Sunday, July 19, 2015

More European Integration: The Exact Opposite of a Solution

From HERE:

While debtors, creditors, and economists focused on the Greek debt crisis, a report by European Commission President Jean-Claude Juncker with the heads of four other EU institutions went almost entirely unnoticed. Juncker proposes a predictably awful strategy for solving economic problems, greater centralization of power over the currency union’s economies. It recommended “quick fix” steps that could be introduced in the next two years, such as setting up a common bank deposit insurance system and promoting competitiveness, as well as longer term ideas, such as a common eurozone treasury.

You can see how one might reach such a conclusion. If one entity is going to control the money supply, an economic manipulation tactic often used by governments to smooth over economic problems, then one can see the reason in having that entity exercising greater economic controls over the economic policies that lead to such problems. It doesn’t make a great deal of sense for example, to have Greece spend without regard for consequences, while French and German taxpayers end up on the hook for their irresponsibility.
More European Integration: The Exact Opposite of a Solution
More European Integration: The Exact Opposite of a Solution

The flaw in this line of thinking however is that it begins with the assumption that the centralization which has already occurred is a good thing. It ignores the fact that said centralization is the only reason French and German taxpayers are on the hook for Greek debt to begin with. If other European countries are unhappy with their being bound to a nation irresponsible enough to address a debt crisis by electing communists, then ceding more control over their economies to a central authority hardly seems like a sound solution.

The proposal is entirely predictable however. “Never let a good crisis go to waste” as they say in Washington. Governments have this terrible habit of rewarding failure. “Oh, you completely failed to accomplish the purpose for which your bureaucracy was created? You must need more money and power”.

Forget the fact that Greek GDP growth was cut roughly in half since entering the Euro. That little piece of evidence would dissuade people from favoring greater centralization. Definitely pay no attention to the fact that the same can be said for Italy, Spain, and Portugal, that would not favor Juncker’s proposal. By the EU’s reasoning, an institution which fails to centrally plan the economies of a single political unit, will somehow be able to centrally plan the economies for an entire continent and beyond.

The search continues for a one-handed economist. Some know-it-all guru who can figure out how a policy change from a single city will impact the economic behaviors of hundreds of millions of people with diverse interests over millions of miles of territory. The problem with such a strategy should seem obvious. There are just too many variables for any man or group of men to even attempt to contemplate.

We all have to make economic decisions every day. Everything from investment strategies to what we eat for dinner. Contemplating the variables for all of these things in each of our own individual lives is very complex, to the point that many of us will hire experts to handle them, and even then there are failures. How one comes to the conclusion that multiplying that complexity by hundreds of millions of times over will somehow simplify the equation, or lead to greater prosperity, simply escapes reason.

In the United States, we often see the deleterious effects of such flawed thinking. It is bad enough when your local government creates some economic policy that might negatively impact your business or favor some competitor. Luckily, you have the option to leave that place. This becomes more difficult when that policy is implemented at the state level, and damn near impossible when it is tackled by the federal government. Let the federal government go and enter into economic treaties with foreign nations, and the problem becomes even more difficult to escape.

This trend toward centralization is fueled at best by ignorance, and at worst by malice. Far from creating greater prosperity, centralization only makes bad policy more difficult to escape. One of two things is true. Either that is the goal of such policies, or the people who claim to be uniquely qualified to dictate the economic behaviors of hundreds of millions of people over millions of miles of territory, are so incompetent that they can’t even see the obviousness of that fact.

Tom Woods gave a great talk about secession earlier this year in Houston. The talk was not specific to economics, but the overall results of large centralized States, versus that of smaller autonomous ones. Unsurprisingly, large centralized states have a terrible habit of bringing immeasurable misery, poverty, and death, while smaller autonomous ones tend to thrive.

The further removed from the individual responsibility becomes, the greater the tragedy that follows. If smaller autonomous nations fare better than large centralized States, how much better off would we all be, if States went away altogether, and individuals were free to make their own choices?

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