Friday, May 06, 2016

What do "Economists for Brexit" stand for?

Contrary to the impression sometimes given that all serious economic experts support "Remain" there are some prominent economists who favour leaving the EU.

For example. there is a group of eight distinguished economists who describe themselves as

"Economists for Brexit"

They have a website at http://www.economistsforbrexit.co.uk/

However, it is important to understand the basis on which they argue that Britain would be better off outside the EU.

That argument is based on the assumption that Britain would follow a specific set of free-trade, free market policies if we were to leave the EU and if you strongly oppose the idea that the UK should follow those policies you cannot also expect to see the economic gains that "Economists for Brexit" believe those policies would deliver if the UK leaves the European Union.

A simple explanation of what "Economists for Brexit" stands for was given by one of their number. Professor Patrick Minford, in the Sun newspaper here.

Here are three extracts from the article:

"This country is no longer one that specialises in farming or building. We now trade in skills more than we do in things. We have excellent designers, highly skilled intellectuals and we specialise in ideas that are then sent to South America or parts of Asia to be made.

Over time, if we left the EU, it seems likely that we would mostly eliminate manufacturing, leaving mainly industries such as design, marketing and hi-tech. But this shouldn’t scare us.

Britain is good at putting on a suit and selling to other nations."

"Of course leaving the EU will be difficult, and something that needs careful negotiation, but we must completely withdraw to gain these benefits. Naturally, however, it will be unpopular with powerful industries which currently benefit from protection. Many of these have already been vocal and it is important for us to help these industries adjust if we do decide to leave."

  "We need to negotiate a transition period which allows both groups" (British industries and foreign companies which trade with us) "to get used to the change."

To his credit, Professor Minford has been completely honest about the implications of his policy, to the delight of some remain supporters who have been gleefully quoting the line highlighted above - to which Minford himself drew attention in his article by putting it in italics.

My opinion as an economist, is in agreement with that of Open Europe. Like just about every other serious economist - and as I understand it, "Economists for Brexit" don't dispute this - I think that if Britain were to leave the EU and keep the same economic policies, we would be worse off.

I don't think the short term hit caused by disruption or the long hit to growth would be as severe as the Treasury projections suggest, particularly under the EEA model, but if we do not take advantage of Brexit to move to more liberal economic policy, it will make us poorer.

I also think that if after leaving the EU Britain were to adopt radically more liberal economic policies, such as scrapping all external tariffs, there could be a medium to long term boost to growth, although just as I think the treasury has overstated the cost of a "same policies" Brexit, I believe that "Economists for Brexit have overestimated the gains from a "free market" Brexit.

But a bigger question for me is whether there is the political will to pursue those policies.

If you are opposed to the EU on non-economic grounds which are so important to you that you are willing to pay a moderate cost in terms of lower growth and incomes, obviously the rational thing for you to do is to vote "Leave."

Similarly, if want to see a free-trade, free market Britain, and believe that the UK would adopt such policies in the event of a "leave" vote - and you are willing to pay the price described above - e.g. that we would "largely eliminate manufacturing" and, for example. the steel industry would be allowed to close - then you should also vote to Leave.

But if you are not willing to pay that price, you should probably vote "Remain."

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