Economist Who Won Nobel Prize for Trade Theory Sceptical of Carney’s Forecasts

Paul Krugman, who won a Nobel Prize in economics for his work on trade theory, seems the kind of person who might have a credible view on the various scenarios depicted by the very political Mark Carney’s report to the Treasury Committee. Krugman made some points on Twitter last night;

  • The Bank of England just released some very dire scenarios.
  • But their bad-case losses from a no-deal Brexit look extremely high. I mean, 8% of GDP was the kind of estimate we used to make for countries with 150 percent effective rates of protection.
  • I don’t understand how you can get that kind of cost without making some big ad hoc assumptions about productivity or something. And I have worried in all this about motivated reasoning on the part of people who oppose Brexit for the best of reasons.
  • As best I can tell, the big results depend on assumed relations between trade/FDI flows and productivity. It’s really important to understand that this channel does not follow from basic trade theory and comparative advantage; it’s a black-box story.
  • What we have are correlations between trade and investment flows and productivity that don’t really follow from standard models. Are these causal? There is surely room for skepticism. Yet that seems to be the big driver of the whole thing. So I’m worried.
  • Again, I’m anti-Brexit, and have no doubt that it will make Britain poorer. And the BoE could be right about the magnitude. But they’ve really gone pretty far out on a limb here.

Krugman is right, the UK is a globalised world class advanced industrial economy, not a third world small economy easily buffeted by adverse changes. The Treasury and the Bank of England were completely wrong in 2016 – predicting a recession and massive unemployment that never came. They are wrong this time too.

Euro News

Tip offs: 0709 284 0531

Quote of the Day

Soros on the pan-European elections to the EU parliament…

“It is difficult to see how the pro-European parties can emerge victorious from the election in May unless they put Europe’s interests ahead of their own. One can still make a case for preserving the EU in order radically to reinvent it. But that would require a change of heart in the EU. The current leadership is reminiscent of the politburo when the Soviet Union collapsed – continuing to issue ukazes as if they were still relevant.”


Guidogram: Sign up

Subscribe to the most succinct 7 days a week daily email read by thousands of Westminster insiders.
“Institute for Public Interest News” is a Bad Idea “Institute for Public Interest News” is a Bad Idea
Humphrys Interviews Naked Remainer Humphrys Interviews Naked Remainer