Immigration: Lies, Dammed Lies and the Daily Mail

It times of economic turmoil it is common to direct venom at others.  And immigrants are an easy target.  This was a feature of the 1930s and the 1970s in the UK – with immigrants being ‘blamed’ for taking ‘our’ jobs as well as claiming benefits- the fact that these were usually impossible together is usually ignored.  And this intolerance is rearing its ugly head again. Of course, immigration is an important issue that needs sensible debate. But too frequently it reduced to sound-bites from vested interests.

Man in a hat

Man in a hat

Whenever the topic of immigration is on the agenda, the BBC turns to Nicholas Farage.Take his contribution on Newsnight on 25 March, when told that immigration had not depressed wages in the UK, he retorted: “absolute rubbish… I have just been in a pub full of plasterers, decorators and carpenters.”   Good for him to have been to the pub.  But not necessarily a robust sample of employed workers in the UK.  Especially in a Suffolk pub at 10.30 in the evening.

There is even more incoherent nonsense from one of the Daily Mail’s merchant of bile, Richard Littlejohn , in his ‘article’ on 25 March, ‘Keep ’em out, Dave? They’re already here!

According to Littlejohn: ‘From across North London came reports of Romanians moving into homes while the owners were away….. And if Romanians make up half of all squatters, they also seem to comprise at least 50 per cent of all the beggars in central London these days. Presumably they return to their suburban squats of an evening.”  Of course, none of this litany of hate is polluted by evidence.

Litteljohn goes on: ‘Now even the Left is, sort of, admitting it got it wrong….In the Daily Mail over the past few days, David Goodhart, director of the Left-wing think-tank Demos, has written an extended mea culpa’.  Has he?  So what?  Some of the so called ‘Left’ follow a wayward path to confusion and distortion.  For instance, the right wing think tank, The Institute of Economic Affairs, used to be populated by dazed and confused ex-Marxists.

A Littlejohn mini-me at the Daily Express, Ross Clark, also resorts to unsubstantiated vitriol.   According to Clark: “What does rile the public, on the other hand, is when migrants arrive in Britain one day, and the next day they have been installed in a substantial West London villa, courtesy of thousands of pounds a year of taxpayers’ money, and when they are on a waiting list for NHS treatment behind people who have never lived in Britain nor paid towards the NHS. No Briton ever took a Eurostar to Paris in the expectation that they would immediately be put up in a grand apartment on the Champs Elysees courtesy of French taxpayers.”  What should rile the public is being fed such lies.

Clark even argues: ‘Jonathan Portes, director of the National Institute for Economic and Social Research was wheeled on to say that migrants claiming benefits were a ‘minuscule’ problem and that the real challenge to the public finances is elderly British people with the temerity to claim the pensions they have paid for all their lives.’  Almost certainly Portes did not use this language – and as far as I am aware he is not wheels.  Portes has undertaken detailed and rigorous analysis of the impact of immigration – see here.  And Clark does not have the guts or the intellect to engage with the evidence.

Assessing the impact of immigration is difficult – but that does not justify the scaremongering tactics of some of the press and pressure groups. There is strong evidence of some of the impacts. First, immigration helps to reduce the pressure on the public finances as they pay more taxes as they are less likely to claim benefits and are more likely to pay more taxes than the average citizen (see here and here). Second, immigration contributes to economic growth when measures in terms of GDP. When focus is put on GDP per capita, or GDP per capita of the non-immigrant population, the evidence is more fuzzy.  But this is largely a product of the limitations of macroeconomic modelling.   Economic growth (per capita) is driven by new ideas – and the most innovative places, such as Silicon Valley,  attract talent from around the globe.   Third, the United Kingdom  is a country built on immigration throughout its history.  And even if we focus on more recent times: those that care for us in illness may come from the Philippines but we should remember that we imported our Royal Family from Germany.

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Governments and growth

Last week, ‘two lads from the ECB’ contributed to the debate on the state of the economy. They were cited by the venture capitalist, Jon Moulton, on Newsnight, as providing evidence that Governments harm growth.  It was contribution which showed the shallowness of much of the debate on the economy.

The two lads

The two lads from the ECB came up during a Newsnight debate on the Budget on 19 March – you can watch it here.


As shown in the images (from Mohammed Tanweer) Moulton stated:  ‘the bigger the public sector the less likely you are to have growth. It is a pretty well established relationship.’

Mariana Mazzucato (Professor, University of Sussex) responded in the appropriate scholarly fashion: ‘by whom?’

Moulton: ‘Well…umm… A couple of lads at the ECB.  A couple of lads at Stockholm. I can send you the graphs.’



Who are these likely lads?

The couple of lads from ECB are António Afonso and João Tovar Jalles who published a paper on ‘Economic Performance and Government Size’ in 2011 (thanks to Romesh Vaitilingam for pointing this out).  According to Afonso and Jalles: ‘Our results show a significant negative effect of the size of government on growth’.  Although they also argue: ‘economic progress is limited when government is zero percent of the economy’.  Quite! I wonder where and when they had in mind?

So what do the graphs show that Moulton has now probably sent to Professor Mazzucato?  They are shown below; and you would need a distorted and perverse perspective to imagine that they show that government harms growth.  But we do not need to believe our eyes as we can turn to art of modern economics.

