Brexit-ekiko hondamendi-aurreikuspenak

Bill Mitchell-en Brexit doom predictions – the Y2K of today


(i) ‘Brexit-en zaintza’1

(ii) Brexit berdin desastrea?2

(iii) Gaurko data eta Brexit-en aurkako etengabeko mezuak3

(iv) Larry Elliot eta DTMkoen aurreikuspenak4

(v) Politika monetarioak, QE,…: marko teorikoa okerra da5

(vi) Jacobin aldizkarian6

(vii) David Blanchflower7

(viii) Benetako datuak8

Here is the British fiscal balance from 2005 to 2017 (deficit is positive) in £ million.

The contraction between 2016 and 2017 was massive – and it is what one calls fiscal austerity given the private spending cycle was slowing.

Here is the public sector net borrowing history since 1994/95 to 2018/19 (Figure 4 in the ONS release).

A very harsh austerity is indicated especially given the slow overall growth9.

(ix) Zor pribatuaz10


(1) Anyway, the August edition of ‘Brexit Watch’ has come out now and didn’t disappoint.

(2) The manic anti-Brexit bias continues.

(3) Very little understanding of the impact of the irresponsible fiscal strategy is demonstrated. The same hacks get a ‘guernsey’ and prophesies of doom abound.

(4) Meanwhile, the reliance on consumer credit to maintain growth in household consumption in the context of flat wages growth, and the fact that Britain is now growing faster than the dysfunctional Eurozone, are largely ignored.

(5) There is no doubt that Britain is in relatively poor shape. But it is the result of poorly conceived and executed fiscal policy (austerity) rather than anything that happened in June 2016.

Ingelesez: “The UK Guardian has been publishing a ‘Brexit Watch’ page for some months now claiming it is is a “look at key indicators to see what effect the Brexit process has on growth, prosperity and trade”. They wheel out some economists who typically twist whatever data is actually analysed into fitting their anti-Brexit obsession. The problem is that the data or issue they choose to highlight is usually very selective, and, then, is often partial in its coverage. I commented on the way the Brexit debate is distorted by these characters in this blog post – How to distort the Brexit debate – exclude significant factors! (June 25, 2018) and specifically on the ‘Brexit Watch’ distortions in this post – The ‘if it is bad it must be Brexit’ deception in Britain (May 31, 2018) among others. Yesterday’s UK Guardian column by Larry Elliot (August 27, 2018) – Britons seem relatively relaxed in the face of Brexit apocalypse – does provide some balance by discussing why the general public is not taking these economist ‘beat ups’ about Brexit very seriously at all. This is a case of a profession that systematically makes extreme predictions and forecasts which rarely come to pass. The general public works out fairly quickly that when a mainstream economist says the sky is about to fall in it is time to get the beach gear out because it will be fine and sunny!

I last wrote about this topic in this blog post – Brexit propaganda continues from the UK Guardian (July 4, 2018).

And before that – The ‘if it is bad it must be Brexit’ deception in Britain (May 31, 2018).

In that blog post, I discussed the ridiculous article the Guardian published on May 29, 2018 – ‘Brexit is scaring businesses to death’ – experts debate the data.

The debate was over the first-quarter GDP data for Britain published by the Office of National Statistics – Second estimate of GDP: January to March 2018 (released May 25, 2018), which showed that the British economy (based on the latest updated data) increased by 0.1 per cent in the first-quarter 2018.

One of the commentators – a Guardian regular – David Blanchflower clearly wanted to lump the slowdown together with Brexit.

He claimed that:

We should expect this decline to continue, which will be bad for British productivity. Recall that the French still produce in four days what the UK produces in five and this is not going to change any time soon. The UK continues to be the sick man of Europe.

And as you read further into his article, you see similar statements:

– “real wages are still 6.5 per cent below where they were in February 2008, just before the great recession started”.

– “Continuing and reckless austerity means living standards have fallen further – especially at the low end, because of cuts in benefits and public services and especially for those at the low end. People are hurting.”

