Wolfgang Munchau: populists can get the economy right

Fake maths is the abuse of statistics and economic models to peddle one’s political prejudice

A Ford production line during the second World War.   It could  be possible that  odious populists are getting the economy right when the liberal elite did not

A Ford production line during the second World War. It could be possible that odious populists are getting the economy right when the liberal elite did not

 

If you have two strong arguments, the surest way to lose a debate is to add a third one.

The superfluous argument of our time is, more often than not, the finger-wagging warning of economic doom. Starting this week, we need to get our heads around the possibility that US president-elect Donald Trump is simultaneously reprehensible and economically successful – at least for some time.

The instinct has often been to conflate political decency and economic efficiency because this is what has been done for such a long time. Fortuitously, our open liberal systems also happened to be the most efficient. They even produced an acceptable distribution of income until about 10 years ago. Yet the period from 1989 to 2007 was exceptional – history is littered with economically successful dictators and economically disastrous liberal democrats.

You may be in Davos this week seeking reaffirmation of your deeply-held beliefs when you pontificate about the future of the universe. Or you may be on Facebook or Twitter expressing your fury about where the world is headed. My advice is to narrow your focus.

Brexit is terrible because it deprives young Britons of the right to choose where to live, study and work. It deprives them of a European identity many believed they possessed forever.

If this is what upset you about the Leave vote then you were insane to allow your political campaign to be hijacked by lobbyists who kept whining about the loss of the single European passport for banks. This is the superfluous argument that lost the Brexit referendum. Keep making that same mistake in the battles that loom in 2017 and the populists will win everywhere.

Bitter experience

Andy Haldane

But he is an exception. I know economists who now say that Brexit will cause a recession this year, having failed to produce one in 2016.

One of the many factors forecasters have failed sufficiently to consider is the global environment. A Brexit-induced sterling crash could in theory have turned out to be dangerous. But this is not the 1970s. We are living in an age of excess global liquidity, which renders a fall in sterling self-limiting. Asian investors, for example, are streaming into the top of the London property market, where they find deflated prices, which they pay with a devalued currency.

The truth is that our ability to forecast the future beyond the current quarter is limited. We certainly cannot forecast the economic impact of a complex political event, such as Brexit or the election of a new US president. Too many future unforeseen events will intrude.

We cannot translate the result of an opinion poll into an election probability either. People keep asking me to tell them the probability of Marine Le Pen, the far-right National Front leader, winning the French presidency. The problem is that the election campaign has not even started. The correct answer about the probability of a Le Pen victory is that I do not have the foggiest. Nor does anyone else.

Opinion polls

More often than not, there is a kernel of truth in those forecasts, as there was in the Bank of England’s prediction of what could happen after Brexit. The fakeness of the maths lies in an exaggerated inference. Economic models have their uses, as do opinion polls. They provide information to policymakers and markets. But nobody can see through the fog of the future.

Fake maths has given us, the liberal establishment, the illusion of certainty. Once the illusion crumbles, we are left with an uncomfortable question: is it possible that some populist demagogues will end up producing better economic policy than our friends in Davos?

Disaster

The populists could succeed simply by undoing the mistakes of the present regime. They will not succeed in the long run. But they may succeed before they fail.

The political and economic regime change we are undergoing constitutes the most serious assault on our values I can remember. We would be foolish to deny that it could just be possible, from the perspective of the median voter, that the odious populists are getting the economy right when the liberal elite did not. – Copyright The Financial Times Limited 2017

The Irish Times Logo
Commenting on The Irish Times has changed. To comment you must now be an Irish Times subscriber.
SUBSCRIBE
GO BACK
Error Image
The account details entered are not currently associated with an Irish Times subscription. Please subscribe to sign in to comment.
Comment Sign In

Forgot password?
The Irish Times Logo
Thank you
You should receive instructions for resetting your password. When you have reset your password, you can Sign In.
The Irish Times Logo
Please choose a screen name. This name will appear beside any comments you post. Your screen name should follow the standards set out in our community standards.
Screen Name Selection

Hello

Please choose a screen name. This name will appear beside any comments you post. Your screen name should follow the standards set out in our community standards.

The Irish Times Logo
Commenting on The Irish Times has changed. To comment you must now be an Irish Times subscriber.
SUBSCRIBE
Forgot Password
Please enter your email address so we can send you a link to reset your password.

Sign In

Your Comments
We reserve the right to remove any content at any time from this Community, including without limitation if it violates the Community Standards. We ask that you report content that you in good faith believe violates the above rules by clicking the Flag link next to the offending comment or by filling out this form. New comments are only accepted for 3 days from the date of publication.