Hey LJ. Been a while.
It’s odd. You write about economics and politics for fifteen years and all of a sudden people start asking you about it.
In the last few weeks I’ve had – I think – five people say something to me to the effect of “David, nobody in the EU referendum, in or out, seems to be arguing on the facts. It’s all just mudslinging and tales of terror if you don’t do as they tell you. I’d like to vote on the facts, but I don’t’ know what they are. Can you help?”
I’m not kidding. People are coming to me
of all people for advice on how they should vote on a matter which will affect their life. That’s either a huge compliment to me or a slamming indictment of the quality of political debate. Actually, it’s probably both.
Now the referendum is certainly a tricky topic to talk about. The debate on social media at least has been at times fraught and personal. If you want to leave, the only explanation is that you’re a racist and a xenophobe. If you want to stay, you’re stupid at best and a traitor at worst. Whichever way you’re thinking of voting, someone not only thinks you’re stupid but they actively hate you for it. This is hardly an atmosphere of civilised debate.
So why aren’t people debating on the facts? That’s easy. There are sod all facts about what will happen if we stay or leave, and those that there are are debatable, capable of being interpreted in different ways, and if acknowledged can sometimes be used to support the opposition as much as your own case.
Take, for example, the different economic predictions. The predictions made by Remain are based on the assumption that all the benefits of membership would be lost (and they do exist), but also that after leaving no benefit whatsoever would accrue. In fact, they assume that the UK government would make no policy changes whatsoever in the event of Brexit. Clearly this is not what would happen.
On the other hand Leave discounts any and all benefits of membership and paints a happy world of sun-filled uplands after the fact. Clearly this wouldn’t happen either.
Thus neither official position is correct. You see the problem.
In truth, the picture is messy and complex and the facts and reasonable assumptions and predictions support both camps to a greater or lesser extent. This means neither can give any ground as it’s all so unclear any concession is immediately seized upon and played to the full extent by the opposition.
So what we’re seeing is that self-selected groups think you should agree with them and any disagreement is met by vitriol rather than debate, because debate with few facts and no concessions is pretty hard. The internet is a lousy place to have debates like this, as 140 characters isn’t enough to put forward arguments; however, it is just enough to score points and move on.
To begin, it’s worth considering why this is happening now
. You’ll have seen it in the news – populist, nationalist, protectionist and anti-establishment politics are on the rise everywhere. Le Pen, Trump, AFD, Pegida, Syriza, Golden Dawn, Corbyn, Farage, Beppe Grillo, whatever the groups in Scandinavia are calling themselves, Putin. There are more I’m sure. To my mind these are all expressions of the same thing. Or things, because I think there are two of them.
Firstly, we’re in what I would call post-crash politics. This is something I’ve been looking at a lot recently and had planned one of those huge old posts that I used to make on it. You see 2008 wasn’t a unique event. Over the last 300 years or so there have been seven or eight similar speculative credit bubble collapses, and a similar pattern ensues afterwards. To summarise, the point of greatest political instability does not follow immediately after the collapse. It happens 7-10 years afterwards. In other words, right about now.
I might be wrong in this analysis, btw, it’s something I’m working on. But give me the benefit of the doubt. I believe this is the point where the pustule of political unhappiness in the wake of the crash comes to a head and bursts for good or ill.
The second reason is something that was first outlined seventy years ago; if you have a combination of open migration, generous welfare and a minimum wage you will inevitably see a rise in nationalism. Quite simply quality of life in one place will always be lower than the welfare and minimum wage in another and you will get migration from the one to the other. This migration will cause resentment and fear amongst the current population proportionate to numbers and integration, and the reaction to this will be protectionism and nationalism as political forces.
In the interests of clarity here, I’m not saying that migrants come to take benefits. I’m saying generous welfare makes low-paid work economically unbeneficial to recipients in a way it is not to migrants from places where standards of living are lower.
