So now we know the shape of the choice facing us: either what Mrs May revealingly called “her” deal; no deal; or no Brexit. No Brexit would amount to a betrayal of 17.4m voters. Yet hardly anybody would conceive of Mrs May’s deal as remotely desirable. She has positioned herself as a remarkable combination of Neville Chamberlain and Ethelred the Unready. You could surely support her deal only as the lesser of evils. But is it? This issue really comes down to how you would evaluate the no-deal scenario, or rather the proposal of trading with the EU on World Trade Organisation (WTO) terms.
Over coming days we will doubtless be subjected to a barrage of propaganda, telling us that if we leave without a deal this would amount to economic Armageddon.
Planes will fall out of the sky – that is, of course, assuming that they are allowed to take off in the first place – while medicines will run out and production will collapse. I wouldn’t be surprised to see forecasts of rising sea levels and virulent hurricanes as the gods of the EU vent their fury.
The Treasury will tell us that in the event of leaving without a deal, GDP will plummet. This is, after all, what they have told us before. It is particularly unfortunate that, despite calls for it to do so, the Treasury has refused to publish details of the model that it has used to make its bloodcurdling forecasts, nor to make clear the assumptions that it has fed into the model. Why do you think this might be?
Over and above this secrecy, there are several reasons why we should discount these alarmist forecasts. First of all, we have been here before.
In 2016, at the behest of the then chancellor, George Osborne, the Treasury forecast that, in the event of a vote to leave the EU, the economy would experience either a “shock” or a “severe shock”, amounting to a recession.
In the former case, GDP would fall slightly and in the latter case sharply. This would be accompanied by falls in house prices of up to 18pc and a rise in unemployment of more than 800,000.
In reality, the economy has kept growing pretty strongly. Meanwhile, house prices have carried on rising and, far from unemployment increasing, it has fallen by 260,000.
This example of gross forecasting-error with regard to a major national decision is not an isolated example. In 1931, just about the whole of the UK establishment favoured staying on the Gold Standard, which was exerting severe deflationary pressure on the UK economy.
The great and the good told us that if we left all hell would break loose. Well, we did leave and all heaven broke loose, with the fastest sustained growth of output in our industrial history.
Fast forward to 1992. The UK was again trapped in an exchange rate regime, this time the European Exchange Rate Mechanism (ERM), which was again exerting extreme deflationary pressure on the economy. The Treasury, aided and abetted by all the usual suspects, said that if we left the ERM we would face a catastrophe. Supposedly, inflation would rocket, interest rates would soar and the economy would tank. On Sept 16, we were forced out of the ERM – despite the Government’s best efforts to stay in. The result was lower inflation, lower interest rates and a burst of growth that brought unemployment and the budget deficit sharply lower.
Not many years later, the establishment was at it again, trying to get the UK to join the euro. This time, the Treasury was on the side of the angels. But the overwhelming majority of the establishment, including the BBC, business bigwigs and establishment newspapers, was in favour of joining the euro. Indeed, it foresaw dire consequences if we failed to join. In view of these forebodings, the outcome is particularly interesting. Since the euro was formed in 1999, the German and French economies have grown by 32pc, the Italian economy by 9pc – and the poor old UK, self-excluded from the enormous benefits of the euro, has grown by 44pc. Funny, that.
A large part of the Treasury’s current gloomy view of our no-deal future rests upon the assumption that after Brexit the frictional costs of trading with the EU will be large. Yet not only do umpteen countries around the world export large amounts of goods into the EU, but also the rate of increase of these exports has been higher than the rate of increase of exports from most member countries to other members. If border frictions were such an appalling barrier, what explains these non-EU countries’ evident export success?
Supposedly, leaving the EU is going to disrupt our supply chains. You would think that the EU was the only economic area in the world that benefited from integrated supply chains. Yet they are in place in east Asia, in North and South America and globally, crossing currency, legal and customs barriers.
Moreover, if the single market is such an outstanding success, why haven’t other countries sought to form the equivalent? There is no east Asian or North American single market. I wonder why.
If we leave the EU without a deal and trade on WTO terms, there will surely be a period of some disruption and uncertainty. This is unlikely to be either protracted or very serious. But the most important thing is not to confuse this short-term transitional period with the many decades afterwards. And it is surely on the basis of what that extended period will be like that we should make this momentous decision.
There are sound reasons for believing that not only will we be fine but we will have the opportunity to shine and prosper. This is precisely why M. Barnier and his merry men are so keen that we shouldn’t have the chance.
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