Brexit: Why the Threat of Higher Tariffs Wasn’t Enough To Stop It


Chris Johns at the Irish Times is dismayed by all the support he sees for Brexit among the Brits. Brexit has always been a divisive issue, with about half the voters supporting it. But Johns is vexed by the fact so many of Brexit’s boosters are — in Johns’s eyes—going against their own economic interests.
Johns notes, for example, that Brexit is likely to take a significant toll on British manufacturing, and will be problematic for incomes and tax revenues. Resigned to Brexit as a fact, Johns suggests trying to make the transition as painless as possible, but insists, “Britain will either be poorer or much poorer.” But it’s too late the avert at least some damage. Thus, the narrative goes something like this: “we tried to warn you people about the dangers of Brexit to your pocketbook. But you went ahead and supported it anyway. So now you’re worse off.”
But are they really worse off? At the moment, even the economic data suggests the British are better off today than they were when a slight majority voted for Brexit in 2016. But let’s say those official government stats turn sour in the next year. Will the majority then repent of their vote? That’s unlikely, and not because Brexit voters will just refuse to accept reality. Few will change their minds regardless of what the economics stats say because many Brexit supporters were calculating the benefits of Brexit on factors quite distinct from GDP growth numbers and employment totals.
Many perceived the benefits of Brexit to be found in ways that aren’t tracked by any government office, and don’t show up in any statistical data. Thus, economists and pundits who limit their calculations to measurable statistics are missing a big chunk of how humans measure and value the world around them.
We Can’t Put a Number on the Opportunity Cost of EU Membership
Using only aggregated data to calculate well-being limits our thinking to only those things that can be measured.  Government statistics have been devised to keep track of identifiable and countable events and dollar amounts. This is why numbers such as “unemployment rates” and “median incomes” form the backbone of government stats. They can be identified and counted with relative ease based on survey data or direct observation.
But much of the concern over EU membership has focused on issues that are far harder to quantify, such as government regulations and lost opportunities. How exactly does one quantify a new regulation on British businesses handed down by EU bureaucrats? An individual business might be able to hazard a guess, but aggregate data is far less reliable and far less available.
Even harder to count is the opportunity cost of EU membership. As noted by EU critics, for example, membership in the EU has limited the ability of the UK to expand trade outside the EU bloc. There’s no way to put a number on how much these lost opportunities have cost British households. Certainly some researchers have tried. But we end up debating the accuracy and relevance of the research. Ultimately, it all requires a judgment call as to whether or not EU membership is “worth it” to a specific person.
The “Psychic Profit” of Leaving the EU
Other things are even harder to quantify than lost opportunities. These are what many voters perceive as the intangible benefits of leaving the EU.
For example, a pro-Brexit voter might argue that British laws should be decided in Britain—even if this means paying higher tariffs. Thus: political independence is more valuable than selling goods to France at a lower tariff rate. Obviously, there’s no way to determine exactly how much benefit “political independence” produces for a person who values it. But the value is real.
We’re now in the realm of “psychic profit,” which is the profit that a person perceives in his own mind from a certain action or state of affairs. The problem with psychic profits is that they are not quantifiable as money profits are. As economist Ludwig von Mises noted, at a fundamental level, profits and lossses are “psychic qualities and not reducible to any interpersonal description in quantitative terms.” Moreover, Mises notes that the “psychic phenomena” from which these valuations derive involve “incalculable intensive magnitudes.” Even if a person values Brexit more than low-tariff trade, it’s impossible to put a number on how much more.
A similar accounting problem arises with the immigration issue. Some voters support Brexit because they suspect or hope that it will reduce immigration. In this case, some have concluded that their psychic profits are improved by being surrounded by people of similar language and culture. 
Faced with the idea that greater controls on migrant labor could push up the cost of living, some may nonetheless conclude the psychic loss resulting from immigration outweighs the monetary benefits of low-cost labor at the supermarket.
