Bill Mitchell-i egindako elkarrizketa

The Real Progressive #MMT‏ @sdgrumbine


Tonight!!!! Join us @RealProgressUS with special guest Dr Bill Mitchell ( @billy_blog ) as we discuss the role of trade, foreign exchange and other key macroeconomic principles that puzzle many in the progressive community and the larger economic community at large. 8PM EST

2018 mai. 13

Steve Grumbine – Bill Mitchell joins us tonight discussing open economies, balance of trade and more

Bill Mitchell joins us tonight discussing open economies, balance of trade, balance of payments and foreign exchange. This should be one for the ages! Join us! Please share, like and comment.

Iruzkinak (2)

  • joseba

    Eurofiloak, eskuin eta ezker

    Bill Mitchell-en Latest Europhile advocacy beggars belief – surrender sovereignty to regain it

    (i) Sarrera, euroguneaz
    (…) Regular readers will know my views on the Eurozone. I have held those views since the late 1980s when I was a young lecturer. Nothing has changed to change my opinion. It is an unmitigated disaster. And, in the face of all evidence to the contrary, the Europhiles on the Left and the Right continue to put out propaganda trying to defend their monstrosity. Here is a selection of the latest input from the elites on how the EU is the salvation of democracy and sovereignty and yet Eurozone Member States are to be treated like high risk car drivers – paying more for a pittance of fiscal protection from the technocrats. It really beggars belief.

