How doom-mongers got Brexit wrong
GLOOMY Treasury forecasts that predict Brexit will be an economic disaster are ‘ flawed’, Cambridge researchers warn today.
A study by the university’s Centre for Business Research raises serious questions over predictions by government officials, academic bodies, the IMF and the OECD.
They say most estimates of the economic impact of the Leave vote are based on modelling that exaggerates the negative effects. The study, published today, is titled How the Economics Profession Got it Wrong on Brexit and says Treasury forecasts before and after the referendum were too pessimistic.
Researchers say the assumption about the degree of uncertainty caused by the Brexit vote was arbitrary and wrong.
Conclusions were likely to be the result of ‘unconscious bias’, ‘political expectations’ and ‘group think’ among the authors, they claim. And they say the Treasury’s failure to discuss its work – and subject it to outside scrutiny – is ‘unacceptable’.
The report also challenges the claim that membership of the EU and its predecessor, the European Economic Community, was good for economic growth. It says GDP per person has been slower since 1972 than in the previous decades.
Before the vote, George Osborne published controversial ‘Treasury analysis’ claiming that quitting the EU would leave every family £4,300 worse off along with an ‘immediate’ recession and half a million people out of work. But Cambridge Professor Graham Gudgin, who launched a website last month intended to counter Remain ‘propaganda’, said: ‘The shortterm forecasts of the Treasury and OECD, which have turned out to be wrong, have further damaged the already weak public confidence in economists’ contributions to public debate. Our paper is not necessarily an argument in favour of Brexit. But it will cast doubt on traditional economic modelling and it does question the ability of the economics profession to provide high quality policy analysis on issues of national importance.’
His co-author, Ken Coutts, said ‘the academic profession needs to reconsider... the relevance of its current attachment to theory based on unrealistic assumptions’. ‘The Civil Service should also consider, when undertaking technical economic research, that it has a duty to be transparent in the methods it uses and to discuss with outside economists the strengths and weaknesses of the analysis as is customary in academic debate,’ he writes.
The report says predictions from bodies such as the OECD and IMF suffer from ‘similar flaws’ which exaggerate the negative impact of Brexit. Since the referendum, the economy has confounded the critics by continuing to grow strongly. Employment has soared to a record high while joblessness has hit a 42-year low.
At the end of October the jobless rate stood at 4.3 per cent – less than half the figure in the eurozone, which has been blighted by high unemployment.