17 February 2023

UK TPO's Winters: Is it really true that Brexit has had no harmful effects?

"GJW" raise some legitimate questions. But their cherry-picking of evidence grates, their accusation that others fail to “interrogat[e] data sufficiently rigorously” is ironic given that they then proceed precisely in that fashion, and the tone of righteous victimhood is just risible.

Given the recent discussions about future UK-EU relations and the review of the UK-EU Trade and Cooperation Agreement (TCA) after two years, I have started reading the Brexit literature again.  A recent paper – ‘What impact is Brexit having on the UK economy?’ by Graham Gudgin, Julian Jessop and Harry Western (GJW) from October 2022 argues there is no hard evidence of harm and that studies that claim to find harm are biased and/or incompetent! In this blog, I consider a few of their points in four areas.

First, however, I must note GJW’s grand conclusion

What does this say about the economics profession? We assume that much of the inaccurate work comes from not interrogating data sufficiently rigorously and settling too quickly on evidence appearing to support the anti-Brexit case. ….  If the profession cannot be trusted to put ideology aside in economic analyses, then policy debates will be distorted, and the public may lose even more faith in what Michael Gove called ‘experts from organisations with acronyms’.  (page 30)

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Is this intentionally ironic? The paper is dripping with (pro-Brexit) ideology, and Gudgin is from the Centre for Business Research (which refers to itself as the CBR); Jessop, the Institute of Economic Affairs (the IEA) and Western won’t even tell us where she/he is from!  

Estimating effects on GDP

A pretty constant refrain from GJW is that

some of those who were critical of the vote to leave have retreated from catastrophe scenarios towards the cherry-picking of data, the tortuous use of ‘counterfactuals’, and the selective deployment of forecasts …. (Executive Summary)

When you are debating policy about the future, like, say, advocating Brexit, it is difficult to avoid statements about what will happen in certain circumstances – that is, forecasts (e.g. “there will be many opportunities” is a forecast). However, put that aside: I will focus here only on things that have happened and hence for which we have data.

“The hard evidence is that leaving the EU has had remarkably little impact on the UK economy.” (Exec Summ.)

But when you come to the analysis behind this ‘hard ‘evidence (pp. 3-10), we read

analysts (some of whom are clearly opponents of Brexit) have tried to use counterfactual scenarios …. The key weakness of all these counterfactual scenarios is that they have used as benchmarks past periods in which the UK economy was recovering from recession.

A ‘counterfactual’ is an estimate of what would have happened if Brexit had not occurred: we know what did happen, and to see if Brexit made a difference (is a cause) we need to know what would have happened without Brexit; but since we can’t observe the latter, we have to estimate it. Thus, the validity of a counterfactual cannot be proven, merely argued to different degrees of plausibility.

GJW argue that using 2009-16 (the post-financial crisis to pre-referendum (and pre-Covid period)) to construct counterfactuals for the UK biases them towards countries that regularly grow fast and hence renders them unsuitable as comparators for the UK that only occasionally does. Criticising the best-known counterfactual (from John Springford), GJW declare that he should, instead, have chosen France, Germany and Italy because they are large European economies like the UK. Springford describes the statistical method he uses to determine which countries best replicate the behaviour and structure of the British economy before the referendum and concludes that, for estimating GDP growth, the set is the United States, Germany, New Zealand, Norway and Australia. GJW’s approach to choosing the counterfactual is not described at all, and while their three candidates are similar to the UK in size and location, they also differ significantly in having the euro, larger public sectors, larger manufacturing sectors, and faster population ageing than the UK....

 more at UKTPO

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