Sunday, November 27, 2016

Gove starts rewriting history again

Former Education and then Justice Secretary Michael Gove has been attacking "experts" again though this time he said that his specific targets were economists and pollsters.

Probably the very worst moment during a referendum campaign in which far too many people on both sides of the referendum argument disgraced themselves, was when Michael Gove compared ten Nobel Prize winning economists who supported "Remain" to the Nazi apologists who denounced Einstein on Hitler's orders.

He did at least have the decency to apologise but that does not alter the fact that the comment was inexcusable.

Now he has come out with the following:

"Economists have to recognise that their profession is in crisis: that the economic profession failed to predict the 2008 economic crisis, that economists in the past argued almost to a man and woman that we should enter the single currency, that they were proved wrong, and then professionally they were proven wrong about the impact of Britain voting to leave the European Union."

In the interests of full disclosure let me make clear that I am an economist who was a vehement opponent of British entry into the single currency from the early 90s until the issue was made irrelevant on June 23rd this year, and that I was taught economics by, and have huge respect for, one of the Nobel prize winning economists who Michael Gove compared to a Nazi.

Of the comments he made above, the only one which comes close to being true is that the economic profession failed to predict the 2008 economic crisis. Even this is a gross oversimplification.

There were plenty of economists who warned that the investment of huge sums in markets like the sub-prime market on the assumption that because they were going up they would continue to go up was an enormous gamble. There were also many economists who warned that Britain was borrowing too much and that when a recession came the results would be very painful.

And the majority of economists warned that when Gordon Brown claimed to have abolished Boom and Bust he was talking nonsense and that sooner or later there would be another recession.

So although the economics profession didn't predict the exact date and severity of the crash, they certainly did warn of the rocks that Brown, and some banks, were steering towards.

As for the claim that "almost to a man and woman" economists argued that Britain should scrap the pound and enter the Euro this is a considerable exaggeration - much like the £350 million claim.

As the Economist explained here during the referendum campaign, they were very cautious about joining. They did a survey of 164 economists in 1999 which found that about two thirds of economists were in favour of replacing the pound with the Euro but around a third were opposed.

If Gove had said that "a majority of economists" were in favour of joining that would have been fair enough, but I think most reasonable  people would say that referring to a profession as having supported something "almost to a man and woman" when around a third of them opposed it is a significant exaggeration.

The evidence suggests that those of us who opposed British entry to the Euro were right and those who supported it wrong, but "proved" is, again, stretching the English language a little. And obviously, the third of us who did oppose it certainly have not been proved wrong.

In terms of the consequences of the vote, the great majority of economists were certainly of the opinion that actually leaving the EU would have a net negative effect on the British economy but obviously that has not been proved right or wrong because we have not left yet.

Admittedly, those who suggested that the British economy might go straight into recession merely as a result of the vote were obviously wrong, but they were very far from being the whole economics profession. My recollection is that those who pushed that line were politicians, not economists.

And those economists who said that the vote itself might cause some uncertainty and disruption to the economy have been proved right, not wrong, although the damage has been less than most economic forecasters expected. The pound dropped to a 30-year low immediately after the vote and is 13% lower than it was just before the referendum: economic growth dropped from 0.7% in the quarter before the vote to 0.5% in the quarter afterwards.

Regular readers of this blog will know that I spent the referendum trying to correct some of the most egregious false statements by both sides: there is a set of links to all the posts I published correcting errors by both sides here.

Personally I think the more extreme views from economists and politicians alike on both the Remain and Leave sides significantly overstated their respective cases during and since the referendum and although it is far, far too early to leap to definitive conclusions, what evidence there is so far very much supports that view.

Michael Gove said that the since the referendum he had reflected on his mistakes and encouraged economists and pollsters to do the same. On the basis of what he said today perhaps he should reflect on his mistakes some more.

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