Look at those factors in combination and you see an outcome of fear, concern, blame, economic protectionism and nationalism.
You may not agree with my assessment, but I think you have to admit that the effects have happened as described – and whilst I’m trying to be non-partisan here, I will take a moment to say See? I told you
To my thinking David Cameron has always been a lucky general – lucky in his opposition, lucky in his circumstances, lucky in his results, and when he called the referendum a few years ago I think he made two incorrect assumptions. Firstly I think that Angela Merkel promised him a better deal when she stayed at Chequers for Christmas which emboldened him and she wasn’t able to deliver when it came to it, and second that he kicked the can far enough down the road in the hope that something would come up – Le Pen would win something in France or the Euro would go down in flames or somesuch – to make the whole point moot.
Neither of those happened and suddenly shit, as they say, has got real for Mr. Cameron.
So, what are the facts of the debate, and how true are they?
I’ll start with big ones and then work down from there.
Fact: If the UK leaves the EU it will be a catastrophe for all concerned.
It is being quite loudly shouted by all concerned that if the UK leaves the EU, it could well lead to war, financial meltdown, a rain of frogs and dogs and cats living together. Everyone will be consumed in a catastrophe.
So the EU says it would be catastrophic, but it wouldn’t be such a big catastrophe that it is willing to consider changing the rules to avoid it. In other words, the EU considers the risk load of changing the rules to be greater than the risk of a member leaving.
Fact: Up to three million jobs would be lost.
Status: Hyperbole with some truth.
If you add up everyone in the UK involved in trade with the EU in some capacity it comes to about 3m people, and this assumes that all trade with the continent immediately ceases and everyone is sacked.
So that’s not going to happen.
The question is, therefore, how badly trade would be affected by Brexit and the answer to that is: nobody knows. Nobody knows what sort of deal would be the outcome; if you want out then it will be sunshine and flowers. If you want in, then it will be doom. The honest answer is somewhere in the middle, and probably the lower end because people wanting to make a profit tends to trump most other considerations given half a chance, and the with the state of the Eurozone economy these days it’s not like they don’t need it.
Being realistic: if the UK leaves the EU there will be some sort of slowdown or recession. How severe is debatable. Now, as you’ll know from this post
I wrote a couple of years ago I think we’re due that anyway (in fact, I suspect we’re having it right now). See below for more on this.
So, yes, there will be job losses. The number will probably be a function of the final trade tariff the UK gets with the EU (see below), offset by any deals done elsewhere plus recovery. What will that number be? Nobody at all knows. Considerably fewer than 3m, but definitely greater than none.
Fact: If the UK leaves the pound will drop and inflation will rise.
Status: Nobody knows.
Everyone says it: The Treasury, the BoE, the IMF, Deutsch Bank, Goldman Sachs and more all say this will happen. So will it?
Well, the first thing you have to remember is that a weaker pound and higher inflation is BOE and Treasury policy, so it’s a bit rich to present exactly what they want as a dire threat should we leave.
However, I have a rule about economics and it rarely lets me down. When someone makes a prediction ask yourself what they will lose, personally, if they’re wrong. If the UK leaves and the pound doesn’t drop will Osborne, or Lagarde, or Carney, or whoever lose their job? Their pension? No? Fuck them then.
Now I did think it would be a clever thing to take out a whopping short against the pound should a Leave vote come in, so what I did was go and ask the Forex traders I know. People who make their actual living, with their own money, trading currency fluctuations. And the answer I got was this: “If you told me what the outcome of the vote was going to be right now, I still couldn’t tell you what the market would do.”
Because nobody does know. Leaving might be seen as the UK withdrawing from engagement and the pound might tank. Alternatively it might be seen as the death blow to the EU and we’ll see capital flight to the safety of London and the pound rises. It might not move much at all. Then again, something else entirely might happen.
Seriously, nobody knows, and anyone who says they do is selling you something.