    (ii) ECB delusional
    On March 28, 2018, ECB Executive Board member Benoît Coeuré demonstrated how far removed from reality the Eurozone elites have become when his contribution to the 2018 Schuman Repot on Europe – Taking back control of globalisation: Sovereignty through European integration – was published.
    Need I say that Robert Schuman would turn in his grave at what has been going on in Europe over the last several decades. It is far removed from his visions for ‘Europe’. But that is for another day.
    Benoît Coeuré quotes from the latest published (November 2017) – Standard Eurobarometer 88 – Wave EB88.3 – TNS opinion & social – which surveys “Public opinion in the European Union” on a range of issues.
    He says that it shows that:
    … seven out of ten Europeans now regard themselves as citizens of the EU – the highest level ever recorded for this indicator.
    That is a very selective reading of the data.
    First, as I explained in this blog – The latest scam from the European Commission – the ‘roadmap’ – Part 2 (December 20, 2017) – the Eurobarometer’s methods are questionable and border on pro-integrationist propaganda.
    The Eurobarometer violates many rules that survey instruments should follow and the violations have been found to “steer responses in a pro­ European, integration­ friendly direction”.
    The EU elites love to quote the Eurobarometer because they are fully aware of these biases.
    Second, but even with those biases, the results do not support the rosy picture that the EU and its apparatchiks would like to present.
    The following table samples some of the November 2017 results that the EU elites do not want to talk about.
    They show widespread discontent on key measures including an attachment to the EU rather than Europe.
    There is also considerable disparity in negative outcomes – see QA1.1 which explores attitudes to the situation in the respondent’s own country.
    48 per cent of those in the EU think the situation is bad. Go to Greece and the proportion rises to 91 per cent, 77 per cent in Spain, 74 per cent in Italy, whereas in the stronger economies the situation is the opposite.
    Divergence and polarity rules in the EU rather than its stated aims of increased convergence.
    Further, 47 per cent do not think things are going in the right direction in the EU.
    And, on questions of identification, hardly anyone primarily see themselves as being European. Whereas if you asked that question in Australia or the US, the overwhelming majority would identify themselves as being of those nations rather than the ‘states’ or localities they live in or were born in.
    That makes a huge difference when it comes to creating policies that will integrate the ‘nation’ (federation). The lack of primary identification to ‘Europe’ by residents in the Member States is a major reason why the Eurozone architecture will never be effectively reformed.
    Benoît Coeuré uses his selective interpretation of the Eurobarometer data to suggest that the EU needs to respond to the right-wing popularist movements, which are playing on what he calls “people’s basic fears about the risks of openness” or “globalisation and international cooperation”.
    He considers the EU to be the correct vehicle to “manage globalisation”.
    After documenting why people are fearful of “globalisation and open markets” – increased instability, lack of fairness, rising inequality, and compromising democratic controls – he concludes that:
    Some of these concerns are based more on perception than on fact.
    How so?
    Well he claims that “financial shocks and widening income gaps”, for example, could just be the result of “technological change” – in other words, suck it up.
    So the deregulation of financial markets under intense pressure from the huge investment banks and the revolving door between ‘Wall Street’, key EU positions, national government ministers etc and the out-of-control (illegal and irresponsible) lending that followed did not really cause the crisis.
    The suppression of real wages under punitive legislative regimes and the deliberately caused mass unemployment and underemployment didn’t really cause the widening income gaps.
    Technological change. Computers. We love the Internet. Computers!
    This is all leading up to his principle conjecture – that to regain “sovereignty” a withdrawal to “national borders” is the wrong way to go.
    He claims this will fail for two reasons:
    1. “it deprives people of the economic advantages that trade and integration bring” – tell that to nations that are still smaller in GDP terms than before the crisis began and their public services and income support systems have been ravaged by austerity.
    He quotes a 2005 study which purports to show that “the EU’s GDP per capita would be as much as one-fifth lower if no integration had taken place since 1950”.
    While that particular study has problems, the results would not hold up if the analysis was updated to 2018. Countries like Greece have seen their real per capita GDP fall by 24.7 per cent between 2007 and 2016. While that is an extreme outcome, other nations have experienced large falls also (Italy, for example, minus 10.3 per cent).
    2. “the act of renationalising policies will not allow a country to evade global competition” – this is the ‘nation state is powerless in the face of international capital’ argument.
    We demonstrate in our latest book – Reclaiming the State: A Progressive Vision of Sovereignty for a Post-Neoliberal World (Pluto Books, 2017) – why this conjecture is false.
    A nation can be fully integrated into “global value chains” without surrendering its currency and losing its capacity to manage its domestic demand via fiscal policy.
    Benoît Coeuré thinks a return to national currencies will undermine the tax base of national governments. Again this is standard neoliberal scaremongering.
    A national legislature can design a tax system in ways to militate against tax evasion. Companies might be able to evade income taxes through strategic locational decisions but they still have to sell into domestic markets, employ people in national economies and generate revenue within sovereign borders.
    All three provide the appropriate ‘borders’ in which an inclusive tax system can be designed.
    Further, and more importantly, the implicit assumption by Benoît Coeuré is that without the taxes, national government would not be able to spend freely.
    But, of course, restoring currency sovereignty would mean a break from the dependency of national governments on tax revenue.
    Then, whether to tax or not, would come down to other considerations – such as creating sufficient real resource space in which the government could spend and fulfill its socio-economic agenda without generating inflationary pressures through competition for resources with the non-government sector.
    Benoît Coeuré’s solution – give up sovereignty to “regain sovereignty”.
    How does that work?
    He claims:
    …the EU provides a regional answer to the “political trilemma” popularised by economist Dani Rodrik … according to which it is not possible to pursue democracy, national sovereignty and global economic integration at the same time.
    The so-called trilemma has been skillfully sold as a narrative by right-wing think tanks and others who serve the interests of capital.
    The so-called progressive politicians have fallen into the trap and have shifted their political parties closer and closer to their right-wing opponents, such that now it is hard to distinguish between the major parties in most nations.
    The reality is that while the impossibility theorem beguiles the Left – its applicability as a binding constraint on government is limited.
    It is as vapid as the statements made by these career politicians on both sides of politics that they serve the people.
    I analysed it in detail in this blog post – The impossibility theorem that beguiles the Left (February 17, 2016).
    By way of summary:
    Dani Rodrik’s impossibility theorem is summarised the argument in his blog – The inescapable trilemma of the world economy.
    A full academic argument is presented in his Journal of Economic Perspectives paper (published 2000) – How Far Will International Economic Integration Go?
