Stumbling and Mumbling

Author: chris dillow   |   Latest post: Mon, 19 Feb 2018, 02:09 PM


Picking your own facts

Author:   |    Publish date:   |  >> Read article in Blog website

The government's own research says that leaving the EU will make us poorer in every scenario modelled, except presumably the fairies and unicorns option favoured by the government.

Rightists have responded to this by claiming that economists know nothing. For example, Iain Martin tweeted that long-term forecasting is impossible - thus failing to distinguish between conditional and unconditional forecasts - and Jacob Rees-Mogg claimed that the economy's better than expected performance last year showed that gravity models are "comprehensively wrong.*"

There is, though, a big problem with taking this anti-economics stance. Stephen Bush makes an excellent point when he says:

the thing about going "economists, what do they know, eh?" is it does make it a tad harder to argue against the whole Corbynism thing.

I'd like to amplify this. It's plausible that economists' knowledge about trade is more robust than our knowledge of (say) Laffer curves.

The gravity model has been described (pdf) as "one of the most empirically successful in economics". It tells us that countries trade massively more with their neighbours than with others, and that it is therefore unlikely that freer trade with far-off countries will compensate for any loss of trade with the EU. This is especially the case because we also know that national borders significantly reduce trade, and that only very deep trading agreements that go far beyond mere low tariffs (such as the EU's single market) significantly boost trade.

Our knowledge of trade - on which hostility to Brexit is founded - is pretty OK.

Compare this to our knowledge of Laffer curves. This is more imprecise, not least because the top tax rate didn't change for years and so we have no UK data to go on. The IFS, for example, says that Labour's proposed 50% top tax rate "could raise or cost £1-2 billion a year in revenues". And we have other evidence that revenue-maximizing top tax rates might in fact be very high, even on internationally mobile workers (pdf).

The point here is simple. You cannot invoke economists to argue against higher top tax rates but discredit them when discussing Brexit, because gravity models are founded on better evidence than Laffer curves.

By all means, be sceptical about the nature of economic knowledge generally. Or even admit that you're basing ideas on non-economic ideas. But don't pick and choose the evidence according to your ideology.

* In fact, this is bollocks. Insofar as the economy did better than expected last year, it's got nothing whatsoever to do with the failure of gravity models. It's because borrowing costs did not rise as a result of Brexit as (eg) NIESR had assumed (pdf); because the euro zone grew more than expected; and because households dipped into their savings to sustain consumption.

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