Which when you consider the temporality of the phenomenon cited indicates that the vote for Brexit has had nothing much to do with the malaise that the trends in the data are indicating.

Which is why I questioned the whole ‘Brexit Watch’ page logic.”

Ingelesez: The Guardian was clearly lumping all negative economic data that was being published in Britain under its ‘Brexit Watch’ ambit to give the impression that the vote to free itself from the right-wing, corporatist cartel called the European Union was going to be a disaster for Britain.

The July 2018 ‘Brexit Watch’ entry was July 24, 2018 and contained three columns all with lurid headlines such as “Brexit is the biggest risk to the UK economy, bar none” and “Brexit economy: rate rise looms amid signs of slowdown”.

So “bar none” – even bigger than the slow-burn austerity and the neoliberal mindset of the government – that even the likes of David Blanchflower acknowledged was “continuing and reckless”.

I guess an updated set of ‘Brexit Watch’ articles will be published in the coming day or so, given they promise a monthly update.

Well I wonder whether they will choose to publish analysis for the Second-quarter National Accounts data published by ONS – Gross domestic product index: CVM: Seasonally adjusted.

The latest data shows that the British economy grew by 0.4 per cent, which was slightly faster than the growth of the 19 Eurozone Member States (0.36 per cent).

In fact, ONS revised the first-quarter growth estimates up from 0.1 per cent to 0.2 per cent when the updated data came in.

The second-quarter growth rate of 0.4 per cent, though modest by any standards and reflects the on-going austerity being imposed by the national government, doubled the first-quarter performance.

The annualised growth rate rose from 1.2 per cent in the first-quarter 2018 to 1.3 per cent in the June-quarter. It is still pretty dismal but not collapsing, which is the point.

If you were expecting David Blanchflower to address that fact this month – that is to apologise for his doom and gloom prediction that “We should expect this decline to continue” – then you would be overly optimistic.

He was completely wrong? Not just a little bit wrong – but completely wrong.

In summarising the data release, ONS wrote:

UK gross domestic product (GDP) is estimated to have increased by 0.4% in Quarter 2 (Apr to June) 2018, up from 0.2% in the previous quarter … This pick-up in growth following a weak Quarter 1 (Jan to Mar) was in line with market expectations.

So the ‘market’ didn’t agree with David Blanchflower. There were also some “adverse weather conditions in Quarter 1” that ONS indicated had some negative impacts on the growth rate in the March-quarter.”

Ingelesez: “In the latest – Brexit Watch – published today (August 28, 2018) – there are again three columns.

One Column – Brexit economy: turning up the heat of household finances – focuses on the fact that household finances are being squeezed and a “as the mounting risk of a no-deal Brexit turns up the pressure on household finances”.

It then documents the low pay growth (which started years ago) and rising petrol prices (nothing to do with the June 2016 Referendum).

And then the author writes:

Britain recorded the biggest budget surplus in July for 18 years, giving Philip Hammond more wriggle room … [to spend more] ….

Where do these people get their ideas from?

The obvious link, ignored by the journalist and the economists he quotes (regulars Andrew Sentance and Blanchflower), is that the fiscal surplus is squeezing the hell out of households and forcing them to increase their indebtedness to maintain consumption growth.

I last discussed that link in this blog post – The fundamental realignment of British society via fiscal austerity (July 30, 2018).

In another of the ‘Brexit Watch’ columns – Talk of a no-deal Brexit and an interest rate rise dampen the economy – Blanchflower says that:

Surveys point to a slowing of the UK economy. The purchasing manager indices for manufacturing and services were weak.

Very selective indeed.

Why didn’t he (and the ‘Brexit Watch’ analysis) discuss the latest press release from the Confederation of British Industry (CBI) published last week (August 21, 2018) – Manufacturing output and orders remain robust – which confirms that British manufacturing “output growth … in the three months to August … remained well above the long-term average.

We learn that “13 out of 17 sub-sectors reporting growth” and that “Manufacturers expect output growth to continue at a similarly firm pace over the next three months” and “expectations for output price inflation remained steady”.