    [Reference: Rodrik, D. (2000) ‘How Far Will International Economic Integration Go?’, Journal of Economic Perspectives, 14(1), 177-186].
    His basic idea builds on the tradition insight that students learn about in macroeconomics – the so-called “impossible trinity”, which says that a nation with links to the rest of the world (an ‘open-economy’) (p.180):
    … cannot simultaneously maintain independent monetary policies, fixed exchange rates, and an open capital account.
    For example, if a nation chooses to peg its currency and allow capital flows to enter and exit without restriction, then it cannot also, independently said its own interest rate.
    Rodrik introduced a new type of trilemma, which he called “the political trilemma of the world economy”.
    He says:
    If we want true international economic integration, we have to go either with the nation-state, in which case the domain of national politics will have to be significantly restricted, or else with mass politics, in which case we will have to give up the nation-state in favor of global federalism. If we want highly participatory political regimes, we have to choose between the nation-state and international economic integration. If we want to keep the nation-state, we have to choose between mass politics and international economic integration.
    While the ‘nation-state’ is typically thought of as a sovereign state with legislative powers, under the scenario where there is “true international economic integration”, the nation-state has to “to ensure that national jurisdictions — and the differences among them — do not get in the way of economic transactions”.
    In this context, the political aspect of the ‘nation-state’ shrinks and policy making is increasingly taken over by technocrats advised by institutions such as ‘Parliamentary or Congressional Budget Offices’ which define fiscal and other rules that the polity has to meet.
    Importantly, Benoît Coeuré uses the term ‘globalisation’ as a synonym to Rodrik’s “true international economic integration”.
    Rodrik deliberately avoids using the term ‘globalisation’ and while the creation of multinational firms with increased vertical integration and global supply chains has been going on since the 1960s (if not earlier), he concludes that the world is “quite far” from what he calls “true international economic integration”.
    He wrote that:
    Contrary to conventional wisdom and much punditry, international economic integration remains remarkably limited. This robust finding comes across in a wide range of studies, too numerous to cite here.
    In other words, the concept of a national border remains.
    There is still exchange rate uncertainty despite increased deregulation, which has lowered the transactions costs of international trade.
    There are still major “cultural and linguistic differences” that preclude a full mobilisation of resources across national borders.
    Rodrik notes that “Investment portfolios in the advanced industrial countries typically exhibit large amounts of ‘Home bias;’ that is, people invest a higher proportion of assets in their own countries than the principles of asset diversification would seem to suggest”.
    There is still a high correlation between “National investment rates … and … national saving rates”.
    Capital flows do not behave as “theoretical models would predict”.
    National borders remain cogent because, in Rodrik’s assessment, they “demarcate political and legal jurisdictions” that impose transaction costs, and hinder “contract enforcement” rules.
    The point is that despite the flowering of global firms and supply chains, there is nothing like ‘true international economic integration’, which means the nation-state can still reflect local politics and these constructs that place power in the hands of unelected technocrats (fiscal agencies and central bankers) are unnecessary and the Left should oppose them at the political level.
    Further, the trilemma as expressed is tautological.
    Of course, it is a definitional truth that if we allow capitalism to have no limits, then nation-states either disappear as legislative vehicles with enforceable jurisdictions (and confine themselves to being servants of global profit making) and/or citizens lose any political rights.
    But, as noted above, there is nothing inevitable about a trend to ‘true international economic integration’ and the current state of global capitalism is nowhere near that ‘pure’ state defined in neoliberal textbooks.
    The actual challenge is not to cede national sovereignty to some mythical state of international economic integration but to resist the corruption of the national policy-making process by shifts to technocracies and to ensure that the voting systems, both by citizens for their elected representatives and by the representatives themselves in the legislative domain, is not corrupted by lobbyists working in the interests of specific capital elites.
    Benoît Coeuré basic assertion thus has no foundation.
    Member States of the EU can always reestablish their national currencies and defend their domestic economies while still being open to trade and any benefits that might bring.
    Ceding authority to technocrats in Europe who impose harsh fiscal rules that create millions of jobless citizens is not a superior solution nor a road to regaining sovereignty.
    Benoît Coeuré’s use of the word ‘sovereignty’ voids it of all conventional meaning.
    The rest of his analysis is worse and avoids recognition that the EU provides a framework for regional divergence rather than convergence.
    So-called economic integration (single market etc) has been a polarising structure.
    Finally, while he claims “the EU gives its citizens more democratic control over globalisation than is afforded to people in other countries” the evidence is to the contrary.
    The operations of the Troika demonstrated how unaccountable and unelected officials can run riot in a nation where the people voted in a government to explicitly reject austerity only to have the ECB use its power to deliberately create financial chaos to ensure compliance with the technocrats.
    I am amazed at how brazenly shameless these Europhile propagandists are.
    (iii) Greece will pay double!
    As another example, in the last week, Madame Lagarde has been travelling around Europe touting the IMFs latest nonsense, trying to stay relevant.
    In a speech at the German Institute for Economic Research in Berlin (March 26, 2018) – A Compass to Prosperity: The Next Steps of Euro Area Economic Integration – the Madame told the audience that the IMF was about to release its “new IMF staff research on the euro area architecture”.
    She spoke of a “more unified euro area” as being the “compass for prosperity” and a “beacon of hope to the world”.
    Where do these creeps get their scripts from?
    Of late, more and more of these Europhile troglodytes (which is probably a too gentle word for these monsters), are running the ‘integration’ is good line.
    Lagarde even pulled out the pathetic “the time to repair the roof is when the sun is shining” line that the Europhile Left is also using.
    These characters are all cut from the same cloth even though the Left try to claim otherwise. Neoliberal and anti-democratic to the core.
    They all want to preserve the corporatist domination of European citizens and deny the capacity of the sovereign state to advance the well-being of all their citizens rather than the banksters and the top-end-of-town types that swoop around government handouts and other forms of corporate welfare while demanding austerity for the rest of us.
    On that theme, please see the following blog posts among others:
    1. Eurozone policy failures laid bare (March 19, 2018).
    2. The latest scam from the European Commission – the ‘roadmap’ – Part 1 (December 19, 2017).
    3. The latest scam from the European Commission – the ‘roadmap’ – Part 2 (December 20, 2017).
    The Madame proceeded to outline the “Next Steps of Euro Area Economic Integration”, which included “a move toward greater fiscal integration, starting with the creation of a central fiscal capacity.”
    Okay, I know what that means.
