January 2018 newsletter - Brexit and the reporting of economic debate
01 Jan 2018
In the October issue of the Newsletter we published a piece which focused again on the BBC’s reporting of economic views relating to the UK’s decision to leave the EU. The stimulus for the October article was the BBC’s treatment of an argument put forward by Patrick Minford and others focusing on the likely benefits of free trade. His arguments are set out below.
In the last RES Newsletter (no.179, October 2017) the reasons are set out for the RES’ complaint to the BBC about its reporting of the views on the post-Brexit outlook by the 16-strong economist group, Economists for Free Trade, which I chair. The RES felt that the BBC should not report the group’s latest estimates of the effect of Brexit on trade (https://www.economistsforfreetrade.com/wp-content/uploads/2017/08/From-Project-Fear-to-Project-Prosperity-An-Introduction-15-Aug-17-2.pdf) in a straightforward manner but rather either ignore them or report them as being the views of ‘deniers’, ‘not in line with what economists in general think’, ‘mavericks’, ‘not subject experts’ or in some similar way. This complaint also extended to the treatment of the earlier views and estimates of our predecessor group during the Referendum when of course the BBC was by law enjoined to achieve ‘balance’ in the debate.
Not surprisingly and quite rightly the BBC has rejected the RES complaints. I am grateful to the editor of this Letter for space in your columns to explain why I think this stance of the RES is wrong from the point of view of the pursuit of science, about which both the RES and I care. As we all know at any time in economics there is a majority view about various aspects of the subject. Let me focus on the open economy macro end of the subject, which includes trade, macroeconomics, general equilibrium, and the econometric and computer techniques we bring to bear on them. This is and has always been an area of considerable controversy in which the 'majority view' has changed quite regularly in the light of new arguments and evidence. Think back to the rational expectations revolution and New Keynesianism, the movement away from 'reduced form' to 'structural' models, the issues of integration and cointegration, and the development of computational techniques. There has been a lot of scientific change over the 41 years I have been a professor of applied economics; and at no time has the profession, to its credit, refused media or seminar space to those who were against the usually massive professional consensuses of the time. And this was true also of the derivative policy battles that took place. Even when Frank Hahn led the 364 economists in their famous letter, he never asked that the media should deny access to, or vilify, those few of us who actively disagreed.
There has over recent years arisen a new mode of thought in trade matters and among ‘trade economists’ known as the ‘gravity model’; I regard this with great interest and think it should be fully developed as a general equilibrium modelling approach. However, this gravity view of Brexit is disputed- there is no consensus, as pointed out by Philip Whyman and Alina Petrescu in their recent book The Economics of Brexit. Certainly in the case of the UK where trade is far-flung and much of it in services ‘gravity’ appears to be rather marginal at best. I have explained in a recent blog (http://brexitcentral.com/brexit-free-trade-critics-wrong-dismiss-classical-model/) why I did not agree with the gravity view of the UK (for all I yet know it may apply to many other countries); also why the procedures used by gravity modellers at the Treasury and LSE, the leaders on the Remain side in the Brexit debate, were not in line with best scientific practice. They have used statistical associations between endogenous variables (of many countries) to ‘predict’ UK trade, FDI and productivity, instead of using the structural gravity model itself for the UK. They have also resolutely ignored the identification problem whereby other models (e.g. the classical) could generate these associations. Finally, in sheer frustration at the tin ears of these economists my research team and I have actually created (http://carbsecon.com/wp/E2017_10.pdf)
a cge gravity model of the UK economy to see what it truly implies for the facts of UK trade and for Brexit policies; it was not much of a surprise to find that this model is statistically rejected by our strongest test and does no better than the classical model, which survives that test easily, even in matching the ‘gravity regressions’. As for policy it turns out that it backs full free trade as proposed in current government policy just as strongly as the classical model.
Suffice it to say that, whether or not there was a consensus among RES members or UK economists or world economists on Brexit and the gravity model, there is never a case for stopping or neutering public debate since such consensuses if they exist cannot represent the settled state of science which requires constant questioning to progress. The British people know this and would not feel well served by the BBC or other media if they felt some censorship was going on which could affect policy outcomes of vital interest to them. No, instead of trying to impose media censorship, what the RES and their economists should simply have done, as indeed they actually did, was go on the airwaves and argue the merits of their case, no doubt larding it with references to the inadequacy of their opponents, as one does. All’s fair in debate — but it must be free and unfiltered by ‘consensus’ opinion.
I just hope we can now move on in adult fashion from this episode to discuss constructively what policies will help to make Brexit succeed.
Cardiff Business School