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.
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?