    It means:
    1. A federal body is created that can use the currency-issuing and legislative capacity to spend and tax to offset asymmetric non-government spending shocks (negative or positive) across the regional space defined as the jurisdiction of the “central fiscal capacity”.
    2. It means that such a body can permanently transfer funds to a region or Member State of the Federation.
    3. It means that such a body will be elected by universal suffrage and be accountable to the voters at periodic elections.
    But Madame Lagarde has a different meaning – that is, she disabuses the concept of a “central fiscal capacity” by proposing nothing more than a scam to force weaker states to give up more of their prosperity to favour the richer states.
    She claimed in her speech that “creating a ‘rainy-day fund” would create a buffer to allow countries to draw upon in times of crisis.
    The Member States would:
    … contribute to each year to build up assets in good times.
    Then, depending on the depth of a downturn countries would receive transfers to help them offset budget shortfalls …
    By itself, the capacity may not be enough to solve the next crisis — but it certainly would help.
    So a sort of partial ‘insurance policy’ paid for out of current national income.
    The relief (limited) would be “temporary” rather than a “permanent pillow”.
    So unlike true federations which provide on-going assistance to weaker members of the federation because they recognise, for whatever reason, that living standards will differ across the ‘states’ unless those transfers are made, Madame Lagard is promoting a short-term return of funds the ‘state’ has already contributed.
    This is not a ‘central fiscal capacity’.
    The real kicker came when she said that the IMF’s “two innovative approaches” here (further butchering the English meaning of innovation) would:
    1. Force “member’s compliance with EU fiscal rules” – in other words, virtually eliminate their capacity to respond to a major negative shock anyway.
    2. Force weaker nations to “pay a premium in good times” – as she said (the indecent woman) “a bit like raising the cost of insurance after a car accident”, which is a sop to Germany who deeply oppose any notion that a weaker nation would be supported on an on-going basis.
    The IMF released a technical document to coincide with the speech (March 26, 2018) – A Central Fiscal Stabilization Capacity for the Euro Are.
    It is a waste of time reading it. It is simply deplorable.
    In it, though, some flesh is added the Madame’s “premium” talk.
    We read that:
    As a high-risk state, Greece should even pay more than twice the fixed contributions to a future European Financial Mechanism Fund.
    Which keeps it in Eurozone servitude forever.
    Go you Europhiles – get behind this, another one of your beloved ‘reform’ proposals to spend some time cogitating over at fancy lunches and conferences, drinking the best French wines and overclaiming on your expense accounts.
    Meanwhile, more than 35 per cent of Greeks live “at risk of poverty or social exclusion” and 26 per cent live with “income poverty”.
    The unemployment rate is still above 20 per cent (20.8 per cent in December 2017) and a generation of young people have been abandoned by authorities – jobless and with little hope.
    A great system.
    (iv) EU austerity bias to be entrenched
    I thought this article from Brave New Europe (written by Anne Karrass) (March 30, 2018) – “Troika for everyone”? EU Commission again proposes financial rewards for cutting social welfare – summarised the delusion that exists among the Europhile Left very well.
    It discusses the Franco-German initiative through the European Commission to entrench austerity and the “Troika for everyone” under the guise of the so-called – Euro Plus Pact – which includes the “Competitiveness Pact”, the “Open Method of Coordination” and “Contractual Arrangements”.
    The ‘Pact’ was so blatantly anti-worker and required Member States to enact sweeping ‘structural reforms’ – code for wage and pension cuts, further deregulation of labour and product markets, attacks on employment protections and security, large-scale privatisations, further cuts in public spending and increased subsidies to the corporate sector – that there was a backlash at the Member State level.
    It required the Stability and Growth Pact rules, which reside as annexes in the European-level Treaties, to be formally incorporated in national legislation – which would further reduce the flexibility of national governments in the Eurozone to defend their economies against negative non-government spending shocks.
    In May 2015, the European Commission put the ‘Pact’ aside, after analysing the submissions of the Member States in terms of their National Reform Programs, which clearly showed an unwillingness to fully buy into the scam.
    The EU’s European Political Strategy Centre analysed the submissions and produced its response (May 8, 2015) – Strategic Note #3: The Euro Plus Pact.
    It said that the ‘Pact’ contrived as a “crisis response”:
    … has since lost traction with Member States and suffers from a lack of political ownership … The Euro Plus Pact is largely dormant and receives little attention in Member States, as evidenced by poor take-up in the National Reform Programmes …
    The case for reviving it is nevertheless strong …
    To become relevant, the Pact needs to be firmly integrated into the European Semester and into the framework of EU law, to provide better incentives for Member State engagement. The overall positioning needs to be recast and incentives drawn up.
    Which means?
    That the democratic processes at the Member State level got in the road of the European Commission’s plan to wreak havoc on workers’ rights etc and so the process had to be taken out of the political struggle at the Member State level and be placed into the hands of the Troika technocrats – those unelected and unaccountable souls that dominate Europe.
    So the European Commission just had to take a breath, let the storm cloud pass and then reintroduce this scam under the guise of another one of its ‘nice’ sounding initiatives – in this case, the so-called Roadmap for deepening Europe’s Economic and Monetary Union – (published December 6, 2017).
    This resurrected the ‘Pact’ without and took discretion away from the elected Member State governments.
    I critiqued that document and framework in the cited blog posts above (2 and 3).
    The ‘Roadmap’ is just a less than transparent scam for imposing more or less permanent attacks on the conditions of workers and their families within Europe.
    This is the point of the Brave New Europe article.
    You read sentences in the European Commission’s document such as:
    1. “in order to achieve greater resilience of economic structures and better convergence in performances”.
    2. “be able to respond swiftly to shocks”.
    None of that has any literal meaning (in interpreting the meaning of the words).
    These sort of statements are just code for the governments of Member States being cajoled once again into introducing ‘internal devaluation’ policies, on a more or less permanent scale.
    It also places Madame Lagarde’s waffling in perspective.
    There is no intention of creating a federal fiscal capacity that would attenuate recessions and redistribute economic well-being to ensure convergence.
    There is just the continuation of a punishing regime that:
    1. Attacks workers and the disadvantaged in the weaker nations more than in the stronger Eurozone nations.
    2. Makes the weaker nations pay more up front for a modicum of Euro-level funding when a crises hits – but those payments will be disproportionate to current economic prosperity.
    3. Forces all nations to continually undermine workers’ rights and securities under the guise of cutting real unit labour costs and ensuring more of the income growth goes to the corporate cabal that rules the European Union.
    All of this is coming from the elites that the Europhile Left think are worthy of support.
    And they control a right-wing corporatist system that the British Left who oppose Brexit think is worth belonging too.
    It beggars belief really.

