Doom mongering forecasts taint arguments for Remain.

‘The only function of economic forecasting is to make astrology look respectable’ 

John Kenneth Galbraith.

I have been shocked and surprised by the wildly pessimistic forecasts that have been produced predicting economic meltdown were the UK to leave the European Union.   I have been even more shocked and surprised by the confidence with which these forecasts have been bandied about.

I wonder how many of you remember the Millennium Bug?  This was the glitch that, at the stroke of Midnight on December 31^st 1999 was going to send all our computers into meltdown and, using the inimitable words of Donald Tusk, mean the end of Western Civilisation as we know it.

I was working as an investment analyst in the City at the time, and I spent hours phoning companies and trying to assess which were most vulnerable to meltdown as their computer systems imploded. Armageddon was expected on a daily basis.  The end of the world was nigh.

Of course it never happened.  One or two companies had a bit of trouble changing their clocks, but on the whole life went on as normal.  The whole thing was forgotten within weeks.

We are now faced with the same sort of hysteria with regard to the possible implications of Brexit.  Those of us who spent most of our careers attempting to forecast the economic future, whether macro or micro, know that almost all predictions, and in particular the extreme warnings of catastrophe that are emanating, particularly from the Remain side, will almost certainly turn out to be wrong.

What we also know is that when things change, the world adjusts to that change more quickly and with less fuss than people expect.  Take the concerns that have been expressed by the Remainers with regard to sterling weakness for example.   Yes, it is likely that the pound will continue to be weak while uncertainty prevails.  Markets don’t much like uncertainty, but once the outcome of the referendum is known, the currency is likely to stabilise, and if this is at a relatively low level this should be good both for our manufacturers and exporters and also for the stock market which is dominated by so called ‘overseas earners’.  Both these factors will contribute to rather than detract from economic growth.

The other thing we know is that economic models produce results that are only as good as the models themselves.  By all accounts the models being used by the many ‘experts’ who have been terrifying pensioners and others with fables of economic collapse are not up to much and suffer from inherent bias.

I am not clever enough to illustrate this in any way scientifically, although I do confess to producing some fairly 'optimistic'  financial models myself in my youth.   However,  those of you who are interested in the subject should read a report by David Blake, the award winning Professor at the Cass Business School.  His subject is the reliability of the two Treasury forecasts that claimed we would all be £4300 a year worse off in the event of Brexit.

The report is called  ‘Measurement without Theory: On the extraordinary abuse of economic models in the EU Referendum debate’  and subtitled: ‘ grossly exaggerated impact of the economic consequences of Brexit and no analysis of the risks from remaining in the EU from the Treasury’s two ‘dodgy dossiers’   The report can be found here

http://www.pensions-institute.org/BlakeReviewsTreasuryModels.pdf

Professor Blake comments: ‘There is doom-mongering on every page of the two reports.  It’s no different from the way children are frightened into doing what their parents want. We are all being treated like children. 

Both the Chancellor of the Exchequer and the Prime Minister have used the reports to ramp up the scare-mongering.’

You really should take the time to read this very clear and interesting report for yourselves.  The Professor makes two very important points in the course of the paper.

Firstly, none of the Treasury economists who produced the report were brave enough to identify themselves, and secondly, no report was produced that modelled the implications of staying in the EU.   The only focus was on coming out.

I would suggest that it is not difficult to guess why this might be!