Brexit Buffet

Published by Matthew Davidson on Tue, 05/07/2016 - 4:14pm in

I don't get politics. I understand particular political issues, but I never understand the state of popular opinion about them. Politics, in that sense, is that thing I'm perpetually out of step with. So I should have known that the UK leaving the European Union, appearing to me such a self-evidently bad idea, was inevitable. I am further surprised to find that on the wisdom of "Brexit" some really super-smart people disagree with me. This almost never happens; coincidence of opinion is my infallible yardstick for intelligence, after all.

I understand the main criticisms of the EU, and they bear repeating:

  • The Maastricht fiscal rules (national debt must stay below 60% of GDP and annual deficits below 3% of GDP) guarantee that any country under that regime which happens not to have a large export-driven economy (like for instance Germany) will be unable to use fiscal deficits to offset current account deficits and maintain spending power in the private sector (see Godley's sectoral balances for how that works), and will be driven into a debt deflation spiral that shrinks their economy. That is, the more the Eurozone periphery nations try to stick to the rules and end up liquidating productive capacity in the attempt to reduce debt/deficits, the less able they become to stick to the rules, and the worse they suffer. When Portugal, Ireland, Italy, Spain, and Greece joined the EU, they also joined the third world. Any other outcome was a logical impossibility.
  • The Euro is the most disastrous faux-gold-standard since the last one. If you ever need an argument against independent central banks, just point to the way the ECB, the most independent central bank in history - 100% free of democratic accountability, has turned Europe into a game of beggar-thy-neighbour mercantilism. Unnecessary suffering on a grand scale, for no reason other than the ridiculous pursuit of larger numbers on the ECB's computer. Not even any useless lumps of soft yellow metal to show for it! Under the Euro, a country's economic prospects end up not being a function of their real productive capacity, but a result of a surfeit of or lack of those magic numbers.

So I understand why Bill Mitchell would welcome the Leave vote as the return of the class struggle, and why Steve Keen and Mark Blythe also see leaving as the most sensible course of action for any country able to do so. I have two reasons to disagree:

1. The quickest and easiest solution for any individual EU member state able to leave is not the best long-term solution for Europe.

Thanks to the City of London, the UK has the economic heft to wear any negative consequences of Brexit (although this is rather like sailing into a storm and thinking "It's a good thing we have that huge, unexploded bomb to use as ballast!"). Countries currently under the thumb of the "troika" of the ECB, the IMF, and the Eurogroup do not have a realistic, or at least tolerably painless, exit option, and it is in nobody's interest that they should continue to suffer. It may be satisfying to say "Congratularions Dr. Schauble, your prize is the 1930s," but it would have been better to deploy the UK's weight towards building a democratised EU, rather than a disintegrating Europe.

2. There is no reason to believe the scope for meaningful democracy in the UK will be improved by Brexit.

I will be dancing in the street when Jeremy Corbyn's Labour wins the 2020 (or earlier, maybe) general election. But it will be more for what it says about the UK's political aspirations than in anticipation of of what Labour will be able to achieve. John McDonnell has already undertaken to follow monetarist "balanced budget", "sound finance" policies, rather than the "functional finance" which is necessary to defuse the City of London financial bomb and rebuild the real economy. Regardless of which party is in power, for the forseeable future the UK has merely shed the straightjacket of Maastricht for the straitjacket of the Charter for Budget Responsibility. In the process the far right has come to feel vindicated and emboldened.

I would love to be wrong about this, but I fear I am merely in the minority, as usual.