That doesn’t sound like a collapse does it?

It is true that “the underlying trend in real GDP is one of slowing growth” in Britain but the trend turned mid-way in 2014, some two years before the Brexit vote and has much more to do with the slow-burn austerity than anything else.

I wonder why the ‘Brexit Watch’ pages didn’t bother earlier in the year to comment on the fact that the innovative sectors in Britain were likely to boom.

The UK Independent article – UK tech sector enjoys record investment in 2017 despite Brexit uncertainty (January 5, 2018) – reported that “UK firms attracted almost four times more funding in 2017 than Germany, and more than France, Ireland and Sweden combined”.

Where was that on ‘Brexit Watch’?

Oh, the editor might say it was not Brexit related. Well, if the first-quarter national accounts data is related then why isn’t the fact that “A record amount of money flowed into the UK tech sector last year, particularly fuelled by venture capitalists splashing cash in London despite uncertainty around the implications of Brexit …”

The article also indicated “that several global tech behemoths pledged their long-term commitment to the capital last year. Amazon, Apple and Google all announced major investments … music streaming service Spotify said that it would expand its research and development operations in London and double its staff headcount in the capital.

None of that was reported on ‘Brexit Watch’.

To bolster the anti-Brexit message in between the monthly publication of ‘Brexit Watch’, the UK Guardian thinks it is useful to have William Keegan continue his relentless articles about the dire costs of Brexit.

Cracked record.

His latest (August 26, 2018) – The mood on Brexit is turning. Labour can turn too – claims he is concentrating on the “economic damage”.

The article then considers no economic data. He rather just berates the British Labour Party for not demanding a second referendum.

A nothing article that just keeps getting publishing space at the expense of views that actually look at the data since June 2016.”

Ingelesez: “At least the UK Guardian’s Larry Elliot presents some balance in his article (August 27, 2018) – Britons seem relatively relaxed in the face of Brexit apocalypse.

He also notes that “the UK grew faster than the eurozone in the second quarter and is doing a lot better than the Treasury predicted before the EU referendum” and that “There has been no collapse in house prices, no 500,000 increase in unemployment, no two-year recession.”

The valid point that Larry Elliot makes is that the British people have become inured to the shocking incompetence of the mainstream economics profession in predicting anything accurate about the real world.

Normally, the mainstream of my profession cover up their incompetence by appealing to ‘additional factors’ and that sort of ad hoc response to anomaly type strategy. The sort of “oh, it hasn’t been given a chance to work yet” when public spending cuts devastate the economy. That sort of thing.

But the GFC was a monumental clusterf*!k for the New Keynesians. Their cosy “Great Moderation” pipedream came crashing down just as the core MMT economists had been predicting for some time.

Ingelesez: “The more extreme among this group tried to even deny that there was a major crisis.

Remember the – Interview with Eugene Fama – that the New Yorker’s John Cassidy published on January 13, 2010.

I covered that in this blog post – Mainstream macroeconomics – exudes denial while purporting to be progressive (February 20, 2017) among others.

Other New Keynesians became obsessed with the zero-bound claims – that monetary policy was very effective but with interest rates at zero it could not work properly.

Yet, they were still predicting massive inflationary effects from the various QE programs the central banks ran.

It didn’t happen. It never was going to happen. They were wrong. Why? Because their theoretical framework is wrong.

Then we go to Brexit and my profession, both within the academy and across the institutional arms (Bank of England, IMF, HM Treasury, and think tanks – the ridiculous NIESR), went crazy with their dire predictions.

As Larry Elliot points out none of the apocolyptic predictions have come close to occurring.

The only thing that was correctly anticipated – and it didn’t need economic theory to know it would happen – was that the exchange rate fell.

But as the CBI point out in their most recent briefing:

Manufacturing growth remains strong, supported by the lower level of sterling and strong global economy.”

Ingelesez: “And Thomas Fazi and I wrote about that in this Jacobin article (April 29, 2018) – Why the Left Should Embrace Brexit – which caused social media havoc because we dared to argue that Project Fear pushed by the Guardian and the Left commentariat was struggling with the reality of the evidence.