I was going to leave this point here, but thought I’d throw this last observation in. When everyone - absolutely everyone
- tells you what a market is going to do, you’re usually best running for the hills. Under the circumstances my personal prediction is that if we vote leave the Pound would rise specifically to take out the stops of all the people who thought it would be a great idea to sell on the back of these predictions.
Fact: If the UK leaves there will be a recession.
If there’s one thing markets hate it’s uncertainty, and a leave vote would create uncertainty.
However, the ‘year long recession’ prediction put out by the treasury is fanciful. That is as long as the recession post 2008, which was caused by the collapse of the biggest credit bubble in recorded human history and someone leaving a political union is not even close to an event of that magnitude.
If you read the document on the effects of Brexit put out by the treasury the ‘year long recession’ claim is based on the assumption that the UK government would not make any policy changes to adapt to circumstances, which seems unlikely.
However there would be a period of currency volatility (see above) and market uncertainty. How big would it be? I dunno. Nobody does. Not as big as George Osborne wants you to think, and not as small as leave would have you believe. I’ll go out on a limb and say 3-6 months, but that’s just gut feel. A great deal would depend upon the policy changes made by the UK post-vote.
Fact: The UK fees to the EU would buy a new hospital every week.
Status: Lets just look at that shall we?
UK payments to the EU are about £350m every week, which is indeed about enough to buy a new hospital. Thing is, the UK gets about half of that back in various rebates, schemes and payments, less a certain amount of inevitable bureaucratic inefficiency.
Now, the leave campaign has adapted to that by saying that it’s still enough to build a new hospital every two weeks, which is true, but it neatly sidesteps the fact that we wouldn’t be able to afford to put anything important in these hospitals like doctors, nurses or patients.
By way of comparison a permanent seat on the UN Security Council with a veto costs the UK about 20-25% of this sum, so you’ve got something to work with.
The question really being asked here is whether if the UK left the EU profits from trade and investment would fall by more than £160m a week. i.e. if leaving would be net profitable given any deals we might do elsewhere. I’ve not seen either side really address this specific point, which suggests neither really wants to – and that suggests both fear the other might have something and don’t want to draw attention to it as it’s all a bit difficult.
Fact: The EU is the world’s largest market
Status: Well, there’s a thing
Saying the EU is the world’s largest market is true. However, it is only
the world’s largest market because the UK is a member. If the UK were to leave then NAFTA would be the world’s largest market. So by merit of membership, the UK makes the EU the largest market in the world and I don’t think anyone is claiming that the UK would lose access to its own internal market were it to leave. Using this as an argument to remain or leave is disingenuous – and I think meaningless.
As an additional point, the only continent which has shown less economic growth than Europe post-2008 has been Antarctica. The rest of the world has grown more quickly and more strongly than Europe. This is largely due to the inherent internal flaw of the Euro, a problem which there is no prospect of being solved.
Saying that the UK should be a member of the world’s largest market is actually an argument for joining NAFTA rather than being a member of the EU, and neither remain or leave seem to be arguing for that.
Incidentally, way back in 1999 I suggested to Francis Maude that we should join NAFTA, BTW. Funny how things work out, innit?
Fact: The EU is not democratic
Status: You pays your money, you takes your choice.
There are seven core governmental bodies in the EU which are: The EU Commission
: This is a body made up of representatives appointed by national governments. It is not elected, and members are supposed to be independent of national interests. This body is the primary reason people describe the institution as undemocratic and the Commission, whilst appointed by governments, is independent of responsibility to voters or the wishes of any electorate. It is from this body that legislative proposals are passed to…The European Parliament
: This is a directly elected body whose proportions are based upon the populations of member states. It shares responsibility for passing laws and budgets with…The Council of Ministers
: A council composed of one member from each member state. These are appointees from the national governments, and can include elected members of the national government although sometimes figures like ambassadors and senior diplomats are appointed. The European Council
: This is the grouping of the elected heads of the member states. It meets four times a year to decide the direction of the whole. The European Court of Justice
: Nowhere sane elects judges. The European Central Bank
: Nominally independent, although nobody much believes that. In reality, without UK membership of the Euro the ECB is primarily a second central bank to Germany. The Court of Auditors
: The body which makes sure the funds of the Union have been correctly spent. I know, I know. I kill myself.