  • joseba

    Britainia Handia eta Europar Batasuna: elkarren arteko merkataritza

    Bill Mitchell-en The facts suggest Britain is not as reliant on EU as the Remain camp claim

    I have been doing some analysis of British and European Trade patterns over the Post World War 2 period. They reveal some very interesting insights that are seemingly lost in the on-going war by Europhiles against Brexit. One of the recurring themes in the Brexit debate is the so-called importance of membership of the European Union to on-going prosperity of Britain through trade. What the data reveals is that British exports growth did not accelerate with accession to the EU in 1973 and after the introduction of the ‘Single Market’, British exports to the EU started to level off and then decline rather sharply. In other words, Britain has been diversifying its exports and is less reliant on the EU than it was say in the early 1990s. The data also shows that the creation of the Single Market hasn’t even boosted intra-EU or intra-Eurozone trade. Additionally, and laterally, the data suggests that the introduction of the euro has not expanded intra-EMU trade. The claims by the Euro-elites that it would were a major part of their justification for pushing through to the common currency. I consider this sort of evidence has been largely ignored by those in the Remain camp, who prefer to base their assertions on the highly questionable ‘forecasts’ coming from neoliberal-inspired ‘models’, which have so far demonstrated an appalling record of accordance with the facts. The data I have shown here doesn’t provide an open and shut case for Brexit. But it does show that the importance of EU membership to Britain’s prosperity is probably overstated and that Britain will prosper if its own policy settings are appropriate.
    The anti-Brexit crowd are now leaving behind a litany of flawed statements relying on so-called ‘research’ that is quickly rendered ridiculous by the passing of time – that is, the evidence.
    First, we had to the incompetent piece of propaganda masquerading as economic modelling from the British Treasury – HM Treasury analysis: the immediate economic impact of leaving the EU (released May 23, 2016).
    The stated aim of the Treasury analysis:
    … was to quantify ‘the impact … over the immediate period of two years following a vote to leave’
    A more realistic interpretation was that the Treasury ‘analysis’ (using that descriptor rather liberally) was deliberately designed to bias the June Referendum vote towards delivering a Remain outcome.
    I considered that Report in this blog post – Austerity is the problem for Britain not Brexit.
    I discussed the major flaws in the modelling approach that produced their forecasts and concluded, categorically, that the scenarios they painted (outlined in the Table below) were far fetched in the extreme.
    Just weeks before the referendum, the then-chancellor George Osborne, citing the report, warned that ‘a vote to leave would represent an immediate and profound shock to our economy’ and that the ‘shock would push our economy into recession and lead to an increase in unemployment of around 500,000’.