Some commentators demanded that Jacobin take the article down – poor darlings, thinking that if you suppress a good argument the reality it reflects also goes away and they could sip latte with their mates and wax lyrical about how bad Brexit will be.

I responded to the feedback from that article in this blog postThe Europhile Left use Jacobin response to strengthen our Brexit case (May 22, 2018).

This issue of poor forecasting plagues the mainstream economics profession who cannot seem to understand reality is not what their ‘models’ tell them it is.

Ingelesez: “David Blanchflower, the regular ‘Brexit Watch’ commentator, berated economic and political forecasters in his column (November 9, 2016) – Experts get it wrong again by failing to predict Trump victory.

He said:

Economic and political forecasters failed to predict the fall of the Berlin Wall and the 2008 recession – and this year has been even worse …

It must be said that this has been a disastrous decade for professional forecasters of the economic and political varieties.

He cites some examples and includes the fact that:

In 2008, the advanced countries all fell into a recession that the field of economics, and every government and central bank, had failed to anticipate.

Why would that surprise anyone, given that the mainstream macroeconomic models that policy makers were seduced into using (DSGE, New Keynesian etc) didn’t even have a financial sector built in to them.

How could they understand balance sheet imbalances when they had no banks, no credit, no speculative hedge funds, in their reasoning?

The problem though is that David Blanchflower then tries to gain the superior ground by asserting that:

Trump’s stunning victory and the Brexit vote in the UK are the inevitable responses to the weak recovery from recession. The one positive take for me is that in both countries austerity is dead and buried. Keynes was right. Fiscal stimulus here we come. No wonder experts have been getting such a hard time.


Ingelesez: “Well the latest ONS data release forPublic sector finances, UK: July 2018 (published August 21, 2018) – tells a very different story doesn’t it.

We learn that:

1. “Borrowing in the latest full financial year (April 2017 to March 2018) was the lowest financial year borrowing for 11 years.”

2. “So far in this financial year (April 2018 to July 2018), the public sector has borrowed £12.8 billion; that is, £8.5 billion less than in the same period in 2017; again, this represents the lowest year-to-date borrowing for 16 years.”

Ingelesez: “Why haven’t David Blanchflower and the fellow ‘Brexit Watch’ participants highlighted those trends?

Answer: They would not be able to beat up a Brexit crisis and make ridiculous statements that “Brexit is the biggest risk to the UK economy, bar none”.

The biggest crisis ahead for Britain is that the obsession with fiscal surpluses and flat wages growth are forcing the household sector into further debt to sustain consumption spending.

In turn, the slow (imbalanced) growth is retarding business investment because businesses rightly conclude they have all the capital stock in place that they need to maintain output consistent with the weak demand.

This all pre-dates the Brexit vote by some years.”

10 Ingelesez: “That reliance on private debt to maintain growth is unsustainable. That is the main danger. And it is quite separate from the mess that the Tories are making of the Brexit negotiations.

Remember the Y2K beat up. As it turned out there were only minor problems encountered. A solid planning environment was all that was needed to avoid the obvious issues.

We seem to be learning though.

As Larry Elliot concluded:

Expert forecasting is discredited. Life is a bit better than it was a year ago. There is still an expectation that London and Brussels will orchestrate a political fix. For all these reasons, people don’t really believe that at the end of March 2019 there will be no food in the shops, hospitals will be running short of medicines and that planes will be prevented from flying. A no-deal Brexit is seen as another millennium bug.”