It is composed of one appointee from each member state.
Decide for yourself the democratic legitimacy of this.
Fact: If the UK leaves the EU house prices will fall.
I’ve seen this one bandied about so just to tackle it, even the most negative predictions say that the rate of house price increase would slow but not fall. So if you’re thinking leave to help get your foot on the property ladder, forget it.
Fact: TTIP will result in the NHS being privatised.
Status: False. Very false. So false as to be wilfully deceitful.
The Europe/US trade deal known as TTIP has been criticised for writing in provisions which in effect would result in the NHS being privatised. This is not true. I don’t think going into why is within the remit of this post, but being charitable here anyone claiming the NHS will be privatised as a result of TTIP is misinterpreting what it says.
Fact: The EU protects your rights.
Status: False, with a dissenting opinion below.
What protects your rights is living in a functioning first-world democracy with a growing economy and the rule of law. Anyone who thinks that the Blair government wouldn’t have introduced maternity and minimum wage without the EU forcing them to do it is off their chump, if I may make so bold. Canada doesn’t need to be in the EU, nor do Japan, Australia or New Zealand.
It’s the system that matters, not the institution.
To illustrate that I’ll pull out some examples that I’ve been specifically asked about:
• Maternity leave: EU law requires 14 weeks minimum. UK law is 52 weeks.
• Maternity pay: There is no minimum maternity pay enshrined in EU law.
• Minimum wage: The EU does not legislate a minimum wage.
• Holiday: The EU requires a minimum 4 weeks holiday. The UK requires 5.6 weeks of holiday.
And so on.
After a while of this I went and asked my friendly local trades union rep and he told me that he wasn’t aware of any area (except working hours directive, which the UK has opted out of anyway) where UK employment was not already more generous to employees than EU employment legislation.
He did say that if we voted leave he feared that we’d become less generous than the EU and I said I’d mention that too in the interest of balance - although I don't know why he drew than conclusion.
The thing is, EU employment legislation must take into account the requirements of developing economies as well as developed, richer ones like us. The UK can afford to be more generous than the average, and consistently is because people vote for it.
One area where the EU may have done more than the UK could do on its own is in the area of Antitrust, such as dealing with Microsoft bundling IE with Windows.
Fact: The UK lacks influence in the EU and is constantly outvoted.
Status: Take your pick
Take a look at the chart below which shows how often, as a percentage, the UK is outvoted in the EU. There’s a few things you can take from it.
The first thing you should notice is that the second most outvoted country in the EU is Germany and everyone is convinced they run the thing. It’s entirely contradictory to say that the second least influential country in the organisation also runs it so there’s clearly more going on than voting records indicate.
however, it is absolutely true the UK is outvoted disproportionately more than any other member, but is in the majority 87% of the time. This is a meaningless statistic without knowing what the Uk was outvoted on
, as a lot of minor stuff will get waved through on the nod.
As an observation I was asked to make by someone I spoke to during the writing of this, the UK has become less likely to be outvoted as the EU has expanded. The former Soviet vassal states like Poland are much more enthusiastic about economic growth and less protectionist than the central core powers of the Union, and Britain has more allies these days.
Fact: If the UK leaves wages will rise.
Status: True, for some.
This is supply and demand and it really affects the bottom, unskilled labour end of the job market. Where the increase in supply of labour exceeds growth in demand for it, wages inevitably fall.
In some sectors, primarily skilled labour, supply isn’t
increasing faster than demand. However, let’s say as a rule of thumb for the bottom 20% of the labour market supply is rising faster than demand. Although wages bottom out at the minimum wage (yeah, I know, exceptions, but I’m generalising here), the net effect here is to depress wage growth at the bottom end.
