Economic Theory

Of experts and ‘experts’: economists and Brexit

In the run-up to the EU referendum, a number of the most high-profile companies, institutes and departments went out on a limb to claim that the economics profession was almost completely united in opposing Brexit. Following the vote to Leave, Paul Johnson of the IFS has written an introspective piece on what the economics profession should learn. His main message was that economists need to participate more in public life, getting their message out there in newspapers and the broader media.

There are many things to quibble with in Paul’s piece. The claim that the economics profession was united in opposing Brexit was both confused (the relevant surveys didn’t ask whether respondents were in favour of leaving – merely whether they thought there would be a GDP cost from doing so) and exaggerated (the 90% figure widely quoted was for those believing there was a short-term economic cost, which would include me for example – it was 72% that believed there would be long-term economic harm). I’m not convinced there was actually materially more consensus in the economics profession about Brexit than there was in the late 1990s about whether the UK should join the euro.

But let’s ignore that sort of quibble. It’s undoubtedly true that the considerable majority of economists believed leaving the EU would lead to economic harm, over both the short and longer term. Voters didn’t believe them. The survey evidence suggests that voters believed there would be economic costs over the first five years, but over a 20 year plus timescale either there would be economic gains or no change. There was no point at which Remain held a lead on the economy with voters in the sense of there being more voters that believed the economy would suffer over the long-term than believed it would improve or be largely unaffected.

Why didn’t voters believe the considerable majority of economists instead of believing people like me? Actually – they did believe us about the short-term. They think economists have some ideas about that. But they flat disbelieved what most economists said about the longer term. Why?

First, voters grasp that the point of involving ordinary non-technical experts in democratic decision-making is that they should make decisions themselves. If it were simply a matter of going with whatever most experts said, we wouldn’t need a universal franchise. Voters choose which experts to listen to – which they know sometimes means going with the minority – or go with what they themselves consider intuitively plausible.

The latter route – voters going with their own judgement – will be particularly attractive if voters do not believe that the experts know what they claim to know. I believe that that is what happened here and that voters were clearly right. Voters didn’t trust the experts because the experts didn’t deserve to be trusted, because they were claiming expertise about things they didn’t know much about.

Voters remembered that most economists recommended we should join the euro. They remembered that few economists grasped what was happening in the financial crisis, even when it was well underway. They noted that bodies like the IMF had warned that the UK was playing with fire just when recovery had begun.

Many economists miss the point of this sort of critique. They say: “Just because forecasting is difficult doesn’t mean that ours isn’t the best forecast to believe.” That would be correct. But I think what voters grasp is something deeper, namely that economic outcomes depend upon things economists make assumptions about in their forecasts but don’t themselves have expertise in knowing.

That was absolutely the case in the Brexit debates. Economists asserted that leaving the EU would lead to a less open economy, that the UK would do no extra trade deals with the non-EU world, that if we remained in the EU there would be no price to pay in terms of inappropriate regulation harming the UK economy or our being drawn into future Eurozone bailouts, that there were no economic gains in terms of getting rid of the CAP or CFP or better regulation. And they just didn’t know that.

I think voters grasped – perhaps intuitively in ways they could not articulate – that the economic consequences of leaving the EU depend upon political outcomes that economists are in no position to claim superior expertise about. Why should anyone think John Van Reenen or Angel Gurría have better expertise in what sort of political deals the UK could do by 2030, or what would be the political consequences of remaining inside the EU, than Boris Johnson or Michael Gove have? The economists who claimed such certainty that Brexit would have bad outcomes were claiming things that depended upon matters on which they had no particular expertise themselves and certainly no more expertise than their opponents.

That is the real lesson the economics profession should take from Brexit. If you claim to be an expert in something, you’d better be an expert in it. If you aren’t actually an expert in the questions you are pontificating about, don’t be surprised if voters see through it and don’t believe what you say.

Member of Advisory Council

Dr Andrew Lilico is a Fellow of the Institute of Economic Affairs and Chairman of the IEA/Sunday Times Monetary Policy Committee.  Andrew also acts as Executive Director and Principal of Europe Economics.  He is a frequent contributor in the UK and international media on economic and financial matters, appearing on programmes such as Newsnight, the Today Programme, Sky News, CNBC and Bloomberg. Andrew received his first degree from St. John’s College, Oxford, and his PhD from University College, London, where he also lectured in macroeconomics and in monetary theory.  

