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[...] The EU referendum is like a vote taking place in another country entirely. The economists this time are not picking nits over small change, but sounding loud, screeching alarms, and yet few are listening. The economic debate, if it can be called that, has centred on the £350m a week which Vote Leave describes as the EU membership fees that Britain could have back to spend on other things if it quit the club. This is an outright lie. As the UK Statistics Authority has ruled, after being moved by stubborn mendacity to make a rare step into the electoral fray, the only figure that counts for the public finances is the net contribution, after the rebate, and relevant payments from the EU to public and private bodies in the UK, all of which the leavers ignore. Much more fundamental for the health of the exchequer, not to mention the wealth of the nation, are both the immediate and more sustained effects upon output which would come about with a British decision to leave.
There is rare and virtually unanimous agreement across the economics profession that these effects would be negative, as today’s letter by 10 Nobel prize-winners to the Guardian underlines afresh. The tiny band of academic dissenters, such as the ultra-Thatcherite Patrick Minford, enjoy entirely disproportionate prominence as they are wheeled out for “balance” [...] He imagines a post-Brexit government unilaterally forgoing all protective trade policies, irrespective of any protection imposed against the UK. The approach involves chilly intellectual indifference to what is left of the British manufacturing sector, and an abject failure to grapple with the real-world pressures which always shape trade and industrial policy, and which frequently spurs extraordinary interventions from even laissez-faire ministers – just think of Sajid Javid rewriting the rulebook on pensions because of the crisis at Port Talbot.
The mainstream, united on this as it never was – despite Brexiter claims – on the single currency, highlights clear and present dangers. The most immediate is the profound uncertainty which would warp all decisions on trade and investment with Europe for at least two years, while thorny exit negotiations were thrashed out. Inward investment would slow, and precautionary saving would rise, slowing the economy. Even if GDP were depressed by a mere percentage point, the year-one hit to the public finances would exceed the net £7bn in UK payments to Brussels. This, however, is only the start, because there would also be every chance of sterling hitting the skids. Forget Brexiter claims that this would boost the economy as a cheaper pound did after 1992. Sky-high interest rates could be slashed back then, but this time they’re already on the floor. A sudden run on the pound could instead leave British banks, who are heavily financed by borrowing in overseas currencies, vulnerable to a new credit crunch, and also make financing the UK’s gaping current account deficit fraught. Imports and holidays would shoot up in cost, which – on its own – would ordinarily be enough to scare off Britain’s cautious voters.
Looking further ahead, things get more speculative, but if access to the single market is jeopardised or the dynamics of mercantilism set in, then there would be less trade, and thus a less disciplined economy, and a poorer country. Wise post-Brexit statesmanship could, in theory, attenuate these risks, although the nature of the leave campaign discourages faith that it would be forthcoming. The more immediate downsides, however, are not seriously contested. A zealous adherent of the Austrian school of economics might, perhaps, argue that it is a price worth paying for the sake of shaking things up, in the spirit of creative destruction. In any other context, however, that argument would be written off as cranky, and certainly not British.