Sunday, June 26, 2016

The Bad and Good about the Brexit

Britain recently voted to leave the EU.  That's probably going to have a lot of long term consequences and I'm mostly writing this to try to work through what I think they might be, good as well as bad.

In the short term there's probably going to be a fair amount of bad.  Germany and France are Britain's #1 and #3 trading partners and there's likely to be some disruption there.  Now that Britain has said it wants to leave it can negotiate a divorce from the EU there's some question about exactly what Britain's terms of trade are going to end up looking like.  The leave campaign promised that Britain would be able to trade with Europe the same way it always had but now without cumbersome EU rules.  I don't think it'll work that way.  The first reason for that is that managing trade is a big part of the complex EU rules Britain had to deal with.  If I sell you a ton of "Grade A Beef" it's important that we both have the same understanding of what Grade A Beef is.  I mean, I could always just inspect every purchase I make ahead of time but that's cumbersome and so people generally make regulations about what "Grade A Beef" means, exactly.  The modern world of trade is a whole elaborate edifice of commodity futures contracts and such that make that sort of inspection even more impractical.  So Norway, in order to trade with the EU inside the EEA, has to abide by a lot of EU rules it had no hand in making.  So some people in the Leave camp are going to be upset at how little will change regarding EU rules but given that many Leavers are fans of staying in the EEA and given how many people wanted to stay then I assume it's sellable.

The other short term problem is going to be EU stability.  If Britain leaves then suddenly it gets a lot more thinkable for, say, Greece to leave.  That probably means that the EU doesn't want to be nice to the UK in the exit negotiations, they want to make leaving seem scary to any member states that might be wavering.  But in thinking about the consequences of the Brexit for Britain we shouldn't ignore the consequences for the rest of Europe either.  As Scott Sumner points out the stock markets in continental Europe and especially southern Europe are down a lot more than in Britain.  In some ways Britain leaving the EU now looks like Britain leaving the gold standard in 1931, and we all know how that ended.  Partially that might be because the Bank of England has been handling the recent crisis so much better than the European Central Bank.

Finally, I'm a big fan of the free movement of people between countries and Britain leaving the EU is going to be a big blow to that.  I don't think there's much to elaborate on here.  Discomfort with immigration was a big factor in Leave winning and getting out of the EU will put a big hamper on, e.g., Poles moving to the UK.

As for the good, well, I think critics of the EU as an opaque institution have a point.  The EU is the product of ad hoc growth with a lack of clear lines of responsibility.  Hamilton wrote very movingly about the importance of checks and balances separation of powers but since the 18th century countries with more streamlined parliamentary systems have provided much more stable democracies than presidential systems like ours.  Making responsibility transparent to voters is the most crucial thing to get right in a democratic system of government and it's hard to see how the EU accomplishes that.  There was a proposal for a European constitution at one point but it was also quite baroque and also rejected by voters.

In a related point, countries work better when their citizens feel like they're all the same group.  This is entirely subjective and in the future maybe the EU will succeed in creating a sense of a pan European culture.  But in the meantime Germans balk at giving money to Greeks in a way that New Yorkers don't at seeing their money spent on West Virginians.  The book Wars, Guns, and Votes goes into this in some detail and maybe I ought to reread it then write it up.  But in the meantime, this is a fairly big problem for trying to have a union on a European scale.

Also, while I'm all on board with free trade in goods and free movement of people I'm not sure that homogenizing laws across different countries is a good idea.  Lawmaking is not a science and unintended consequences are frequent.  You can take this as an argument against making too many laws but equally it's an argument for trial and error.  More countries with differences in their legal system tend to help us figure out what works and what doesn't - even if we fail to look at other country's experiences too often.

So Britain leaving the EU has large downsides but it has upsides too.  I don't see many people in my social media circles discussing them, though.  But just compare the EU with the TPP and TPIP.  Both are international agreements negotiated between governments to facilitate trade but also impose restrictions on what the member countries can do.

A lot of the motivation for the leave vote was driven by xenophobia and a lot of the motivation for the stay vote was driven by cosmopolitanism.  I am strongly in favor of being cosmopolitan but I don't think people's motivations for doing something have the power to make that thing good or bad all on their own.  So I think that it's pretty clear that from the perspective of five years from now the leave vote will look like a bad idea.  But from the perspective of 50 years I really have no idea.

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