    At the time, the ridiculous Treasury estimates presented in the Table above were complemented by a host of other estimates from other organisations (investment banks, multilateral institutions, etc) – all telling the same story. Doom from the outset and getting worse.
    The stuck-record’ Guardian writer William Keegan wrote in his comment (September 4, 2016) – Brexit is truly daunting: this is the biggest crisis I have known – that:
    Noises emanating from the Treasury and the Institute for Fiscal Studies suggest there is already panic in the ranks about a prospective deterioration in the budgetary position as a result of the likely impact on tax revenues of Brexit.
    Time has a habit of exposing fakes!
    The following graph compares the actual course of Real GDP against the two claimed impacts (which I have linearised). The actual data is current until the December-quarter 2017 and the dotted line just assumes that the 0.4 per cent growth in that quarter continues.
    It really doesn’t matter what we assume about the first two quarters of 2018, the reality will never be close to the fake estimates produced by HM Treasury.
    With this degree of error, why should anyone ever trust further analysis put out by organisations using the same type of modelling technology.
    GIGO – Garbage In, Garbage Out.
    Official national accounts data from the British Office of National Statistics (ONS) shows that by the end of 2017, British GDP was already higher by 3.2 per cent relative to its level at the time of the Brexit vote – a far cry from the deep recession we were told to expect.

    HM Treasury Predicted that the number of people unemployed would rise by 520,000 under the Shock scenario and 820,000 under the Severe Shock scenario by June 2018.
    The actual unemployment is likely to be 1,368,885 million by June 2018, down from 1,640,373 in June 2016 at the time of the Vote. The Treasury estimates would have you believe it would have been 2,160,373 (Shock) or 2,440,373 (Severe Shock).
    The following graph charts the actual path of British unemployment against the forecasts (based on an assumption that the current annual rate of decline is maintain for the first two quarters of 2018 – given the last quarterly estimate is for the December-quarter).

    Similarly, the unemployment rate is likely to remain around its current level of 4.3 per cent (down 0.6 points) whereas the Treasury claimed it would rise to 6.5 per cent (Shock) or 7.3 per cent (Severe Shock).
    By January 2018 there were 187 thousand fewer people unemployed that at the time of the Referendum – a 43-year-low. Economically inactive people – those who are neither working nor looking for a job – fell by their largest amount in almost five-and-a- half years.
    Finally, the next graph shows the actual Public Sector Net Borrowing (£ billions) in 2016-17 (£47.6 billion), the likely outcome given current trajectory for the 2017-18 fiscal year (£43.4 billion) and the Treasury forecasts under the Shock (£71.6 billion) and Severe Schock (£86.6 billion) scenarios.
    Not even close.

