greek government as a major reason why they cannot stand staying in the EU.

[Django's Dad]

Seriously chum, if you think it's only the UK and USA that are uncomfortable with the German stranglehold on EU and EZ monetary policy, you need to get out a bit more.

But that's by the by. The subject is Brexit and the robustness or otherwise of the modelled projections.

[George Carty]

I'm sure that one reason why Germany is the economic powerhouse of Europe is because rents are government-regulated there much as they were in pre-Thatcher Britain. This means that spare capital gets productively invested in industry rather than wasted in useless bidding wars over desirable locations.

What the PIIGS countries ought to have done was to hike property taxes during the '00s, then German money wouldn't have flooded into their real estate and thus destroyed the competitiveness of those countries.