Iruzkinak (1)

  • joseba

    How to distort the Brexit debate – exclude significant factors!
    Posted on Monday, June 25, 2018 by bill

    The Centre for European Reform, which must have little to do given the snail pace of so-called ‘reform’ that goes on in Europe, released a report over the weekend (June 23, 2018) – What’s the cost of Brexit so far? – which all the Europhile Remainers found filled their Tweet and other social media void for the day. I would have thought that they should have been happy, given England’s demolition of Panama in the soccer and 5-zip thrashing of Australia in the ODI cricket tournament. But no, they wanted to amplify the CER propaganda and makes themselves feel sad. Britain’s economy, apparently, is already 2.1 per cent smaller than it would have been had the vote to exit in June 2016 not won. And apparently, this has been a “hit to the public finances is now £23 billion per annum – or £440 million a week”. If you delve into the way the CER came up with these results you will quickly move on with a ho-hum and get back to the World Cup, which is infinitely more interesting (and that is saying something! read: I don’t enjoy soccer). The saying – Apples and Oranges – is relevant.

    The CER start with the no-contest statement, which is intended to force the reader to accept the rest without question:

    Any reasonable observer will acknowledge that the Brexit vote has curbed economic growth.

    So if you contest that assessment you are not ‘reasonable’. Who wants to be unreasonable? No-one. So just agree. QED.

    Well I contest it. And I think I am eminently reasonable and data-grounded.

    I last wrote my unreasonable assessments of this matter in this blog post – The ‘if it is bad it must be Brexit’ deception in Britain (May 31, 2018).

    I concluded in that blog post that what is happening in Britain now is mostly the result of nearly a decade of poorly contrived macroeconomic policy and has little to do with what happened in June 2016 when the British people exercised their democratic right and made a sound judgement to get out of the dysfunctional, corporatist mess that the European Union has become.

    I haven’t changed my mind as a result of reading the CER analysis and doing some further research on the matter.

    The CER state the obvious that Britain has slowed in recent quarters and is lagging behind other nations.

    They then conduct what they call “a simple modelling exercise to produce an estimate” of “how much has the decision to leave the EU cost the UK economy so far”.

    And if it wasn’t enough to present their poorly contrived research into the public debate once, they propose to “update quarterly from now on”. Mon Dieu!

    Their estimation technique copies German researchers at the University of Bonn.

    1. Create a ‘control’ group – with overtones to the authority that research in the physical sciences, which unlike social science, can conduct properly ‘controlled’ experiments.

    CER acknowledge that such an approach is impossible (“we cannot make one Britain vote for Leave and one Britain vote for Remain and then measure the difference”) but claim they can still create a “synthetic UK” which they call their control.

    2. The “synthetic UK” nation is created by selecting from the “36 OECD countries” which pool of nations have a profile of “economic growth most closely matches that of the UK between 1995 and the third quarter of 2016”.

    They then assume that the UK will continue to grow after the third-quarter 2016 until now in a weighted-average pattern dictated by the nations in the pool.

    Those nations are Canada, Japan, Hungary and the US and some other European nations (Denmark, Ireland, Italy, Norway, and17 percent weight).

    3. They then compute the real GDP for this weighted pool (the “synthetic UK”) and compare it with the actual real GDP for the UK.

    4. The difference is the cost of Brexit, which quantifies to 2.1 per cent by the first-quarter 2018.

    CER list a number of “caveats”:

    First, they acknowledge that their point estimates of the difference in the growth between the actual UK economy and the “Synthetic UK” economy between the first-quarter 1995 and the third-quarter 2016 are subject to variability (standard deviation) which is estimated to be equal to 0.534 percentage points. The mean difference is -0.04 points.

    Let’s accept their method for a moment.

    If we assume a point of statistical indifference (lower 95 per cent confidence interval) based on their statistical output (available HERE), then the difference in “cumulative growth in real GDP since Brexit referendum” is only 1 per cent rather than the point estimate of 2.1 per cent.

    At the upper limit, Britain would have slumped by 3.2 per cent relative to what might have happened without the Brexit referendum – meaning if it had have grown according to the weighted-average of the reference group of nations.

    So there is a significant error band in the estimates. We cannot distinguish statistically between 3.2 per cent difference and a 1 per cent difference (at 95 per cent confidence). A 3.2 per cent gap, given there hasn’t been a recession is rather unbelievable but carries the same statistical status as the 2.1 per cent or 1 per cent gap.

    Hardly confidence inspiring (excuse the pun).

