John Kay - Political decisions are not a matter of statistics

Political decisions are not a matter of statistics

The report regarding the Chancellor’s five tests for joining the Euro might provide an impressive economic analysis; yet as we all know it will be a pointless one too

The Treasury’s assessment of the consequences of British membership of the euro is one of the most extensive cost/benefit analyses ever undertaken. There will be numerous equations, copious data and thousands of pages. The credentials of its authors suggest that the assessment will be carefully planned, technically skilled and as fairly presented as is possible on such a politically controversial subject: the epitome of what modern civil servants are proud to call evidence-based policy.

And yet we in Britain know that it is all a charade. I have not met a single person who is genuinely waiting to read the assessment before deciding. Not one. I count some odd people among my friends. People who tremble with excitement before the release of the third quarter’s manufacturing figures. People whose idea of a good night out is a session at the computer centre running econometric models.

But economists have been falling over themselves to take up positions in advance of the chancellor’s statement. And if that is true of economists, it is far more true of ordinary people. Go down to the pub and ask what customers think about the euro. You will get plenty of views but I bet not one of them will be: “I want to see what the Treasury has to say about Gordon Brown’s third test.”

Most people, in fact, will judge the assessment by newspaper reports. And we already know how UK newspapers will line up. Proprietors, editors and journalists have already made up their minds and so have politicians. The only exceptions are those that prove the rule: Labour members of parliament who are waiting to see which way the wind is blowing. People will use the material in the assessment to reinforce the views they already hold, not to form their opinions, or to change them.

When Mr Brown discusses the way ahead with Tony Blair, it may be that their conversation runs: “I think the amplitude of the Belgian trade cycle has fallen slightly since 1999, Gordon.” “Yes, Tony, but are you sure the statistic is robust?” But I suspect these are not the kind of exchanges they have. Big decisions in politics and business are the result of political horse-trading and are based on partial information, visions and prejudices, hopes and fears.

We Britons are taught that matters should be different. We would prefer to think that the right answer is deduced from dispassionate technical analysis. And that is why our leaders pretend that is what they are doing. They assure us that the government’s decision on euro membership will be based on an objective application of Mr Brown’s five tests. Businesses tell us that they decide on big investments, on strategic acquisitions, only after they have calculated the discounted cash flow and undertaken extensive scenario modelling. But any competent civil servant or business analyst knows that his job is to work out the answer the boss wants and adjust the assumptions accordingly.

It can never be otherwise. A British decision to join a single currency, or stay out of it, will last for ever. Even with 50 years of hindsight, we shall not know the answer. How can we ever tell what would have happened in an alternative scenario? The eurozone economies have performed poorly since the euro was launched. But perhaps they would have done worse if it had not been formed. The only thing we know for sure is that the assertions of those who foresaw either triumph or disaster were wrong.

Some Britons are instinctively internationalist; others regard national identity as vital. Some are natural Europeans; others feel more at home with the US. There is nothing shameful about emotions of liking and disliking, nothing inappropriate about basing judgments on instincts about who can be trusted. Business people as well as politicians use the language of economics to make exaggerated predictions about matters of which they can have very little knowledge.

We should resist the pressure to cloak these judgments in the language of economic costs and benefits. Such analyses may be helpful in framing our thoughts and revealing inconsistencies in our arguments but they should not be the basis of our decisions. And, in reality, they never are.

 

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