The night after the vote for an independent United Kingdom from the European Union had concluded I found myself at dinner with my wife trying to explain why the world portrayed by many financial analysts and news outlets was so filled with doom and gloom.
“Why does the UK leaving the EU necessitate a global or UK financial meltdown?” she asked. And then it hit me, this was the question the world’s largest financial publications were failing to ask, or at the very least to answer honestly.
The answer to this question can be as complex as you would like to make it, but the clear and simple answer is this: the UK leaving the EU fundamentally necessitates neither of these things. To justify this simple answer we need only consider what affords a national economy its productivity. The intellect of the talented people of the UK that create value, the infrastructure, the primary institutions, and the capital goods that allow individuals to turn their time into valuable outputs have not changed. It is not as if London’s financial district or the many manufacturing industries around the UK were decimated by a meteor and must be rebuilt from the ground up. Physically and intellectually the UK is the same today as it was the day before the vote to secede.
So, what then is causing all of the commotion? Once again, the answer can be as complicated as we would like to make it, but without foolishly trying to perform an accounting measure by forecasting what the cost and benefit of each change in tax and trade policy might be, we need only admit that the real cause of the hysteria is purely political in nature. The uncertainty that has put the fear of god into some economists and financial analysts is only a matter of petty political gamesmanship. As Mises so astutely observed, “Economic progress is the work of the savers, who accumulate capital, and of the entrepreneurs, who turn capital to new uses. The other members of society, of course, enjoy the advantages of progress, but they not only do not contribute anything to it; they even place obstacles in its way.” The EU, with thousands of laws seeking to govern each detail of economic activity, such as the power efficiency of toasters and tea kettles, is nothing more than an obstacle for entrepreneurs and their employees across Europe.
By threatening greater taxes and tariffs as a result of a vote for a more sovereign, less centralized and bureaucratic system of governance, the EU is demonstrating the very sort of tyrannical attitude toward trade arrangements that the Brexit advocates sought to escape. Economists have been fixated on the costs of the loss of trade the UK will suffer, ignoring the benefits and the fact that a trade deal is simply a handshake and a signature on a piece of official government paper. There is nothing that prohibits mutually beneficial voluntary trade between two people or two nations other than an oppressive government body. The many trade complications that have been presented over the past month are much less economic conundrums and much more scare tactics that sound as if they came from Lord Vader giving an ultimatum to join the Galactic Empire. They can be summarized by something like, “You can choose to be independent but you will feel our wrath.”
It is this fear that drives uncertainty about the future and the uncertainty that drives turbulence in markets. To reiterate, this turbulence is entirely unnecessary, as trade deals can and would be struck between two mutually benefiting nations barring some greater despotic governmental force like the EU holding at ransom some other portion of their economy. Logically and economically speaking, if both Germany and the UK benefited from trading with one another last week, why wouldn’t they continue to trade with one another today? The only reason that this arrangement would not take place is if the cartel called the EU, of which Germany is a member, prohibited them from doing so. It is clear in this example that it is not the UK’s independence that is the problem but instead the power that the EU has over policies to which its member states are subject.
If there is one thing that the EU should hope for it is complete economic catastrophe as a result of this vote; that their threats and fear mongering leads to action resulting in a self-fulfilling prophecy. Otherwise, if the UK proves that you can leave the union, maintain friendly trade relations and continue to be a dominant global economy, it would signal the beginning of the end of the EU. If other nations see proof that you can escape the Brussels bureaucracy with only minor short-term complications it will surely lead to an exodus from the destined-to-fail union.