The purely economic costs and benefits of a British vote next Thursday to exit the EU are quite finely balanced. There are undoubted advantages to membership of a large free trade area, which it will be a pity to lose. While the EU leaders are pushing the union in a direction Britain does not and should not want to go, politically or economically, they could probably mostly be resisted. The short-term costs of Brexit could be considerable, if only in a “menu-changing” sense. Yet for Britain and for the world as a whole a vote for Brexit will constitute a fightback against a global consensus that badly need to be fought, for the sake of all our futures.
A year ago, this column published a piece headlined “Brexit divorce needs a good lawyer, hot new girlfriend.” It never got either. There is no assurance whatever that a British exit from the EU will be negotiated in an atmosphere of goodwill on both sides – indeed part of the Remain campaign’s “Project Fear” has been dire threats from various EU functionaries about how Britain’s departure must be made as unpleasant as possible to deter other countries from trying to follow the same path. Add to this indication that the negotiation will be a tough one the likelihood that Britain’s smoothest negotiator, David Cameron, will rule himself out of the exit negotiation by resigning (or will be ruled out by Brexiters’ distrust) and you can see that the “lawyer” problem is nowhere near being solved.
As for the “hot new girlfriend,” that has manifestly failed to appear – although if Donald Trump wins the Presidency a Trump-led United States, raising barriers against others but trusting a Brexiting Britain, would certainly qualify. Indeed, a United States that had poor relations with the politically correct EU, raised trade barriers against much of Asia, but regarded Britain as an old and valued ally, might be the hottest of all possible new girlfriends, a gigantic market suddenly cut off from many of its other trading partners to which Britain now had preferred access.
However, that possibility is currently no more than a gleam in the eye, with at most a 50-50 chance of appearing. Meanwhile the Brexit campaigners’ have failed to open discussions with plausible resource economies in Latin America or Africa, or with fast-growing Asian economies with a thirst for British exports. Thus there is no glorious prospect to dangle before the voters’ eyes, and a likelihood that the exit negotiations will be tortuous and the exit terms unpleasant. In those circumstances, one could entirely forgive the notoriously timid British electorate for wimping out of Brexit, and clinging to the skirts of the hag-like EU nanny they know.
Economically, the Brexit decision is quite a close one. While a Brexit would be economically advantageous in the long run (because Britain would be able to eliminate excess regulation and reorient its economy towards supplying countries with decent growth) it would unquestionably have substantial costs of renegotiating treaties and re-making economic arrangements, just as the entry into the EU did in the 1970s. While it is very clear that entry into the EU was a major economic error on the part of some especially feeble British prime ministers, the balance of economic factors for exit is much closer.
Politically and strategically, however, the arguments for Brexit are much stronger. Britain had a moderate amount of influence in EU councils in the years leading up to the Single European Act, which established a continent-wide market coming into effect in 1992. However ever since the Presidency of Jacques Delors (1985-95) and the 1992 Maastricht Treaty, Britain has been the odd man out, occasionally joined by one or other of the tiny East European states but otherwise dragged unwillingly down a road that the vast majority of Britons do not want to travel.
There is a minority of opinion formers in London that wishes to welcome their new insect overlords in Brussels, but that minority is both tiny and unrepresentative. It does however wield a considerable amount of influence and is not open to argument, whether from British democratic traditions or otherwise. Thus the extraordinary editorial in Reuters Breakingviews, generally reflective of “enlightened” London opinion, which advocated cancelling the Brexit referendum at the last minute. Throwing away 800 years of British political freedoms is just one of the sacrifices the pro-EU fanatics are prepared to make in the interests of their perverted ideology.
For the great majority of Britons, free trade with the EU is attractive, though there are doubts about the “free movement of labor” in EU treaties, especially as continental countries seem incapable of or unwilling to control their borders. But the feeling that the EU project has a huge hidden agenda, that is to be imposed on the British people without their democratic consent, has propelled the Brexit campaign to a level far in excess of that justified by simple economic considerations.