What I’m saying here is that increased competition at the bottom end of the market results in more people being paid the minimum legal wage than something higher as would/ will be the case with less competition.
This is actually part of the source of one of the criticisms of the UK’s economic recovery post-crash – the failure of wages to recover as strongly. The economy has recovered but the increase in supply of labour has at least kept pace with the rate of recovery (understandable when most of the rest of continent hasn’t really recovered very well) meaning that wage growth has been depressed.
Even the official Remain figures acknowledge – accidentally – that people will be better off, as their predictions for wage growth post-Brexit are actually higher than they’ve been in the real world in the last five years.
Fact: Migrants pay more in tax than they take in benefits.
Status: True and probably true.
Migrants pay more into the exchequer in tax than they take out in benefits is absolutely true. I don’t think anyone is arguing this point.
In researching this question I was asked another: Yes, okay, so they pay more than they take in benefits, but do migrants contribute net more than they cost in additional infrastructure costs due to higher population?
This is a really good question, and it’s something that Migration Watch makes a lot of noise over. What’s more it’s something that Remain are being very quiet on – I asked my usual sources and they not only were silent but they didn’t even respond to the question, which I took to be a bad sign.
However, after a lot more digging I found an answer – and the answer is that actually, yes, they most likely cover that too. I’m not 100% on this one (it’s only one study). But yeah, it looks like the migrant population don’t just pay more tax than they take in benefits, but they pay more than enough to cover their use of other public utilities as well.
Considering the noise that’s made on this point I was mildly surprised by this one, and think Remain have missed a trick by not tackling it head on.
Fact: If the UK leaves then the price of imports will rise
Status: That’s up to us, with caveats.
If we introduce import tariffs then of course they will. If we don’t, they won’t. This is entirely up to the UK.
This is subject to the uncertainty over what would happen to the £ which I address above.
Fact: If the UK leaves the EU will send back all our Expats.
Take a quick look at the state of the Spanish and Portuguese economies and tell me why you think they’d deport hundreds of thousands of well-funded expats. Then we’ll talk.
The chance of this happening is zero.
Fact: If we leave the EU we will deport foreign expats living here
The leave campaign have made it very clear that not only will current residents be more than welcome to stay, but one of their leading lights (Boris) has gone on to reiterate his proposed amnesty for illegal migrants as well.
The only people saying we would throw anyone out are a bunch of vocal fruitloops who aren’t going to get anywhere near the levers of legislation unless we’re stupid enough to implement Proportional Representation.
Fact of the matter is that in the 21st century skills are currency, and there’s a skills shortage in pretty much every industry. The UK is a big buyer of skills and that wouldn’t stop. It’s more a question of whether other people would stop selling.
Fact: The UK is just leaving the political Union, but would remain in the European Economic Area/ EFTA.
Status: Okay, that one is complex.
There is nothing in the EU treaties which compels a member leaving the political union to leave the trade area.
However, in counterpoint, there is nothing compelling the Trade area to let us stay either, so a lot depends on post Brexit relations and realpolitik. On the one hand you have the quite real desire of German manufacturing to sell us loads of cars (for example). On the other hand, as I note elsewhere, a wounded beast can do unpredictable things. My take is that a deal would be done, as a deal is always done. Others disagree with me.
Leave are hedging their bets here by suggesting that a newer, shinier deal would be done, but that’s because they cannot say we would definitely be staying in the Free Trade Area that already exists because they could easily be called on that in the same way the Scots were called on their claims about a continued about a currency union during their referendum. These things require willing from both parties.
Fact: If the Uk leaves the EU we would have to pay their full 20% import tariff
Status: Probably false.
