The Treasury, and some other bodies, have subjected the Brexit option to trial by macro-economic model. Various assumptions were fed into a series of equations which, on the basis of past experience drawn from a number of countries, are supposed to embody wisdom about how the key economic variables will respond.
The model whirred and then spewed out forecasts for our post-Brexit future.
These methods are unsuitable for assessing the impact of such a seismic politico-economic event. Moreover, the assumptions that have been plugged into the models have typically been bizarre. For instance, the Treasury study assumed no regulatory changes.
The
Treasury's models made some surprising assumptions
Equally,
it assumed we would not be able to do any new trade deals with the EU or anyone
else. Nevertheless, we would continue to impose the EU’s tariff on imports from
the rest of the world. No wonder this exercise concluded Brexit would cause an
economic loss from reduced trade.
This
conclusion derives further loss from lower investment and even weaker
productivity growth. But if trade does not fall, there is no reason for these
effects to occur.
To
these trade-related effects is added the impact of uncertainty, which will
supposedly persuade people and companies to defer spending. Yet if there is a
loss of confidence after Brexit, the responsibility for this will rest with the
Prime Minister and Chancellor for spreading pessimism about our prospects
outside the EU.
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