I wanted to let the dust settle a little before I commented or thought really hard about Brexit. Volatile events like that have after shocks as well, and we haven’t seen those yet. As you are reading stories and opinions about it, check your confirmation bias if you can.
Here are some facts pre-Brexit.
- The EU has been failing. The PIGS have their stresses, and the reality is so does France, Belgium and all the rest of them. Unemployment rates among young people are sky high. Germany holds the EU up.
- More jobs were created in Great Britain in the last ten years than the entire rest of the EU.
- Bureaucrats in Brussels were writing regulations that Great Britain didn’t want to adhere to.
- Bureaucrats in Brussels were setting trade policy that was hurting Great Britain.
- Risks around immigration were high.
However, being in an economic union with Europe has been very good for Great Britain. It’s streamlined a lot of red tape. Getting rid of regulation makes the delivery of goods and services cheaper. But, see above. Unelected bureaucrats were writing scads of unnecessary regulation. They are rolling out new regulations on toasters and hair dryers. Some of the dialogue I read on the EU sounded like it was ripped from the pages of Atlas Shrugged or some futuristic science fiction novel.
People that are wealthy or highly educated are generally aghast at the vote. The thing to remember is those kinds of people can rise above the regulations. They can step through loopholes in them and find work arounds. Or, they might just be wealthy enough that it just doesn’t matter.
It’s the upper middle class on down that feels the brunt of an unelected fifth estate. That’s who voted overwhelmingly to exit.
What lessons should American’s take from this?
It’s not time to retreat into a hole. Globalization will continue to happen no matter what we do. Technology is moving at a rapid pace. There is going to be some big stress put on a lot of systems. Those with the ingenuity, tools, and foresight will be able to create some very cool blow out companies.
Stock portfolio’s are going to get very choppy. The truth is no one knows where the market will go. I think it’s a buying opportunity long term and don’t see a massive crash. It’s 2 years before they can unwind the deal. That’s a lot of time. The fall out will manifest itself in finance faster than any other segment of business.
At the same time, Immigration is a huge issue. I don’t think there is any American that is against immigration. But, it has to be done with strong borders. Letting anyone in regardless of their situation is not good policy today for two reasons. Terrorism, and the cost to administer the American social net.
Not all immigrants, or even Muslim immigrants, are terrorists. Most are not. But, you have to try and figure out statistically who has a better probability of being one and try to screen them. Terrorism is not going away anytime soon. We are fighting a very different kind of war, and we ought to realize it (and verbalize it).
Over and over again, I have maintained that America needs better immigration policy. I don’t agree with the Democratic Party’s version, but I don’t like the idea of building walls either. From anecdotal experiences I listen to, America’s policy is highly bureaucratic and expensive. A form of Gary Becker’s policy would be the best policy.
Free trade is good for people. Things like NAFTA are a net gain for everyone because it makes goods and services cheaper. The world needs more free trade, not less. Duties and tariffs are used as protectionist devices to prop up a favored class. Go look at the US sugar industry. When a country doesn’t freely trade, it actually kills jobs. That’s counterintuitive but it’s true.
Price supports and subsidies also cause dead weight loss in the economy. Every industry in America is infested with them. Get rid of them. Elon Musk’s recent merger is a textbook example of why we need to get rid of them. Tesla is really cool and Elon is a forward thinker but his companies probably don’t survive without subsidies and current accounting rules.
Getting rid of the fifth estate has to be a priority for the next President. America has created a huge meddlesome bureaucracy not dissimilar from the one in Brussels. The way we govern America is not sustainable in the long run. Every politician I know says they will cut the budget and cut spending, but none of them really do in true economic terms. They use creative accounting.
I repeat, it’s not time to retreat into a hole and become isolationist in foreign policy. Europe is extremely unstable right now. It never ends well for the US when Europe is unstable. Political extremism is on the rise from both the right and the left in Europe. A massive influx of immigrants has also created fear with citizens. If we learn one lesson from WW2 it’s not to ignore Europe.
Now is not the time to punish England for separating. Now is the time to reach out and make sure any policy we have with them that’s obstructionist goes away quickly. A strong England is good for the US.
When the EU falls, and it will, it’s going to affect every economy. I think Britain dodged a bullet. Yes, Scotland may leave for the EU but I don’t think that ends well. Scotland is probably a drain on the kingdom anyway. Ireland might just because of history. But, hopefully they will think better of it.
On the whole, I think that Brexit will wind up being good in the long run. In the short run, it’s going to be messy. But, I think it will hasten the decline of the EU which is a bureaucratic nightmare. I just hope the mess doesn’t lead to a hot war. That’s what we have to be extremely proactive against.