Tuesday, 21 June 2016

Brexit: Why it's Better to Opt Out Today rather than Tomorrow

Source: Wikipedia

Back in 1994, when the European Union (EU) was a different beast than it is today, Norway voted on whether to join the union or not. Being a third year business student in the U.S. at the time I was pro the EU for three primary reasons: 1) I thought Norwegian politicians were useless and that the EU would do them some good as people employed there were better qualified, 2) being a member of the EU would reduce bureaucratic overheads in Norway and other member countries due to economies of scale (as EU officials could perform a range of tasks cheaper than member country bureaucrats could), and 3) free trade. 

Twenty two years later, I still think Norwegian politicians are useless. Having spent a decade in the UK in the meantime, I also think UK politicians are useless. But more importantly, during this period I discovered the fundamental reason why I thought politicians in general were "useless". It's not really because they're unqualified, though most of them lack a basic knowledge of the true function of markets, and lack belief in the people they ask to vote for them. Rather, it's because they're attempting, often with good intentions, to find a "one size fits the majority and special interests" for an infinite range of often imaginary "problems" requiring "solutions". Of course, this is how most politicians justify their very existence. 

What about economies of scale? How wrong I was. The EU budget has nothing but expanded while government deficit spending in most (all?) member countries have surged leaving many (all?) member countries more indebted than ever. Of course, some countries that became members of the EUs grandest of clubs, the euro area, are now by any prudent standard insolvent (e.g. Greece, Italy, Portugal). 

As for free trade, I've not got much to say other than pointing out that something is clearly wrong if we need an unelected and highly paid army of bureaucrats living the good life in Brussels, paid for by hard working tax payers, to make free trade possible across Europe. The EU should be labeled an oppressive regime and an illegal cartel in direct conflict with the EU's own competition law (replace "companies" with "countries") if that is indeed the case. Democratic countries should stand up to such oppression rather than give in (by joining or remaining). 

The economic problems that has been sweeping across the EU- and euro area members for almost a decade now are at the end of the day caused by two primary factors in addition to large-scale debt accumulation: increased government bureaucracy and deficit spending at the country level and an ever-growing EU bureaucracy crippling production for a substantial administrative fee. * In short, we've ended up with a costly double- bureaucracy and a plethora of rules, "laws", regulations and subsidies more concerned about how to distribute and share the existing wealth rather than in actually creating more of it. As a result, member countries have ended up with a vast growth in the number of wealth consumers (EU and government bureaucrats and related costs) and a relative reduction in wealth producers as evident in surging debt to GDP ratios across the EU. This is how poverty, not prosperity, is created. 

But, this is just the beginning for the EU. For the planners in Brussels to be able to "solve" the apparent problems they think the union face they must push for ever more integration: banking union, fiscal union, an EU army, and ultimately political union. The impossible goal they therefore must push for, and a goal Brussels has gotten closer to, is an EU superstate - the United States of Europe. I've found no better way to fundamentally explain what is going on other than using Hayek's own words written some 75 years ago: **
That planning creates a situation in which it is necessary for us to agree on a much larger number of topics than we have been used to, and that in a planned system we cannot confine collective action to the tasks on which we can agree but are forced to produce agreement on everything in order that any action can be taken at all, is one of the features which contributes more than most to determining the character of a planned system. 
Hayek is here referring to the "one size fits the majority" problem I mentioned above, which only central planning can solve. But note, it is a problem that cannot be solved, especially on a grand scale such as the EU seeks. It therefore shouldn't even be attempted to be solved for the simple reason that opinions differ and individual preferences matter if we are to live in a free society as opposed to the centrally planned economy the EU and their supporters steer us towards, knowingly or not. Hayek continues (my bold),
It may be the unanimously expressed will of the people that its parliament should prepare a comprehensive economic plan, yet neither the people nor its representatives need therefore be able to agree on any particular plan. The inability of democratic assemblies to carry out what seems to be a clear mandate of the people will inevitably cause dissatisfaction with democratic institutions. Parliaments come to be regarded as ineffective "talking shops", unable or incompetent to carry out the tasks for which they have been chosen. The conviction grows that if efficient planning is to be done, the direction must be "taken out of politics" and placed in the hands of experts - permanent officials or independent autonomous bodies. 
Sounds like Hayek is describing the EU? It should, but it isn't as neither the EU nor its predecessor was founded at the time he wrote those words. But this is indeed the road the EU and its supporters have chosen to continue on. Hayek adds,
The belief is becoming more and more widespread that, if things are to get done, the responsible authorities must be freed from the fetters of democratic procedure.
Rings a bell? And finally,
The clash between [central] planning and democracy arises simply from the fact that the latter is an obstacle to the suppression of freedom which the direction of economic activity requires.
Sounds familiar? Decision-making without democratic accountability is heaven for central planners. Ultimately, whether knowingly or not, this is what local politicians supporting the Brussels bureaucrats will ultimately achieve if they're allowed to. But the final stop on such a road can never be a pretty one as history shows only too well.  Hayek explains this final stop (as I like to think of it) in the following manner,
It is now often said that democracy will not tolerate "capitalism". If "capitalism" means here a competitive system based on the free disposal over private property, it is far more important to realize that only within this system is democracy possible. When it becomes dominated by a collectivist creed, democracy will inevitably destroy itself. 
The EU will continue to push towards ever more central planning from Brussels whether it actually wants to or not. There is simply no other way for it to solve not only the "problems" they've already identified, but more importantly the many problems member countries will face in the future, imaginary or not, in the EU's quest to find a one size fits the majority/special interests solution to almost anything limited only by the bureaucrats imaginations. The EU budget will therefore necessarily continue to grow despite economic problems at home for member countries. EU powers will continue to expand while local governments will spend ever more of their time debating, implementing, and following up central dictates from Brussels rather than dealing with the domestic issues they were elected to handle. This trend, which started with the very establishment of the EU and its predecessor, will continue until the EU is shut down. 

The UK, just as every other EU member, has economic and political issues at home that need to be solved. Electing to leave the EU on June 23 will not change that. What a Brexit would accomplish however is to send a clear message to other member countries that the path they're on is a path toward poverty, not prosperity, and a road toward less democracy instead of more. The sooner this doomed experiment is ended, the better for all.

From here on, the economic problems the EU and the European Commission help create will only grow bigger and member countries will sooner or later be forced anyway to leave for democratic or economic reasons, or both. A central planning project on this scale is doomed to fail as it is at odds with not only the most basic principles of freedom, democracy and accountability, but as it is an obstacle to fulfilling an ingrained want for most people: a better life for themselves and their families. Central planning does a poor job at achieving exactly that. One day the EU will also inevitably run out of other people's money. These are some of the important reasons why it's better for the UK to opt out of the EU today rather than tomorrow.

Vote Leave on 23 June 2016. 

* The existence of fiat money, and central- and fractional reserve banking have made such debt accumulation possible. In fact, in their absence, government spending and bureaucratic expansion to the extent we've seen would have been impossible due to a lack of financing.
** The Road to Serfdom, Friedrich Hayek

Update 24 June 2016: The UK elected to LEAVE the EU.


The Ever-Rising Direct Costs of Central Planning

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