Is there an economic case for Brexit after all?
Superficially, it seems not. Almost all serious economists agree that less close trading arrangements with the EU and tougher immigration controls will make us poorer than we would otherwise be even in the event of a smooth Brexit, and the Minfordians protestations to the contrary are not credible.
Behavioural economics, however, suggests there might be a case. This rests upon two pillars.
Pillar one is the Easterlin paradox – the finding that long periods of economic growth in developed economies have not made us much happier. This suggests the blow to well-being caused by slower GDP growth will be very small.
Now, I know some of you think the Easterlin paradox is a statistical artefact arising from the fact that GDP is unbounded whereas well-being is tightly constrained, somewhere between “ain’t dead yet” and “all right, I suppose”.
I’m not entirely sure. There paradox draws attention to important facts.
One is that people adapt. We become accustomed to prosperity so it doesn't make us much happier. By the same token, we also adapt to ill-fortune. Andrew Clark, for example, has shown that after apparently nasty events such as divorce or even bereavement happiness returns to its baseline quite quickly: the merry widow is a real thing. And Christoph Merkle has shown that financial losses hurt people much less than they expected.
The other is that for many of us, our well-being depends upon relative income (pdf) more than absolute. For example, one survey by Sara Solnick and David Hemenway found that most people would prefer (pdf) an income of $50,000 a year when everybody else get $25,000 than an income of $100,000 a year when everybody else has $200,000. If all of us become worse off, therefore, well-being doesn’t fall much: we’ll be comforted by the fact that we’re all in the same boat.
You might object that this is only true of Brexit ex ante. Ex post, some will suffer more from it than others. But this can be said of the normal everyday creative destruction of capitalism. And few oppose this.
Participation rights provide procedural utility in terms of a feeling of self-determination and influence.
This is one reason why the self-employed tend to be happier than employees.
A sense of control over one’s destiny, and of having a right to a say, makes us happy even if we don’t actually exercise that right and even if the outcomes of decisions are the same.
You might object to this that nobody other than a minority of cranks much cared about sovereignty before 2016. True, but irrelevant. They care now. And this is what matters.
If we put together the Easterlin paradox with the finding that procedural utility matters, we have a clear implication: the loss of income caused by Brexit won’t much hurt us whilst the gain to national self-control should increase well-being.
Brexit trades off income against sovereignty. Behavioural economics suggests this is a bargain which many people might rationally want. The fact that a slim majority chose to make this trade-off is therefore reasonable - perhaps more so than they knew at the time.
So, how convincing is this argument? I'm not sure. I’ve two quibbles with it.
One is that the Easterlin paradox is a story about economic growth, not about the lack of it. Just because growth doesn’t make us much happier, it doesn’t follow that the lack of it will be harmless. In an environment in which we might well suffer capitalist stagnation anyway, Brexit raises the risk of a flatlining of incomes for a long time. Maybe 2% real growth per year versus 2.5% is no big deal. But 0.5% versus 1% might be. As Ben Friedman has shown, weak growth creates intolerance and closed-mindedness. For some Brexiters, of course, this is a feature not a bug but I disagree.
Secondly, there must be less cack-handed and divisive ways of increasing procedural utility than Brexit – such as greater worker democracy or means of giving clients a greater voice in the provision of public services.
I’m not sure, therefore, that all this is a convincing argument for Brexit. But it is, I think, a strong one – and certainly better than almost all Brexiters have managed. Which for me raises a puzzle: why haven’t they argued more along these lines?