6 thoughts on “Of experts and ‘experts’: economists and Brexit”

  1. Posted 05/07/2016 at 13:48 | Permalink

    “Economists asserted that leaving the EU would lead to a less open economy, that the UK would do no extra trade deals with the non-EU world, that if we remained in the EU there would be no price to pay in terms of inappropriate regulation harming the UK economy or our being drawn into future Eurozone bailouts, that there were no economic gains in terms of getting rid of the CAP or CFP or better regulation.”

    That’s exactly it.

    Ceteris paribus, i.e. given all other trade arrangements between Britain and the rest of the world and given the current regulatory framework in the UK, Brexit – by making it more difficult to trade with countries in the EU – will have a negative effect on the long-run supply side of the economy.

    But why would everything else stay equal?

    By leaving the EU, Britain will be free to adopt a unilateral free trade policy.

    Furthermore, Brexit makes it possible for Britain to embark on a new approach to, say, financial regulation. In the UK, there was virtually no government regulation of banking until 1979. Instead, the behavior of banks was subject to tight private regulation. The private regulatory framework for banking was then substituted by government regulation in the 1980s. This approach has not been a success. Brexit gives Britain the opportunity to return to the principles that served financial markets so well before the 1980s.

    Will Britain use the opportunities presented by Brexit – or will Britain’s approach to trade and regulations be more restrictive and intrusive than before?

    Nobody knows for sure.

    But on the whole one can be rather optimistic: In general, smaller political entities are governed better than larger ones. (For this reason it would also be good news, if, following the Brexit, Scotland would achieve independence.)

  2. Posted 05/07/2016 at 17:12 | Permalink

    The two main specific issues in the referendum campaigns were the economy and immigration. On immigration both main parties had shown themselves to be extremely unreliable — their estimates of future annual immigration being wrong by hundreds of thousands. As for the economy, even laymen were able to detect an element of exaggeration in the shrillness of the forecasts — and the OBR, which was set up in 2010 precisely because British governments had been unable to resist the temptation to tell lies about the economy, was conspicuous by its absence from involvement with any the scary forecasts. It is worth remembering, too, why in our system of parliamentary representation it was eventually necessary to have a referendum at all. The reason is that nearly all the senior establishment parliamentary figures (including, both in 1975 and 2016, the Leader of the Opposition!) were ‘in favour’ of continued UK membership of the European Union, even though opinion polls made it clear over many years that a very substantial minority of the British population were not. In other words, our ‘representatives’ in parliament didn’t manage to do an adequate job of ‘representing’ the views of their constituents. I believe there was also a widespread impression that the government was rather too eager not to play fair, dragging in Uncle Tom Cobleigh and all from abroad to give us advice which was obviously not disinterested, as well as spending £9 million of taxpayers’ money to side with the Remain part of the argument.

  3. Posted 05/07/2016 at 20:59 | Permalink

    “Voters remembered that most economists recommended we should join the euro.”

    Completely untrue. I remember studying the euro at university in 1996 – the striking thing was how many economists were saying Europe was not an optimal currency area and that the euro was a bad idea. This was the consensus view from Krugman to Milton Friedmann.

  4. Posted 06/07/2016 at 00:29 | Permalink

    “In general, smaller political entities are governed better than larger ones.”

    This will be comforting news for Zimbabwe and Namibia as they prepare to lead the global renaissance. Nor is it clear that e.g. Hungary is better governed than the US. The size of the entity is not what matters. What counts is the efficacy of its institutions plus the ability of the people to maintain and upgrade them as necessary.

  5. Posted 06/07/2016 at 13:10 | Permalink

    Anonymous – you are completely wrong on that re: economists in the UK. In fact, the same Royal Economics Society group survey as suggested economists opposed Brexit found a two-thirds majority in favour of the euro in the late 1990s:

  6. Posted 06/07/2016 at 22:50 | Permalink

    Put differently, you are saying the Leave result was in effect the ‘wisdom of crowds’ and the resulting market mayhem down to the herd instinct. And we have to wait up to 20 years to see if leaving was a good idea. So far so good-ish but two things bother me: (i) the quality of political leadership that should get us to the promised land; and (ii) the close result means the in/out arguments will rage for a long time to come.

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