By all accounts the polls are very tight—within the margin of error—on whether Britons will vote to exit the European Union (EU) come June 23. The uncertainty has financial markets on edge and the usual cast of grandees is weighing in on what will happen if Britain votes to leave.
George Soros—the man who broke the Bank of England–warns that a Brexit could trigger a ‘Black Friday’ and a recession. Predicting that house prices will plummet in the event Wilbur Ross calls a Brexit vote ‘financial suicide’ for British homeowners. According to the L.A. Times, major American and European investment banks have estimated that Britain could lose 1% to 6% of its GDP in the event of a vote to leave.
All of which suggests we should remember John Kenneth Galbraith’s quip that “God invented economists to make the weatherman look good”.
The debate over the wisdom of a Brexit is poorly framed. It is at heart a question of politics, not economics. More specifically it is about the wisdom of retaining the sovereign nation-state as the primary unit in world politics or replacing it with a Supra-national bureaucracy staffed by “experts” with little accountability and even less transparency. This in turn is but one step away from the ultimate goal of the progressive project which is global government run by and for the same progressive experts who have made such hash of it in their own countries.
Leaving aside the sky-is-falling rhetoric of alleged experts, it is unclear why a Brexit should be such an economic calamity. After all, after a misguided attempt to do so, Britain never got around to giving up the pound in favor of the Euro, so there would be no change in the currency regime. Moreover Britain has one of the largest economies in the world, measured both in aggregate and per capita terms, and has been a leading center of global finance for centuries. There is a reason for that.
Britain has a long record of adhering to the rule of law, protecting property rights, individual rights, the right of contract, and maintaining political stability. That’s a lot more than can be said about France or Germany. It is hard to imagine why London would cease to be a center of global finance if Britain were to leave the EU because Britain already was a center of global finance for centuries before the EU came into existence. What, other than a history of political instability, does the EU offer that Britain does not?
The EU is saddled with trying to force an unsustainable political union on very disparate countries without a common language or culture. And it is trying to force political union through a one size-fits-all set of economic rules adopted by the bureaucracy in Brussels. And not to put too fine a point on it—the budget rules at the center of its policy of fiscal integration have never been enforced. Moreover, its monetary policy, set by Germany, bears a lot of responsibility for the disaster in Greece because it allowed Greece to borrow way too much money at rates that were way too low.
Very easy EU monetary policy in the early 2000s was certainly instrumental in the largely successful project to complete the integration of East and West Germany in the aftermath of the wall coming down in 1989. But it stoked the housing bubble in Ireland and Spain that later overwhelmed those two countries. Ireland, Spain, Portugal and Greece became economic collateral damage in the attempt to accomplish the goal of political integration. And Italy may not be too far behind.
The original political sentiment behind the EU is laudable enough: it is to prevent Europeans from reverting to form and launching wars with each other. But the effort assumes today’s geo-political map looks the way it did in the first half of the 20th century. Well, western colonialism is long gone, and no one seriously believes that France and Germany are about to go war with each other anyway. Why would they?
If European countries still think they need an organization to prevent more European wars, NATO suits the bill just fine.
Furthermore, there is no rational reason why the EU cannot continue to offer Britain the same trading terms it already has. Despite the nonsense routinely offered up by politicians who claim otherwise, trade is mutually beneficial (or else it wouldn’t happen) and is an unalloyed good. Were the EU to refuse to trade with Britain, or offer less attractive terms out of political pique, it would be hurting itself as well as Britain.
And it would give the game away. It would then be apparent to all who are willing to look that the real EU goal is to break a sovereign Britain to its saddle so that its unaccountable bureaucracy in Brussels can maintain and expand its political power over the lives of the 500 million or so people who live in its 28 member countries.
So what will Britons do? The polls appear to give a slight edge to the Remain faction; the betting markets (often more accurate) a larger edge. But polling in Britain is notoriously inaccurate; people often give pollsters the “respectable” answer rather than what they really think, and the betting markets may be influenced by published polls. Here’s betting that Britain votes to exit the EU on June 23rd.
And when the dust settles, we will look up to see that the sky hasn’t fallen.
JFB