    Needless to say, that while inflation did indeed rise on the back of a weaker sterling – to a modest three per cent – it is now rapidly falling again. This, combined, with (a yet too) modest real wage growth, means that the former is starting to pick up with the latter.
    Particularly embarrassing for the professional doomsayers is the data concerning the performance of British industry over the past two years, despite the uncertainty concerning the negotiations with the EU – thanks in no small part to the British government’s inane conduct.
    The Economist article (February 8, 2018) – Britain’s long-suffering makers are enjoying a once-in-a-generation boom concluded that:
    … manufacturing is seeing its strongest growth since the late 1990s.
    This view is supported by analysis from the British manufacturers’ Organisation.
    In its April Monthly Briefing (released April 5, 2018) it said that:
    1. “After a slow 2017, despite a roaring labour market and above target inflation, wage growth is finally beginning to pick up.”
    2. “consumers think that this is the right period to save money and that their personal financial situation is going to improve in the next year.”
    3. “Meanwhile the manufacturing sector set a new record with nine months of uninterrupted monthly growth.”
    4. “Business investment has been revised up in the last quarter of 2017 and the current reading is for a quarterly expansion of 0.3% and an overall expansion of 2.4% in 2017”.
    On Brexit, their assessment was that:
    A year from now, not much will be different. If it all goes according to plan, the UK will officially be outside
    the European Union tent but as we, most probably, will be in the first days of the status quo implementation period nothing will feel particularly different. The economic backdrop probably won’t have shifted too much either.
    A far cry from the hysteria coming from the propaganda machines linked to the Remainers.
    At least this assessment is grounded in what is actually happening with the data.
    The improvement is largely due to a growing demand for British exports, which are reaping the benefits of the lower pound and improved world trade conditions.
    The Remain camp – on both sides of politics – have now forgotten how bad the early Treasury and related analysis was.
    They have a new ‘talisman’ now – the much-publicised leaked report prepared by none other than the British government’s Department of Exiting the European Union released in January 2018 – EU Exit Analysis Cross Whitehall Briefing.
    The Briefing was meant to be confidential information for the ‘House of Commons Exiting the European Union Committee’.
    I won’t consider all the political ramifications of the leak and the subsequent decision to make the document public.
    Like the previous Treasury analysis (there were two documents published in 2016 – the analysis cited above of the effects over the immediate two-year horizon and the estimated longer run impacts) – the leaked document provided estimates of the supposed economic impact of Britain’s exit from the EU under various scenarios.
    The scenarios include Single Market access through the European Economic Area (EEA), a free trade agreement outside of the Single Market and leaving the EU with no deal – and concludes that in all its possible forms Brexit would have a substantially negative impact on the UK’s GDP.
    Estimates range from a 2 per cent lower GDP and 700,000 fewer jobs over the next 15 years to an 8 per cent lower GDP and as much as 2.8 million fewer jobs.
    So a sort of horror story being maintained.
    Even those on the Left are citing the leaked report claiming that as it was produced by Britain’s ‘pro-Brexit government’ it must be reliable – implying that it can’t in any way be suspected of suffering from an anti-Brexit bias.
    See, for example, the article (April 12, 2018) – Is Labour up to a Brexit In Name Only? – by a research academic from the University of Cork, Will Denayer:
    Why do I oppose Brexit? The following figures have been produced by Her Majesty’s pro Brexit government, so it’s hardly Remain propaganda.
    His anti-Brexit argument invokes almost every Brexit-related myth in the Project Fear book: withdrawing from the European Union (EU) will be an economic disaster for the UK; ‘tens of thousands’ of jobs will be lost; human rights will be ‘substantially’ reduced; ‘principles of fair trials, free speech and decent labour standards will all be compromised’.
    In short, Brexit will transform Britain into a quasi-fascist dystopia, a failed state – or even worse, an international pariah – cut off from the civilised world.
    The intent of his entry into the debate is to criticise what he considers to be Jeremy Corbyn’s hitherto ambiguous Brexit strategy and calls upon him – and the Labour Party more in general – to take a radical pro-Remain stand.
    This view is shared by most progressives across Europe but does not stand up to scrutiny.
    The problem is that commentators who cite leaked Report as if it has any credibility ignore the obvious fact that the underlying modelling used to produce the estimates is riddled with neoliberal biases and is notoriously unreliable.
    The workhorse models used to predict the economic effects are called Computable General Equilibrium (CGE) models and the results from simulations are highly sensitive to the numerical calibration of the relationships in the models and the assumptions made about, for example, technology effects (‘returns to scale’).
    The models are notoriously unreliable and easily manipulated to achieve whatever outcome one desires. I could calibrate and construct a CGE model to produce a utupian outcome for Brexit, but that outcome would be as flawed as the official estimates being produced.
    The neoliberal biases built into these modelling exercises include assertions that markets are self-regulating and capable of delivering optimal outcomes (so long as they are unhindered by government intervention); that ‘free trade’ is unambiguously positive; that governments are financially constrained; that supply-side factors are much more relevant than demand-side ones; that individuals base their decision on ‘rational expectations’ about economic variables, etc.
    Many of the key assumptions used to construct these statistical exercises bear no relation to reality. Simply put, the forecasting models – and mainstream macroeconomics in general – are built on a sequence of interrelated lies and myths.
    I recall back in the 1980s, when the conservative government in Australia was trying to reduce the power of trade unions and cut workers’ entitlements, mainstream ‘think’ tanks using CGE models shows that cutting wages would deliver massive employment gains, stronger economic growth and better export performance.
    But, by way of example of how one can ‘cook’ the results to get the outcome desired, when one examined the numerical calibrations of the academic models that were used, one found the employment sensitivity to real wage changes being used (the value of the coefficient) bore no relation to reality and the sensitivity to lost income from the wage cuts being virtually zero, when reality tells us the opposite.
    So, of course, a real wage cut will generate massive employment gains under these ‘assumptions’. But the estimates are then not akin to anything that would happen in reality.
    It is a similar story to the scandalous ‘mistakes’ made by the IMF in their modelling of the impacts of austerity under the second Greek bailout in 2012.
    See this blog post – The culpability lies elsewhere … always! (January 7, 2013) – for detail on that scandal.
    The point is that these exercises are not free of ideological bias and unless they are released for public scrutiny one has no way of knowing the extent of those biases.
    The British government has refused to release the technical aspects of their CGE modelling, which suggests they do not want independent analysts like me examining their ‘black box’ assumptions.
    However, given how embarrassing their previous ‘official’ forecasts have proven to be, the leaked document warns readers that:
    Results for different scenarios are always assumption-dependent … Excessive weight should not be given to single-point estimates, given uncertainties, ranges of opinion on assumptions, global and sector trends and a variety of potential end states.
    But having said that, they still claim that this type of “economic analysis provides us with the best available evidence base on which to draw a ‘broad’ directional picture”.
    Well, the reality is that the forecasts are not “evidence” at all, for the reasons outlined above.
    The document also emphasises that the CGE modelling was not used “pre-Referendum” as an attempt to distance the analysis from their disastrous Treasury modelling cited above.
    But they still persist with the deployment of the so-called Gravity model of trade which is the standard mainstream framework.
    They use gravity modelling to inform the CGE models.
    Gravity modelling was first introduced in 1962 by the Dutch econometrician Jan Tinbergen and is motivated by two simple assumptions:
    1. Countries with larger GDP levels will have more bi-lateral trade.
    2. Countries that are geographically proximate will have more bi-lateral trade – lower transport costs, easier to gain intelligence to understand cultures etc.
    When Tinbergen introduced this computational approach to understanding bi-lateral trade, goods trade dominated total trade flows and services trade required people to be in situ.
    Hence the importance of transport costs etc.
    But now, much trade occurs in services which can be delivered digitally and have zero transport costs.
    There are also major issues in the statistical procedures used to generate gravity modelling estimates. I won’t go into these technical problems, but while there is a huge literature dealing with them, doubts remain on the veracity of the ‘numbers’ produced.
    Trade patterns
    The Remain camp take it as a self-evident truth that Britain has enjoyed huge benefits from joining the European Union and later with the introduction of the Single Market.
    I considered that proposition in this blog post – Oh poor Britain – overrun by chlorinated chickens, hapless without the EU (February 1, 2018).
    I showed that there is very little proof that the ‘Single Market’ has improved the relative performance of the EU15 economies (productivity, GDP per capita) against the US, the exemplar of a ‘single market’.
    In fact, the dramatic shift that marked the introduction of the ‘Single Market’ was associated with a worsening the relative position of the EU15 against the US and Japan by not maintaining the closure that was occurring pre-single market.
    To get a feel for how important the EU might be for British trade I have been digging further into the data.
    Accessing, the very complex – IMF Direction of Trade Statistics (DOTS) – produces some interesting insights.
    The first graph shows the growth in exports from 1950 to 2017 (where the index is set to 100 in 1950). The EU and the US have followed the pattern of World growth (being important components of it) but the UK has lagged well behind since the early 1970s – when it accessed membership of the EU.
    The EU evolution is dominated by the export strength of Germany.