All of this should illustrate that when we’re talking about a voter’s decision to support a certain policy, we’re not exactly employing an exact science. By supporting policies that might ultimately lead to higher prices or higher foreign tariffs, one is not necessarily falling victim to economic illiteracy. One is simply taking a position that, in one’s mind, something that can’t be measured in pounds is more valuable than something that can be measured in pounds. There is a rational—and possibly well-informed—process of calculation going on here. It’s just a calculation that’s impossible to quantify.
Some economists find this sort of thing quite irksome, however. Johns, for instance, bemoans the fact that the “culture war” behind Brexit has led to ” the economy tak[ing] acceptable collateral damage.” He apparently means that voters have abandoned what he considers to be sound economic thinking in favor of “benefits” that can’t be counted in any ledger.
And this is the problem we so often run into with economists who continue to wallow in notions like “homo economicus” or the idea that things only matter if they can be quantified in an economic model. In the minds of pundits like Johns, people are irrational if they chose a policy that might reduce their incomes as measured in dollars or pounds. The reasonable thing to do, it is assumed, is to weigh every policy by its benefits measured by countable jobs or income units.
The Real Problem: Majorities Forcing Policies on Minorities
The fact that most everyone values things in his own idiosyncratic — yet rational — way does not mean there’s no problem here, though. The problem arises form the fact different people who make very different value judgments are forced to live under a common government.  We have a problem because the democratic majority can impose a preferred policy on the losing minority. 
In the case of Brexit, for example, nearly half the population appears to be either indifferent to membership in the EU or actively in support of it. And just as statistical economic data can’t tell us whether or not pro-Brexit supporters are “right,” it can’t make a judgment about EU supporters. Many EU advocates simply like the fact the EU hands down lots of environmental regulations to all member states. Supporters may like that EU membership (presumably) increases total immigration for reasons totally unrelated to economic factors. Some gain psychic profit just from supporting the idea of a politically united Europe.
But this doesn’t mean that this minority of voters ought to be forced into leaving the EU because 51 percent of the population says so.
The ideology underlying democracy offers no answer to this. We have a situation in which about half of the population believes that it profits (psychically or otherwise) from one policy. But about half of the population believes it profits from the opposite policy. This problem becomes even worse when reduced to a regional level. An outright majority of residents in Scotland, for example, opposes Brexit, and now that Brexit is a reality, a slim majority of Scots support independence. It would seem to violate basic notions of justice to insist that Scotland be held to the dictates of the English majority forever.
Scottish Separatists Are Now the “Crazy” Ones?
In spite of years of being told how economically inept they are for supporting Brexit, some are now turning the same arguments on the Scots. This pundit, for example, might as well be saying  “look at those crazy Scots. They want to cut themselves off from their best trading partner (England)!” In the minds of those opposing independence, the dictates of economic good sense mean that Scotland should stay in the UK. But the anti-independence pundits may be making the same mistake the anti-Brexit pundits were making. It could be pro-independence Scots feel that they would gain more from independence than from unity—even if government stats say otherwise. If many Scots truly believe this strongly, it will be very hard to convince them otherwise, no matter how many studies by economists are trotted out.
Ultimately, we’re still left with a political problem that can’t be solved by insisting all the intelligent people agree with us because our spreadsheets and bean counters tell us which political position is “best” for us.
None of this should be construed to suggest that sound economics is wrong. Of course low tariffs are better than high tariffs. Of course business owners ought to be free to hire workers regardless of what country those workers are from. Of course government regulations on businesses are a destructive burden, whether imposed by London or by Brussels. But the Brexit debate wasn’t really about whether high tariffs are better than low tariffs. It was about who should decide tariffs, and where and how. It was about issues far beyond whether or not an additional 1 percent growth could be wrung out of GDP next year. Many have tried to turn Brexit into just a debate about economic policy. But economics has never been a reliable guide as to how many people calculate the value of leaving the EU.


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