Governement and Growth 2Governement and Growth 1

The art of modern economics

The economics of the ECB lads is apparently impressive: they have a model with the required algebra and lots of numbers supported by sophisticated statistics.  But, as with much modern economics, when you scratch beneath the surface, you find assertions supported by some correlations.  And be careful when you see the term ‘significant’ bandied about – this refers to ‘statistical significance’ which tells us nothing about economic significance or the size of any apparent effects.

Yada Yada Economics

As with most economics papers, Afonso and Jalles have an economic model: ‘a typical economy with a constant elasticity of substitution utility function of the representative agent…….’ blah, blah, blah, lots of algebra etc.  This looks scientific although many readers will not read it or will not understand it.   But the model is superfluous.  The construct of ‘a model’ is an artificial edifice now required in most modern economics as its physics-envy knows no bounds. The authors’ arguments are based on correlations between some variables, but you can construct many different ‘models’ and still end up performing the same correlations.

The evidence

The evidence of the lads is a series of multiple correlations – wrapped up with a battery of statistical ‘tests’ and ‘robustness checks’.  But what this amounts to is that if you massage the data enough you can show that economic growth is inversely correlated with the size of Government (as a share of the economy).   Correlations say nothing about causation – causation is imposed by the authors.  Some economists believe that they can prove causality through a statistical test – such as the Granger Causality test – this technique can be used to show that consumers expenditure in early December caused Christmas later in the month.

Afonso and Jalles argue that their correlations show that if government increases (as a share of GDP) then economic growth falls.   But they fail to consider more plausible explanations for this.  First, causality may run the other way: if growth of the economy falls for other reasons then the share of Government in GDP will increase as the denominator (GDP) is smaller – and more so, if the Government makes transfer payments to the unemployed which increases the numerator.  Second, rich countries tend to grow slower than poorer countries (that can have catch-up growth); and as economies become richer, Government as a share of GDP tends to increase as Governments often supply goods and services that prosperous consumers want – such as education and health. Since 1960, the size of Government (as a share of GDP) has increased in every OECD country.

Debataing the Dismal Economy

The economic crisis has led to much debate about economic policy.  And much has been highly informative – for example, see the debate between Wolf and Giles in the FT, and the contributions by Faisal Islam, Jonathan Portes, David Smith and Simon Wren-Lewis.

But much of the discussion has frequently been vapid and vacuous. With often confusion between: when and how to reduce the deficit; and the role and size of Government.  And the use of economic ‘evidence’ has often been uncritical and instrumental – including so-called ‘well established relationships’.

Decisions about economic policy and the role of the state are inherently political and should be driven by what sort of society people want to live in – and they should not hide behind the false veil of the pseudo-scientific objectivity of modern economics.

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The FT: defending zombie economics

There is an entertaining debate (well, it is entertaining if you are an economist) in the FT about the conduct of economic policy in the UK.  On the side of realism is Martin Wolf who argues that Britain’s austerity is indefensible, on the side of the austerians is Chris Giles whose latest defence of zombie economics is to argue that ‘Osborne is too timid, not too austere’.

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The OBR and the impact of austerity

OBRThe Office of Budget Responsibility has given the Prime Minister a public dressing down.   Robert Chote, the OBR’s Chairman, has clearly stated in an open letter that the Government’s austerity policies have harmed economic growth. Continue reading

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Time for TINA to turn: myths of austerity


Photo: Helge Øverås. Available on a GNU Free Documentation License

TINA is back.  David Cameron has reprised Mrs Thatcher’s proclamation that ‘there is no alternative’ to justify the current policy of austerity.  Politicians frequently misrepresent economic reality to argue that there are few, if any, alternatives in the conduct of economic policy.  George Osborne has stated that there can be no plan B for economic policy. And even when Vince Cable comes up with a Plan B he has to portray it as a Plan A+.

According to Cameron: ‘there’s no magic money tree to fund this ever more wishful borrowing and spending’.  What are the economic realities of austerity? Continue reading

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Prospects for the world economy

We are living in interesting times. And for many these times are not just interesting but are also dismal. With pessimists predicting that there may be a ‘lost decade’ or two for the global economy. The implication is that there will be little or no economic growth for the world economy – with living standards stagnating and businesses struggling to survive. Is this a reasonable prognosis – or are there better times ahead?

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More quantitative easing is not the answer to stagnation

Read on the Guardian’s website

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The Great Divergence: the State of the Regions in the UK

The UK economy is geographically fractured with areas of prosperity and areas of deprivation. Nick Clegg will tell the City of London (some irony there) that the UK economy needs major rebalancing to shift its focus away from London. And he is right.

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Where are the exports going to come from? Confusion at the Bank of England

The British economy is severely demand constrained: consumers and businesses are not spending as they rebuild their balance sheets and Government is trying (and failing) to reduce the fiscal deficit. So can we rely on the rest of the world to get us out of the mess by demanding more of our goods and services and generating an export-led recovery? The latest evidence suggests no, as export growth has been low despite a significant devaluation of sterling.

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More unfounded optimism from the Bank of England?

The Bank of England has produced its latest inflation report and the Governor, Sir Mervyn King, believes that there is “grounds for optimism”.  The problem with this is that the Bank has been consistently overoptimistic about the prospects for inflation and output since the financial crisis and the onset of recession.  Is this time different?

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