    To put the previous graph in context, I added Germany and the PRC. The shift in world exports to China has been very significant.

    The next graph shows the regional shares of British exports (EU and EMU) between 1950 to 2017.
    Two things are obvious:
    1. There was no particular acceleration in British exports to the EU or to the nations now comprising the Member States of the Eurozone after it accessed membership of the EU in 1973.
    2. After the introduction of the Single Market, twenty years later, the British share of exports going to the EU and the EMU flattened and after the 2005 (pre-GFC) started to decline rather sharply.
    In other words, Britain has been diversifying its exports and is less reliant on the EU than it was say in the early 1990s.
    Exports to China have risen from virtually zero in 1973 to 4.8 per cent of the total in 2017, while exports to the EU are falling towards the 1973 levels.

    The data also shows that the creation of the Single Market hasn’t even boosted intra-EU or intra-Eurozone trade.
    The next graph shows the percentage of total exports that go to Member States within the European Union (blue) and the Eurozone (red) from 1980 to 2017.
    I ensured that the construction of the political blocs (EU and EMU) and the allocation of export flows was consistent with the rolling (expanding) membership of each bloc, although it doesn’t alter the conclusion if a constant membership was used.
    The Single Market came into operation in 1992 about the time the data shows that trade within the EU (and between the Member States that would become the EMU) flat lined and has been falling since around 2005.
    So even within a customs union, where tariff barriers are prohibitive to entry from foreign exports, the Single Market
    As the following graph shows, the share of the intra-EU export of the EU total export, after experiencing a steady rise throughout the 1980s, has effectively stagnated from the mid-1990s – that is, from the creation of the Single Market – until end of the 2000s, and has been on a downward trend ever since.
    The same applies for the intra-EMU export of the total EMU export.
    A Bruegel note (August 27, 2014) – Sharp decline in intra-EU trade over the past 4 years adds that:
    … the Euro Area has been following nearly the exact same pattern as the European Union as a whole, suggesting the common currency might not have had the expected effect on trade between Euro Area members.

    A further observation drawn from the IMF Directions of Trade database is that while global exports have grown by 5 times since 1991 and the advanced economies exports have grown by 3.91 times, the EU exports have only grown by 3.7 times and the Eurozone by 3.4 times.
    Thus, in both relative and absolute terms the Single Market has not had the major postive effect that the anti-Brexit lobby would have us believe.
    It is, of course, always possible that without the Single Market, outcomes would have been much worse. But that conjecture would be difficult to sustain.
    I consider this sort of evidence has been largely ignored by those in the Remain camp, who prefer to base their assertions on the highly questionable ‘forecasts’ coming from neoliberal-inspired ‘models’, which have so far demonstrated an appalling record of accordance with the facts.
    The data I have shown here doesn’t provide an open and shut case for Brexit.
    But it does show that the importance of EU membership to Britain’s prosperity is probably overstated and that Britain will prosper if its own policy settings are appropriate.

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