    Further, note that in computing these estimates the assumption is that the values were independently and randomly sampled from a population whose values are Gaussian distributed. In this situation, that assumption is not valid, which further casts doubt on the veracity of the estimates. But we can leave that technical point to one side.

    Statistical games aside, it is on their second caveat that our attention should really be focused.

    By way of qualification, CER note that:

    … we cannot rule out a positive ‘shock’ to some of countries included – such as a surge in global demand for their exports – which the UK would not have enjoyed even if it had voted for Remain.

    Clearly possible although they dismiss this, saying it is hard to say what growth the UK might have missed out on, given the broad-based global upswing in 2017″.

    Well we can quite easily see some fundamental differences post June 2016 between their reference countries and the UK, which has impacted on the UKs relative and absolute growth performance.

    An examination of CER’s – Dataset – reveals that there is only household consumption, private investment and real GDP included. This was the dataset upon which STATA (their statistical package) interrogated to come up with the reference group that they used to compute the “Synthetic UK” time series post the Brexit referendum.

    There is no analysis of the conduct of fiscal policy in the pre- and post-Brexit Referendum period in the CER Report. Why not I wonder?

    Well the following graph probably tells you why. It shows the fiscal deficits as a percentage of GDP for the UK and the reference group countries that CER used to compute their “Synthetic UK” time series post-Referendum from fiscal year 2014-15 to the current fiscal year.

    The actual fiscal position for the UK is in red.

    Over this four year span the fiscal shift towards contraction (austerity) in the UK has been notable and has been largely absent in their reference group countries.

    Canada, the USA and Hungary have expanded their fiscal deficits in recent years and Japan has held a fairly stable fiscal injection as a percent of GDP.

    In other words, there has been no sharp shift towards a more austere fiscal landscape in these nations and that explains a significant part of the superior growth rate for this pool of nations, especially in the last two years (that is, post Referendum).

    This is a sharp differentiating feature that separates Britain from its CER Reference Group, which was compiled in the period before the austerity intensified.

    The question then is if we included these facts in their analysis and recomputed the reference group and reconstructed the Synthetic UK series then how much difference would there actually be?

    I haven’t time today to undertake that exercise but I can guarantee that most of the growth differential between the weighted-average of Japan, US, Hungary and Canada (and the few European nations thrown in) and the UK post June 2016 would be minimal once I standardised for fiscal shifts.

    I also note that Norway has also had a significant shift to higher fiscal deficits since the June 2016 Referendum.

    CER then use the same analysis to compute “the impact of that foregone growth on the UK’s public finances” and claim that because real GDP growth has slumped, the tax take is down and borrowing is up – by some “£440 million a week”.

    They integrate their 2.1 estimate (growth differential) into the seriously flawed estimates provided by leaked UK government document earlier this year to come up with that figure.

    Their conclusion is that:

    So far, our analysis shows the Remain campaign – and the vast majority of professional economists – have been closer to the truth.

    To which I conclude a truthful analysis would have to include these fiscal shifts.

    If the slowdown is reducing the tax take then the degree of austerity is even more severe than the actual data shows.

    There is thus no surprise that Britain’s recent growth rate has diverged from other nations that have not engaged in the austerity.

    That is the truth

    What does this all mean?

    1. Even within their own logic, the statistical estimates suggest that the difference in terms of real GDP growth between the reference group (which CER purport to represent where Britain would have reached had they not voted to leave) and the actual British economy is around 1 per cent or 3.2 per cent. Take your pick. A wide choice which casts significant doubt on the reliability of the estimates.

    2. A significant difference between the reference group nations and the UK, which cannot be excluded from an analysis of relative growth rates, was excluded by CER. Why? Obvious.

    3. If we consider the different fiscal trajectories, it is clear that post Referendum, Britain diverges significantly from the reference group nations, all of which either maintain their fiscal support or increase it, while Britain moves towards increased austerity marked by the current fiscal surplus.

    The old saying Garbage In-Garbage Out has a way of popping up when we consider all these anti-Brexit statistical exercises.

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