Everyone is
talking about Brexit. It reminds me of the conversation I overheard after the
NBA Championship. One person remarked about how he was very sure that the
Cavaliers would win despite being down in the beginning of the series. His
curious friend asked why. He said it was the uniforms. He really loved the
uniforms.
When an
event gets elevated to infinite coverage in the media we all think we need to
have strong opinions despite not knowing a thing about it. That’s how I feel
about Brexit. EVERYONE is part of the national obsession to have an opinion about
it. I cannot believe how much has been written or spoken about it since the
results of the referendum were known. What are we to think?
As in the
NBA example above, a beginning step would be to know answers to some basic questions. What is the NBA? What are the rules of basketball? Why do
players constantly touch each other and then get irritated when the little men
in the striped uniforms blow whistles?
There are a lot of similar questions we might ask pertaining to Brexit before we
start having opinions about its impacts on us. What is the EU and why would any
self-respecting country ever join it when national sovereignty is at stake? What
is the UK? Is it in Kentucky?
Today’s post
has two objectives. First and foremost I want to provide some background and write
about the EU and the UK. The upshot is that while national sovereignty is at issue, the loss portrayed by the LEAVE group was highly exaggerated. The LEAVE group has as much to fear from its own government's ideological tendencies than it had from some centralizing devil called Europe.Second I want to make the point that compared to other
crises suffered in the near-past, this one is almost totally psychological.
Let’s start
with the second objective. Nothing has happened except to announce that a
referendum declared that Brits want out of something called the European Union.
While the UK government will probably go along with the popular will, it will take
a while. So let’s be clear. For a while nothing has happened. Stocks of dotcom
companies did not find reality. The load of bad subprime mortgages did
not become impossible to bear. No government raised taxes or reduced pension spending.
Nothing bad
happened in the way of the usual macro suspects. What happened is that a
country decided to not be in the European Union. So the first point is that
nothing happened to directly cause crashing stock and foreign exchange markets
not to mention the price of a gallon of gasoline. Okay -- the British government has become less functional. Is that a plus or a minus? Really!
Aha you say –
but markets did crash and babies cried. And that’s my point. It is mostly psychological.
It is all expectations! What happened is that a bunch of soccer rowdies decided
to quit the EU club sometime in the near future. And that set off a lot of
concern. I am not making fun of the concerns. They have some basis. But keep in
mind that Brexit will be gradual and it will be in the best interest of most
parties involved to make it work smoothly and to try to minimize the many
impacts that will arise as the divorce takes place. Recall that President Obama advising Brits to stay in the EU said some threatening things. But now
that the decision has been made he is already promising to find ways to make
the transition work.
I am not
forecasting the future but what I am saying is that the alarm bells may be a
little too shrill for the reality. Brexit is not the end of the world and Brexit
will unfold with many impacts in many places and we will deal with them. Let
the markets take a big breath.
Now for the
background. A basketball is a round thing that you bounce on the floor and then
shoot through a little hoop.
Now for the United Kingdom. Straight from Wikipedia
(https://en.wikipedia.org/wiki/United_Kingdom
)
The United Kingdom is a constitutional
monarchy with a parliamentary system of governance.[12] …The UK consists of four
countries: England, Scotland, Wales, and Northern Ireland.[15] The latter three have devolved administrations,[16] each with varying powers,[17][18] based in their capitals, Edinburgh, Cardiff, and Belfast,
respectively. The nearby Isle of Man, Bailiwick of Guernsey and Bailiwick of Jersey are not part of the United Kingdom, being Crown dependencies with the British
Government responsible for defence and international
representation.[19]
Most relevant
is that the UK (often called Britain or Great Britain) is a sovereign state in Europe and is
mostly composed of England, Wales, Scotland, and Northern Ireland but not
Ireland or Puerto Rico or Texas. The UK joined something called the European Economic
Community (EEC) in January of 1973 and then in June 1975 another vote
solidified its membership in Europe. As of last week Britain will be the
first country to reverse a decision to join the EU. Apparently the English
wanted Brexit but not so clearly in the other countries in the UK. So that brings
up a possible change in the make-up of the UK itself.
Moving
along, what is the EU? The EU was a club of 28 sovereign nations. In the future
it will have 27 members. The beginnings of European integration came after WWII
when Belgium, the Netherlands, and Luxembourg joined France, and Germany, and Italy in
something called the European Coal and Steel Community. The basic idea was that
maybe if they cooperated on economics they would quit starting world wars. It
worked pretty well and a very quick history is that they moved on from coal and
steel to the idea of a single largely unimpeded market across Europe.
Until last week more and more countries embraced the idea of a free market
in Europe. And they joined the EU. Sure Germany was the economic heavy weight.
But like most free trade areas, the rest joined because of the expected
benefits arising from fewer trade barriers and the removal of tariffs. Not all
was tea and crumpets – with the single market came incursions into national
sovereignty. Then came the euro currency that was adopted by 19 of the 28
countries (and not by Britain). Some thought a single currency made sense in a
single marketplace. Others see it as too much togetherness. Now some want a
single fiscal policy. So far no cigar on that one.
So you see
the story, right? A free single market makes a lot of sense. That is the glue
of the EU. Giving up too much power to Europe is not always popular in any
given country or countries. But keep this one fact in mind. The institutional
design of the EU is to protect national sovereignty. As in any club you join you win some decisions and you lose others. So long as the benefits of
club membership are great enough then you stay in the club.
