For economists Project Fear is Brexit

Ironically we have the Union’s side in the Scottish referendum debate for inventingthe idea of Project Fear. Alex Salmond, who knows a bit about spin, immediately saw its potential, and the economic case against Scottish independence was branded Project Fear by the SNP. The implication of that label is that those using Project Fear are hugely overplaying their hand to frighten voters.

In the Scottish referendum the UK government’s case was that people would be significantly worse off in the short to medium term in an independent Scotland. It may have been met with the jibe that it was Project Fear, but in reality it was a pretty reasonable assessment of what independence might mean, parts of which were backed up by independentanalysis from the IFS and the OBR. But together with some wishful thinking of their own, the SNP were able to dismiss all this economics analysis as just scaremongering.

Yet in reality things turned out to be even worse than the Treasury and independent analysis had suggested. That analysis assumed that the high oil price at the time would stay high. What actually happened was a sharp fall in the oil price, which would have been a disaster for an independent Scotland. So in the end the UK government’s case against Scottish Independence was understated. But Nicola Sturgeon keeps calling it Project Fear and journalists hardly ever challenge her on that. So by the rules of the politicisationof truth, any reasonable but negative assessment of the economic consequences of change is now seen as potentially politically counterproductive because can be called Project Fear.

It was therefore inevitable that the Leave side would pick up on this trick. They too knew that the economic facts were stacked against them. So they called the analysis produced by the Remain side Project Fear, and political commentators in the broadcast media - being balanced and all - found it easier to repeat the label than try and go through the arguments.

Yet the arguments are not rocket science. Countries find it easier to trade with others that are close by. If you make that trade more difficult by leaving the single market, some of that trade will go elsewhere, but not all of it for sure. The end result will be less trade. It is common sense, which happens to be backed up by lots of empirical evidence. There is also strong evidence that less trade leads to lower productivity growth, which means incomes grow more slowly. What is a key reason why China been growing so rapidly since the 1980s? Because it opened up to trade.

It is also common sense that if we leave the EU, foreign investment into the UK will fall. Invest now and you get easy access to the huge market that is the EU, so after Brexit many firms will go elsewhere to gain that access. This is why 9 out of 10 economists think we will be poorer after Brexit, with only 4 in every 100 thinking we will be better off. [1] As the IFS’s Director Paul Johnson wrote: “That degree of unanimity on any poll of any group of people about just about anything is almost without precedent.”

Faced with this level of unanimity, some in the leave campaign have tried to suggest that economists generally get it wrong. Yet ironically, one of the examples they choose shows completely the opposite, as Paul Johnson notes and I had also pointed out earlier. The UK’s decision in 2003 on the Euro was similar to the Scottish and EU referenda in the following way. Some politicians, for essentially political reasons, liked the idea of doing something they saw as bold: in 2003 it was adopting the Euro. The Treasury did an incredibly thoroughjob of looking at all the pros and cons, taking extensive academic advice, and convinced first Gordon Brown and then Tony Blair that the risks were too big. And just as in the case of Scottish independence, that analysis underestimated the problems the Euro would face. Luckily neither Brown or Blair thought this analysis was Project Fear.

The 2003 Euro work, and the Scottish independence work, were both headed up by the same man: Dave Ramsden, now Chief Economic Advisor at the Treasury. Having got two big calls right, he is just the guy you would want to be in charge of the Treasury’s analysis of Brexit. That Treasury analysis is once again pretty reasonable, and - just as with the Scottish referendum - has been shown to be reasonable by other studies [2]. The idea that you shouldn’t trust economists now because they always get it wrong has it completely backwards in this particular case.

But as Paul Johnson, myself and others have noted, the message from economists is either being ignored or has not got through. I do not think it is being ignored, for reasons outlined hereand here. Which is why journalists in the broadcast media must stop this nonsense of obscuring the truth by being too literal about political balance. The problem, as I noted here, is that one point in the overall debate is obvious: you cannot control immigration from the EU within the EU. So if the media insist on obscuring the economic costs of Brexit by putting up nonsense analysisagainst the consensus among economists, or continuing to dismiss that consensus as Project Fear, they are effectively taking sides. Let’s hear less from political journalists about Project Fear, and more about the economic consensus that after Brexit wages will be lower and there would be less money for the NHS.

[1] There is this strange idea among Leave supporters that we cannot say people will be ‘poorer’ under Brexit, because being poorer can only mean less well off than you were in the past. I guess if the Brexit side are going to misuse numbers (£350 million a week), they are going to try and misuse language at the same time.

[2] Martin Sandu has a brief summary