I’ve seen it said that UK would have to pay a full 20% tariff on trade with the community. Would it? Well, the EU flat import tariff is indeed 20%, but to the best of my knowledge only one country in the world - that bit of the Ukraine occupied by Russia – actually pays it in full. Everywhere else some sort of deal has been done to a greater or lesser extent. Hence me saying a deal is always done.
I suppose it’s possible that the EU would implement sanctions against itself (that’s what a sanction is – making it harder for you to buy other people’s stuff), as the UK leaving may drive them spare.
Ultimately, the only people who know for certain what they would do are the ones who absolutely will not be drawn on the question.
Fact: If the UK leaves the EU it will promptly negotiate trade deals with everyone else.
Status: Somewhere in the middle
The fact is some will, some won’t. The country has considerable economic heft and that’s attractive. However, leaving the EU will annoy some people enough to slow or delay deals being done. On the one hand, we won’t be isolated and it will probably happen and sooner rather than later in some cases (although the US will be difficult. It always is). On the other hand, it won’t be as easy as the out camp like to make out.
Fact: If the UK left we’d have no influence over the regulations
Status: God’s truth, I have no idea why this is even a thing.
I’ve done business with Americans and Indians and I’ve no influence whatsoever over their trade regulations. What I did was ‘tailor my products to market’, which is what you do if you want to sell people stuff no matter whether you get influence or not. I’m guessing this is a line used by people who do either have huge market heft and are worried that their privileged market position might be threatened, in which case I’ve got no sympathy, or it’s used by people who’ve never actually sold anything to anyone and think it’s important when it’s not.
Seriously, this is a huge non-issue for me. I think it's something that sounds frightening but has minimal real-world effects.
Fact: The UK should remain in a reformed EU
Status: That’s not on the voting paper.
Your options are the status quo or leave. As noted in the first point above, the EU has made it clear they consider reform more dangerous than departure. If they’re prepared to risk catastrophe rather than change minor points of benefit legislation, you can be sure that voting to stay in and then asking for some changes will go nowhere.
Fact: If you want to leave the EU you are a stupid racist.
Status: Fuck off.
Fact: If you vote to stay you’re a stupid traitor.
Status: I said Fuck Off.
Fact: A vote to leave will result in a second vote a bit down the line.
Status: Actually yes. Yes it probably will.
Everyone says it won’t happen, but it will.
So, to summarise:
The EU says the UK leaving would be a catastrophe but is not willing to change anything at all to prevent it happening.
Nobody knows what the pound will do.
There will be a recession.
Wages at the bottom end of the Labour market will probably rise.
The gain from leaving may be offset long term from the profits of increased free trade but then again they may not.
Neither side are addressing any of this stuff particularly honestly because answering questions “fucked if I know” doesn’t win votes.
During the writing of this post, one of the people I spoke to asked me a question: “Do you think the UK could be successful outside the EU?”
It’s a question which was asked a lot during the Scottish referendum as well (Do you think Scotland could be successful if it left the union?), usually by nationalists, and it annoys me now as it did then because it’s not a real question. It’s rhetorical. If you say yes we could be successful, then you should support leave. If you say no, then you think we’re too wee and frit to make a go of it and therefore some kind of traitor. It’s a question designed to push you into a corner rather than elicit a meaningful debate.
The best answer is that I think the UK already is
a successful country. The question you should be asking is ‘Do you think the UK will be more or less successful outside the EU, and over what sort of timescale?’” and the answer you should give to that depends on your vision of the future.
At their best, both camps are forward thinking and internationalist, and differ in a view of the future and how best to position the country for it.
The Remain position is one in which the 21st century is one of emergent, integrated regional trade and power blocs and being central to such a project is a vital part of positioning the country for the next century.
On the other hand Leave views the future as one of greater decentralisation, where flexibility and an ability to respond rapidly to a digitally connected world where opportunities are global, not regional is paramount - and being tied into an inward-looking and relatively declining force is a hindrance and not an advantage.
Me? I think we’re going somewhere else. But then I always do, and that’s a post for another day.