If something sounds too good – or even too bad – to be true, it probably isn’t. This applies to statistics, even when they come from a seemingly reliable source such as the former Governor of the Bank of England. Unfortunately, although predictably, this was not the reaction to Mark Carney’s recent claim that “in 2016 the British economy was 90 per cent of the size of Germany’s. Now it’s less than 70 percent. “Rather, Commentators have taken the claim as proof of Brexit’s dire economic consequences, despite the fact that it fails the most basic smell test. The idea that in six years we have become more than 20 per cent poorer than in Germany makes no sense.

It is not clear exactly where Carney’s numbers come from. His next Twitter explanation seems to compare nominal growth (without inflation adjustment) in Germany with real, inflation-adjusted growth in the UK, the kind of spreadsheet mistake all of us economists make occasionally. But the key point is that his view that the UK has largely underperformed Germany (and also the EU and the US) is based on comparing the size of economies measured using market exchange rates; that is, by translating the size of the UK economy into dollars or euros based on the current exchange rate.

At the beginning of 2016, the pound was unusually strong; it is now historically very weak. So, if you translate the UK’s GDP into dollars or euros, it looks like the UK economy has done very badly compared to Germany. This is misleading, because exchange rates move a lot; in fact, in the last month, after the cancellation of the disastrous “mini-budget”, the pound sterling has gained almost 10 per cent against the dollar. It is obviously absurd to suggest that firing Liz Truss meant that we suddenly became 10% richer than the United States.

Even apart from Carney’s use of selective dates, this is simply the wrong way to compare the size of different economies over time. This is because, while exchange rates matter a lot for goods and services traded across the border, they don’t do so for those that aren’t. A barrel of oil or an iPhone has more or less the same price (excluding taxes) in different countries. A haircut, not so much. And when we compare the size of the different economies, we’re looking at how much we produce (and consume) of both.

[See also: Labour needs a true alternative to Rishi Sunak’s austerity]

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This means that a drop in the pound, like after the Brexit referendum, really makes us poorer, because it means we can buy less oil and fewer iPhones. But a 10 percent drop in the pound doesn’t mean we’re 10 percent poorer overall, or anything like that, because most of what we produce and consume isn’t traded at all (haircuts), so it’s not. it is directly affected by the exchange rate. A credible estimate, for example, is that the steep decline in the post-Brexit pound sterling – about 10 percent – has cost us just over 1 percent of our income.

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If we can’t just convert everything into dollars, how do we decide if the UK has actually underperformed Germany? We need a measure that reflects not just how much a pound buys in tradable goods and services, but how much everything goods and services in the economy, including those that are not traded. This is what “purchasing power parity” (PPP) does, comparing the cost of non-tradable goods between countries and building a measure of relative exchange rates that allows for it. Basically, this is just a sophisticated version of EconomistThe famous “Big Mac index”, which does what it says on the box, compares the price of Big Macs between countries to get an idea of ​​what people can actually buy with their currency domestically and internationally.

Building a PPP index is complicated and requires a lot of judgment. But it gives results much more consistent with common sense. According to the World Bank, the most reliable source for this data, the UK economy is around 70% larger than Germany’s, almost unchanged since 2016, although on a per capita basis we have fallen behind by perhaps 2%. Indeed, as the graph below shows, the UK’s underperformance is likely due to austerity and George Osborne rather than Brexit and David Cameron.

Carney’s claim that Brexit led to a relative contraction of 20 or 25% in the UK economy makes no sense. This does not mean that Brexit did not have a measurable and significant impact. Nor that it will not continue to be a brake on growth. My recent summary of evidence shows that, exactly as economists predicted, introducing new trade barriers with our largest trading partner means we are trading less. UK exports to the EU have now belatedly recovered to slightly above the pre-Covid level. But world trade has been booming; overall, the UK did worse than most other advanced economies. Much of this deficit is likely due to Brexit. Despite the growing voices of some ideologically committed Brexiteers, no serious economist disputes it.

It would be very surprising if this reduction in trade had not reduced growth, and indeed John Springford, of the Center for European Reform, estimates that when looking at the UK’s performance against a basket of “similar” countries, our deficit of growth is about 5 percent. The Office of Fiscal Responsibility (OBR) has predicted that the long-term impact of Brexit will be a reduction in GDP of around 4%; of this, it is estimated that 1.5 per cent has already happened. My judgment is closer to that of OBRs: the damage so far is probably between 1 and 3 percent, with more coming over time. There is a lot of room for debate on precise numbers. But overall, the evidence is clear. Brexit hurt the UK economy, but it wasn’t a catastrophe; a slow puncture, not a car accident.

[See also: Rishi Sunak’s vision for “Global Britain” is empty]

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