Quit
snoring. I am almost finished. Like the US, the EU has executive, legislative,
and judicial branches. All the institutions are run by representatives of the
sovereign states. For example, the Council of Ministers is literally a group
that consists of the government ministers of each EU country. The EU Parliament
members are voted for in each country by the citizens of that country. The point is
that EU legislation and rules are legislated and approved in each country before
they can become EU law.
Most rules must have unanimous support from all 28 states. In the very relevant situation of immigration, a country has the right
to opt out of any or all EU agreements. This link lists all the area of EU governance that require all 28 states to have unanimous support
https://en.wikipedia.org/wiki/Voting_in_the_Council_of_the_European_Union#Unanimity
https://en.wikipedia.org/wiki/Voting_in_the_Council_of_the_European_Union#Unanimity
Whew. Where
is my bottle of scotch? Er I mean JD.
While I'm certainly no expert, the major sticking point of the entire problem was a continued centralization of power in the EU and the dictates for virtually open borders. Almost 52% of the Brits probably felt they were losing the sovereignty of their own nation to a "central committee" which had it's own best interests in mind. Personally, I believe the economic union was a good thing, but as with most big governments, t got carried away. I still agree with von Mises and Hayek on the evils of central planning. What surprises me is the reaction from the Scots. They fought for their own independence but are ready to subjugate themselves to a huge central government on the continent for a small slice of pie in exchange for their national soul. Just my humble opinion.
ReplyDeleteI agree that what you say is a popular interpretation. But I prefer what I am reading in the WSJ today. Brits have always had the power to opt out or stop EU centralization and power. But they declined. Brits voted for these British representative who declined to represent their interests. Today these same Brits don't want less government they want more -- they just want more from the liberal/progressives in their own country. Brits will not likely get much independence. They are changing the form of their dependence from liberal progressives in the EU to liberal progressives in Britain. I hope it works for them.
DeleteHayek and von Mises were against that, too.
DeleteThose guys were very cool! Thanks for mentioning them.
DeleteDear LSD. Yeah, I guess another opinion on Brexit was needed to complement already contributors. While the takeaways regarding big govomit, socialism, central planning et al should be obvious and point out vividly the clear-and-present-dangers of those entities (I’m serious—not exaggerating) I doubt too many of the U.S. populace will not take heed/notice—too immersed in selfies, unsolvable crimes, and reality shows. The parallels of the angst in the UK and those of the US are too close to be coincidence. The UK has Brussels dictating rules/regs/laws to its 28 members; we have Obummer et al dictating to the 50 states.
ReplyDeleteElites figger’d they could impose their intellect on European neighbors by rationalizing/justifying the consolidation as a means to avoid war. A common currency and banking system would grease the wheels, except the intelligentsias' vast intellect failed to grasp not all country’s economies and cultures are the same—despite the ethnocentrism, religious, economic, and cultural differences that lead to war in the first place.
Fast forward several decades now in the U.S. we have a similar attempt at consolidation and central planning/control with Obummercare, EPA, IRS, etc. Result: Dozens of states suing the administration for over-reach. Too close for coincidence? Nevertheless, I think the U.S. will have an easier job of pulling away from the big govomit, central-planning/control tar baby than the UK—should, of course, Nov. 8th go red. It’ll be a start.
With respect to Scotland. Without getting into the weeds and inner workings and hidden mechanisms of the UK budget’s revenue sources and spending, Scotland consumes slightly more than it contributes to the UK budget; running a larger deficit as a percentage of economic output than the UK average. I think it fears that as part of the UK it won’t get the goodies it can get as a member of the EU—particularly with oil revenues down, its overall economic sparseness, and poor health.
Despite the argument of potential synergy deriving from a European union it’ll never stay aloft—it got off the ground like the Spruce Goose but won’t be able to remain airborne—too much dead weight.
Thanks for diving in Tuna. I think just as America's early days realized the different traditions and cultures of America's vast geographies, the Europeans have always paid attention to cultural differences and state's rights. You have to admit that it stuck together for around 60 years...and got bigger and bigger. There are still countries on the list wanting to get in the EU. Most people never thought Europeans could agree on anything. Thus 60 years is pretty good. I seriously doubt that elites had anything to do with any of this. I think some astute British politicians wanted more power and they used all that as a smoke screen. Yes, Brits were afraid of the immigrant rush. But remember -- this was not an elite wish. It was as much a German dictate as anything and the Brits had the right to opt out. Yes, their own government didn't have the cajunas to deal with it. So I stick with my opinion that as always -- the typical bloke in a country is just used by the local politicians. You watch, when a new government does come into play in Britain, little will change. And as far as the US goes, your faith in a R revolution will disappoint as well.
DeleteWow!!! The big deal to me is that France and Germany are subsidizing the rest. I think England no longer wanted to participate and felt that Brussels was going too socialized.
ReplyDeleteVery good!
ReplyDeletehttp://thefederalist.com/2016/06/28/watch-brexit-architect-nigel-farage-curb-stomp-the-entire-eu-parliament/
Missing in his "victory lap" is exactly how British lives will be improved...and of course how he expects to get the most out of separation as he continues to insult the people he will have to work with in the future.
Delete