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July 18, 2017

Brexit biases

As we go into the summer holiday period, we noticed a seasonal increases in media reports not on what people actual do, but on what they say. In the UK we are seeing the anti-Brexit noise reaching its highest level yet. The sheer number of Brexit-must-be-stopped commentaries is overwhelming, but we urge readers to take a step back and look at the facts on the ground.

The first thing to notice is that the Tory rebellion against Theresa May is ebbing away. The FT reports that she will today warn her cabinet colleagues that they will have to stop leaking confidential information. The article notes that May is backed by a large majority of her MPs, who fear - rightly in our view - that a divisive leadership contest would throw the whole Brexit process into chaos. We would go further: a leadership contest, followed by an election, constitutes a necessary and maybe sufficient condition for a Brexit reversal. The Tory Party would be committing political suicide. 

The article quotes Nicky Morgan, a well respected pro-Remain Tory MP who chairs the Treasury committee in the House of Commons, as explicitly supporting the prime minister, and calling on senior ministers to stop the negative briefings. 

In terms of commentary, the most useful today is Tim Harford’s on how our judgement is clouded by biases. He makes a useful distinction between confirmation bias, where we filter out the news consistent with our beliefs, and desirability bias, which is classic wishful thinking. It is a useful distinction especially in the current debate on whether Brexit should be stopped. 

One good test for outsiders to assess an argument is to envisage the counter-factual case. Would there be any conceivable situation where an author who, for example, has questioned the legitimacy of the Brexit referendum would do the same if the vote had been Remain? Our sense is that the pro-Remain camp is so aghast at what is happening that they are reverting to old form - trying to ramp up the Project Fear volume. 

Reading the scare stories about the economic ill effects of Brexit is a bit like reading only the liabilities of a balance sheet or the cost side of an income statement. There will, of course, be losers from a regime shift just as there were losers from the accession to the customs union and the single market. The long-term impact of Brexit will surely depend more on future policies and future innovation than on the static trade effects. If the EU and the UK negotiate an FTA, even the static short-term effects will be small. 

We would, of course, agree that a sudden cliff-edge Brexit, which would result from a failure to reach an Article 50 agreement, would have severe economic consequences and should be avoided if possible. This is why a transition period is needed. Philip Hammond is pushing in that direction, and his approach is by the far the most likely to gain sufficient political support. 

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