Panicos Demetriades's picture
Affiliation: 
University of Leicester
Credentials: 
Professor of financial economics
Former Governor, Central Bank of Cyprus and ECB Governing Council member

Voting history

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

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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 agree that we need institutional change to enhance the profession's credibility. I am less convinced that this can be achieved through a mono-leadership, although coordination between various economics organisations could help. Part of the challenge is to make economics more relevant to the real world and more aware of the often missing political economy aspects of their models. Prior to the crisis, mainstream macroeconomics ignored the role of banks and ruled out default by assumption. Much of macroeconomics focussed on Taylor rules, on tweaking the interest rate to achieve macro equilibrium and ignored everything else. As such it became less and less relevant. By paying no attention to banks and default, macroeconomics was inadvertently promoting special interests (i.e. the interests of big banks). Financial economics which studied banks and financial institutions was dominated by views that were consistent with the 'Washington consensus', which openly promoted the interests of big banks, leading to lax regulation. Big banks essentially deciding their own capital requirements allegedly because they knew their risks better than the regulators. Papers that challenge the dominant paradigm are generally very hard to place in 'top journals'. Often the dominant paradigm loses touch with reality and evolves into an exercise of massaging egos to get published. Economics will only become more relevant if the top journals become more open. For this to happen, they also need to manage various conflicts a lot better.

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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:
B. Arguments considered wrong
Confidence level:
Very confident
Comment:
Many people who voted Brexit underestimated the economic losses and didn't believe all the economic arguments that were put forward. This is partly because some of them were made by politicians 'who would say that, wouldn't they?'. But importantly economists were ignored, which seems to suggest that the public doesn't attach much weight to what most economists were saying.

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:
Significantly negative
Confidence level:
Extremely confident
Comment:
Uncertainty will weigh heavily on private investment and many companies will relocate elsewhere in the EU. The U.K. will eventually negotiate a deal that is bound to be much less favourable for UK industry and financial services than EU membership, partly to make sure that the precedent that is set deters other countries from leaving. There will likely be a dissolution of the U.K., due to Scotland rejoining the EU and adopting the euro. England on its own will have much less influence on world affairs than the UK within the EU and with less international support it will be less able to safeguard its national interests.

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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:
> 70%
Confidence level:
Extremely confident
Comment:
This event will unleash the kind of uncertainty that Keynes had in mind when he said "we simply do not know" when referring to the likely effects of war. Such uncertainty can only be disruptive for financial markets. We will enter a new era of volatility that is likely to last until these difficult negotiations are completed.

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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:
Very confident
Comment:
A vote to leave the EU will be followed by an extended period of uncertainty, which will is likely to put a hold all long term decisions. We do not know how that uncertainty will be resolved but it is likely that the EU will not want to create a precedent whereby a country that exists gets a favourable deal. Thus, the new equilibrium, which would be 2-3 years down the road, is likely to be worse than the current status quo in both trade and financial services. While London is unlikely to lose its status as a major international financial centre, it will nevertheless likely to lose business to Frankfurt and Paris and possibly other places in the EU. For example, the European Banking authority, which is currently located in London, it is unlikely to remain there if Britain votes to leave the EU.

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