Michael McMahon's picture
Affiliation: 
University of Oxford
Credentials: 
Professor of Economics

Voting history

Are academic economists ‘in touch’ with voters and politicians?

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Question 2: What do you think is the most likely reason that a majority of UK voters went against the near unanimous advice of the economics profession?

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Answer:
C. Different preferences
Confidence level:
Confident
Comment:
I find this a very hard question to answer as the five reasons are clearly interrelated. I believe that all play some role in explaining the decisions of some of the Leave voters. But, overall, I find reason A an important expected benefit of Brexit, and reason C as a key driver of the belief that there were not likely to be important economic costs for individual voters. I have opted for reason C as my answer to stay focused on the economic aspects of the voting outcome. Expanding on these thoughts a little. I think that reason A, the existence of non-economic benefits, played a major part in most Leave voters decisions. This could be a perceived benefit of stopping immigration, or gains to bringing more decisions under Westminster control, or something else. In fact, I believe that a subset of the Leave voters had a full understanding that there would, most likely, be economic costs and nonetheless thought the (mostly non-economic) benefits were worth it. Others, however, may have weighed up the perceived benefits for non-economic reasons (A) against little economic costs (reason B) and hence concluded in favour of Leave. In terms of the failure to get across economists’ assessment of the economic costs, I think that reason C is generally true (as alluded to above). As discussed in the answer to question 1, I think this is related to economists’ focus on the aggregate implications which fail to resonate with many voters. Many citizens have been told of growth and, since 2011, of recovery but they do not see any evidence for it in their lives. As such, telling them that there will be less of this much-coveted growth is no cost to them. But a belief that there would be little economic cost likely also followed from a failure to communicate clearly (reason D) and a lack of confidence of the profession (reason E).

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Question 1: Do you agree that the economics profession needs an institutional change that promotes the ability to communicate more effectively with policy-makers and the public at large and to make clear when economists have a united view; and do you agree that we need to introduce leadership to help achieve this improvement through coordinated efforts?

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Answer:
Agree
Confidence level:
Very confident
Comment:
I think some leadership is needed to ensure that economists learn to put forward their arguments in a way that makes them more accessible to the general public. I do not mean that we have to reduce what we say to catchy soundbites, but we need to speak in terms of things that matter to the general public and explain in clear logic the reasons for such beliefs. But I believe the challenges are larger than just improving communication. I believe that economists are not seen as in touch with the challenges faced by many in the economy. We are, in general, part of the class that benefit from the modern economy and that essentially makes our views irrelevant to many who feel they don’t benefit. This is not unique to the issue of Brexit; Sapienza and Zingales (2013, AER: “Economic Experts vs. Average Americans”) find that economists answers’ to topical survey questions are very different to the answers provided by the general public and the differences are largest on those topics for which there is greatest agreement within the group of economic experts. In order to communicate more clearly, in a way that the general public would more easily understand, the profession needs to understand the issues and challenges facing these people and how they see that these problems are related to the economic environment. Once we do that as a profession, we will be better placed to explain the links as we understand them and to provide convincing guidance on the balance of opinions in any economic debate. I think that doing this involves (at least some) macroeconomists engaging more clearly in issues that face the general public. As the question states, macroeconomists typically focus on the behaviour of aggregate, average developments in the economy and engage with institutions that do likewise (such as the Bank of England). This means the profession needs to engage with different institutions and perhaps even broaden the scope of our analysis of public policy issues. Leadership will be needed to to guide these efforts.

Brexit: the potential of a financial catastrophe and long-term consequences for the UK financial sector

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Question 3: What do you think will be the overall economic consequences of Brexit for the UK?

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Answer:
Mildly negative
Confidence level:
Not confident
Comment:
I am relatively confident that the overall economic cost will be negative. But it is hard to choose between strongly negative and mildly negative. The outlook for an economic gain through reduced regulation and greater control of immigration seems very slight to me given the overall positive effect of immigration on the UK economy and the already relatively free labour and product markets.

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Question 2: What is the probability that the UK experiences such a significant disruption to financial markets and asset prices following a vote for Brexit on 23 June?

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Answer:
11-30%
Confidence level:
Confident
Comment:
I think that Sterling would weaken but it already has somewhat so it is not clear there is a huge amount to go. The size of the effect on housing markets is very uncertain but also unlikely to occur quickly - Brexit would take up to 2 years to negotiate. Other markets, such as equities, will be affected in the run up but I hope that the resolution of the vote uncertainty may provide a potential offset to the diminished economic outlook following a Brexit vote. So I overall hope that there is not as significant a financial shock in the event of a Brexit vote.

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Question 1: Do you agree that there would be substantial negative long-term consequences for the UK financial sector if the UK were to leave the EU?

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Answer:
Agree
Confidence level:
Confident
Comment:
I think that part of the attraction of the UK financial markets - especially the City of London - is that it is a major financial centre in the EU. While I don't expect that banks or other financial institutions will simply pack their bags on June 24 following a Brexit vote, I do feel that their marginal expansion and hiring decisions for some of their operations will be toward EU member states. Over time, this will erode the overall size and importance of the UK financial markets. This is the negative impact. Nonetheless, I believe that the UK would still have a relatively large and active financial system in the years following a Brexit.

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