If the Brexit decision were a purely economic one, based only on the marginal advantages or disadvantages of membership of a trade area that was not especially suited to British needs, then Thursday’s vote would not be especially significant, except for the British themselves, and even then, the losers could console themselves that life would go on very much as before whichever way the vote went. But the hidden agenda of the EU’s leaders and the contempt for democracy evident in the more extreme of its supporters, indicate that the Brexit vote has a meaning far beyond the relatively limited confined of the European Union.
Over the past 20 years, an economic consensus has arisen among the world’s policymakers, that appears impervious either to argument or to democratic rejection. It involves extreme monetary policies, forcing interest rates far below their natural levels, to negative real rates and now even now negative nominal rates. It also involves running massive budget deficits, apparently without end – who could have imagined even a decade ago that a Republican Congress, in a period when the economy was running close to full employment, would do nothing whatever to bring down a budget deficit that runs year after year at around $500 billion, with every prospect of rising above $1 trillion in the next decade, without any recession intervening. It involves unlimited immigration, of both skilled and unskilled, so that domestic wage rates even in rich countries are forced down to global subsistence levels. Finally, it involves massive environmental and other over-regulation in the interests of crony capitalists who enjoy political favor, so that the playing field is no longer level but is tilted sharply towards those with political connections — crony capitalism at its most insidious level.
The result has been the slowest sustained period of rich country growth since the 1930s, with only the politically connected and those with access to massive amounts of cheap leverage doing well. The consensus policy is imposed by all major “respectable” parties, so that the electorate has no chance of getting it reversed, even if it had the economic understanding to want to do so.
The globalist consensus project is meeting increasing voter resistance, partly because of its manifest failure (which the consensus-globalist media does everything to conceal from voters.) The best chance to oust it was in this year’s Republican primaries (or, by all means in the Democratic primaries – Bernie Sanders represented an alternative to it, albeit an even worse one.) The Republican primary electorate rejected the globalist-consensus policy, as represented by every Republican candidate back to the first George Bush, but unfortunately replaced the consensus with Donald Trump, a man who having made his fortune in real estate, is uniquely blinkered against the need to replace funny-money Fed policies.
There will thus be no further chance to replace globalist-consensus policies until 2021 in the United States. In Britain, the globalist-consensus David Cameron is apparently in place until 2020. In Japan, nobody is advocating better policies than Shinzo Abe’s, merely worse ones. As for the EU, that polity is so undemocratic that even victory after victory for anti-consensus nationalists in individual countries merely causes it to dig in harder and demonize the assault.
The Brexit vote offers the one chance we have in 2016 to prize off the dead hand of global consensus that is holding the world economy by the throat. Should Britain vote to leave the EU, it will be a massive blow to consensus supporters both in Britain and the EU. It will also encourage separatist and nationalist movements elsewhere in Europe. If David Cameron feels the need to resign from Number 10 on a Brexit vote, Britain may have a chance to get rid of the expensive and useless Bank of England Governor Mark Carney, who has held down the British economy by persisting in ultra-low interest rate policies, thereby killing British productivity growth. A Brexit vote would also encourage the supporters of Donald Trump in the United States, who will get rid of many of the globalist consensus policies even if he is unsound on the central question of interest rates.
Economic trends, in particular a rise in inflation, may dislodge the global consensus before 2020, even if the British electorate fails to take the chance offered to it. However, if the British vote for Brexit, it will represent one fairly modest step for Britain in regaining its freedom, but has the potential to represent one great leap for mankind as a whole.
(The Bear’s Lair is a weekly column that is intended to appear each Monday, an appropriately gloomy day of the week. Its rationale is that the proportion of “sell” recommendations put out by Wall Street houses remains far below that of “buy” recommendations. Accordingly, investors have an excess of positive information and very little negative information. The column thus takes the ursine view of life and the market, in the hope that it may be usefully different from what investors see elsewhere.)