Those who follow economics now know that the economic “experts” were wrong about their predictions for the period between the Referendum and today. This has scarcely been covered by broadcasters and this lack of coverage has left many Remain voters believing that an economic disaster is imminent. The absence of any coverage of the “experts” being wrong has seriously divided our society, with Remain voters feeling they were robbed rather than wrong.
However, this article is not about the historical suppression of news, it is about the current suppression of news. The UK has a trade deficit with the EU of £82bn pa – about 4% of GDP (see note 1). Trade deficits directly reduce GDP, the trade deficit with the EU reduces UK GDP by 4%.
This trade deficit with the EU is disastrous for the UK as all economists know. The deficit affects the economy according to the “Sectoral Balances Equation”. The Sectoral Balances Equation is one of the simplest in economics:
Private Savings – Priv. Investments = Government Deficit + Trade Deficit
It is simple, as are the consequences:
Responsible governments must avoid large trade deficits because these will either increase private debt or result in Austerity as the government tries to reduce its deficit. If the government shifts the burden of supporting a Trade Deficit onto the private sector there is a high risk of the private sector simply not being able to take on more debt to finance tax payments so that decreased investment will occur and there will be decreased government revenues.
In developed economies trade deficits are the result of government policy. Governments can impose tariffs, hinder exchange, purchase foreign currency etc. etc. to modulate the Trade Deficit or Surplus. The huge UK trade imbalance with the Eurozone is a result of the political decision to be in the Single Market. See The Eurozone Trojan Horse. We have 3 choices: Austerity, High Taxes or Leave Single Market. Austerity is indeed awful and raising taxes above about 40 to 45% of GDP always causes private industry to falter. The third option is obviously the best.
Economists should have learnt the Sectoral Balances Equation at school, let alone at university! That they are not telling everyone about this problem suggests that they have sold out. It is easy to imagine the economists at the LSE, OECD etc producing reports that suppress coverage of the UK-EU Trade Deficit because these economists are paid for their research by organisations that are opposed to Brexit. Why economics journalists refuse to cover the Trade Deficit is a mystery, surely they have not been bribed or nobbled by management at the BBC etc?
GDP = C + I + G + (X – M)
Where C is consumption spending, I is private investment spending, G is government spending, X is exports and M is imports (X – M = trade deficit or surplus).
This post was originally published by the author on his personal blog: http://pol-check.blogspot.com/2018/01/have-economists-and-economics.html