This is a fun one

So, the OBR is telling us that Brexit blows a hole in the public finances. Some differ:

Britain’s official economic forecasts are regularly wrong and should not be taken seriously when they predict a negative impact from Brexit, according to Boris Johnson’s former economic advisor Gerard Lyons.

“The margin of error on these budget forecasts is very high. They are sensitive to economic forecasts and also, as the OBR itself has previously stated, its judgment on fiscal policy,” he said in a letter to the Daily Telegraph.

“The ‘cost of Brexit’ highlighted in the Autumn Statement will undoubtedly be wrong.”

Yes, that’s obviously true. Apart from anything else there’s spurious accuracy in there. Even if we knew all the effects and knew their size, could calculate them, there would always be uncertainty, a range for each of them, yet the final result is a point result. Just cannot really work out that way. But more than this:

Dr Lyons, who was chief economist at the global bank Standard Chartered and is now chief economic advisor to the think-tank Policy Exchange, said his own research shows Brexit should be good for the public finances.

“My detailed research shows that leaving the EU and taking a global approach produces higher growth and more employment than remaining in an unreformed EU,” he said.

“Far from a cost, Brexit is more likely to produce a significant gain.”

There’s nothing wrong with either Choate or Lyons as economists. Both are rather good ones in fact. But we’ve got an argument here not just about the size of the various effects but even the sign!

And that’s what puts paid to the little fantasies of the likes of the Spudmonster. We simply cannot plan the economy at the sort of level of detail he desires to tinker because we cannot even calculate the economy at that level of detail. Something as basic as Brexit we really don’t know whether, in macroeconomic terms in the medium term, it is positive or negative. How in buggery can we plan therefore?

11 thoughts on “This is a fun one”

  1. “Even if we knew all the effects and knew their size, could calculate them, there would always be uncertainty, a range for each of them, yet the final result is a point result.”

    Same applies in “climate change”. There’s always going to be inaccuracies in measurement because what’s being measured is a tiny sample of a very large system.. Yet they’re trying to see significance in variations well within the margin of accuracy of what’s being represented. No doubt they’ll be again awarding the the year just passing as “the warmest in history”. At the hundredth of a degree level. But, for practical purposes, there are no hundredth of degrees. Except in physics labs.

  2. I think Brexit is a positive, as is Trump, but do not underestimate the capacity of politicians, including but not limited to the current shower we are lumbered with, to screw things up for everybody.

  3. As the outcome of brexit is going to be decided by how much of a cunt the Germans decide to be and whether the euro is going down the shitter, I would say it’s quite impossible to tell at this stage.

  4. It is hard to trust calculations when the thing being measured is very difficult to measure. It is almost impossible to trust calculations when the people doing the measuring have an interest in a particular result.

  5. If I may repost from my comment at The Times:

    £60 billion over 5 years makes for great Continuity Remain headlines in the Grauniad, but it’s a rounding error in the real world. Actual real GDP figures are often adjusted by larger amounts in the quarters after they’re first published.

  6. Another ‘request’ for our erudite host, and his erudite followers:

    “Trump is not a great businessman because he’s filed for bankruptcy 4 times”.

    I’ve never been a businessman, so I’ve got no idea if this is true or not… Any thoughts?

  7. The OBR report is a travesty. To paraphrase it it reads “We don’y know the government’s negotiating strategy, so we assume it’s a disaster and that exports and imports will suffer for the next ten years, and the consequences of this are …. ”

    Well the government’s negotating strategy could be “Worst case we’ll fall back to WTO tariffs, our exporters will suffer the £5.2 billion, which the government will reimburse for the next X years out of the savings we make on EU membership, and as for UK import duties on EU we don’t give a damn, so let’s move on to talking about Europol”.

    Honestly the consequences of EU membership at the moment are so bad that just leaving the EU under any terms is a bonus.

    Britain is the only country in the EU where the value of savings on duties on exports is less than the opportunity cost of being within the customs union.

    Britain is one of a hand ful of countries (the others being France, Greece and Italy who all get big CAP payments) where the gross cost of EU membership is less than the value of customs duties foregone. In Britain’s case it is a EUR 16 billion difference. Nobody else comes close.

    All together I figure that worst case, Britain is EUR 26 billion a year better off out of the EU.

  8. Having skimmed the whole 260 odd pages, it becomes clear that the OBR report is simply a forecast of income and corporation tax receipts. It completely ignores the fact that the government is no longer paying vast dollops of cash to Brussels or that consumers will probably buy more goods from outside the EU without paying EU tariffs. In otherwords, even if we accept pessimistically a drop in direct taxation of 57bn, we make other savings of 160bn over the same period. The report is not worth the paper it is printed on.

  9. The report also assumes a crash in investment and growth when all the news since the referendum has been about greater than expected growth and investment. Hammond is just putting in a gloomy forecast that he should be able to beat without stroking his cock.

  10. “As the outcome of brexit is going to be decided by how much of a cunt the Germans decide to be and whether the euro is going down the shitter, I would say it’s quite impossible to tell at this stage.”

    Not really. At worst we’ll end up in the situation of Canada and Australia, by having the UK’s nearest markets pretend we’re dead to them, just out of pique, and thus equally far away in the gravity model, but life in both those countries by all accounts is at least tolerable. If the EU is so stupid, the UK can set import tariffs to zero for the world, let EU27 hire loads of customs officers if that’s what they truly want, sit back, and enjoy the cheaper popcorn.

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