Ralf Goergens

The European Union as a Third-Best Solution

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My posts below, as well as Shannon’s have gotten a lot of comments. I had meant to respond today, but I’d rather digest all those thoughtful comments for one more day. I also promised some posts on the Euro, which I also hope to be able to post tomorrow.

For now just this: I see from some of said comments that people have gotten the wrong idea about me. I actually value individual freedom and free markets as much anyone, but unfortunately we are not living in a perfect world where such things can be taken for granted, as some may have noticed. Like it or not, we need some institutions to at least achieve a reasonable (or even an unreasonable) approximation of same.

So, to rank the possible institutional arrangements in order of desirability:

1) In a perfect world, none at all. There didn’t need to be any EU, or WTO for that matter, for countries would have rational policies, without any obstacles to trade. Individuals and businesses would be unhindered in the free and voluntary exchange of goods and services (even so I would frown rather fiercely on the free and voluntary exchange of, say, money and arms between Germany and China; then again, in a perfect world the Chinese would only want to buy our weapons systems because they like their aesthetically pleasing looks, and wasn’t it Roger Bacon who said that this here *is* the best of all possible worlds, so… – but I digress).

2) Given a non-perfect world (leaving Roger Bacon and sales of weapons to China aside and under the table, respectively), where barriers to trade exist, both in the form of tariffs and the bureaucratic intransigence Jim Bennett was hinting at in his comment to Shannon’s post, some kind of institution is necessary to facilitate free trade in Europe. The institution I have in mind would be very different from the EU existing now, though. In this I am following the lead of James A. Buchanan, one of the Chicagoboyz above (he’s the sixth from the left), who received the Nobel Price in economics for his Public Choice theory. Buchanan and Viktor Vanberg, one of my professors at the University of Freiburg im Breisgau, had co-authored a paper (memory fails me as to title and publication date of the paper, but I think it is ‘Rational Choice and Moral Order’ from 1988), in which they laid out their idea for a European Union that would offer the most individual freedom and the best prospect for growth, given the constraints imposed on both by the world we live in.

In the European Union proposed by the two authors, each member nation would set all its policies concerning taxation, regulation etc, etc, independently from all others. The two guiding principles of the Union would be ‘voice’ and ‘exit’. This means that the citizens of each nation would have a say over all of these policies (voice), and that those who didn’t like the policies in the nation they are living in could relocate themselves as well as their possessions to the member state of their choice, without any bureaucratic hindrances, taxation and levies on their property etc, etc (exit). The only purpose of the European Commision would be to make sure that the two principles are observed by the various national governments.

The advantages this arrangement would offer are obvious: It is altogether democratic, while having the policies of the individual member states compete with each other. Nations would be free to put foolish policies into place, but would suffer the consequences immediately by seeing the most wealthy and industrious citizens leave for more accommodating environments. Over time this competition would weed out the most damaging political ideas. We see some of this in the real world, due to globalization, but it is a much slower process that also allows people to ignore problems for a long time, for they can live of the economic substance and wealth of their nation instead of actual income for decades, thus risking slow but inevitable collapse.

Unfortunately this system proposed by Buchanan and Vanberg is all but impossible, for Continental policies are traditionally extremely dirigiste, and our electorates would never tolerate this much freedom anyway. In fact, right now especially German and French voters would like nothing better than to sit on their behinds, live of the wealth created in the past, and to complain about the unfairness of the world all the way down.

This brings us to

3) the European Union that we have have, as the third-best solution I mentioned in the title of this post. For all of its warts, halitosis, running sores and so on and on, it still is the best that we can do right now. Its policies are horribly dirigiste and socialistic, but not nearly as dirigiste and socialistic as the policies the individual members would have if they were free to formulate them in any way they wanted to.

So, free trade among the members of the EU enforced by Brussels and common laws is the best we can hope for right now. Besides, while the various interest groups, trade unions, farmers’ associations and so on are united in their avarice, authoritarian leanings and general pigheadedness, the interests of the national subgroup of each diverge from that of the other subgroups. For the cake they want to carve slices from now is a Pan-European one, and the only way they can increase their own share is to go after that of their counterparts’ in other countries. Thus they keep each other in check, and the whole affair is as entertaining as a cage fight.

And to address this particular concern, too: There also is no danger of a European super-state. The centrifugal forces (so to speak) are too strong for integration beyond a certain point, and the attempt to proceed further anyway would rip the EU apart.

And for completeness sake there is

4) the EU dissolving, and the individual members again free to pursue the protectionist and even more socialist policies described above. The way least favored by myself.

In a nutshell, I’m no fan of the EU in its current form, but it is the least bad solution I can think of, given the current political climate and real-world constraints.

The other media bias – misinformation and agitation against the European Union by parts of the British press

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Conservative and libertarian Britons are pretty uniformly hostile towards the European Union. While the EU deserves plenty of criticism, our dear British colleagues frequently go over the top, or go after Brussels for abuses of power that actually were perpetrated by the British government.

This obsession with the allegedly diabolical European Union seems mostly due to the almost uniformly hostile coverage of the issue by most of the British press.

The Economist, which opposes the European Constitution (as do I), reports this about said coverage:

That more critical tone [in the press of other European countries – RG], however, will have little in common with the feisty, fantastical coverage of the treaty in the British press.

Of the 30m Britons who read a daily, about a quarter read papers which, though broadly pro-European, print much that criticises the EU. The remaining three-quarters read papers that are unremittingly hostile to France, Germany and “Brussels”. This camp includes broadsheets as well as tabloids: The Times and the Daily Telegraph virtually never print an opinion piece that presents the EU in a favourable light.

A flavour of the Sun’s likely style during the referendum campaign can be gleaned from its already published “Guide to the EU constitution’’: “Our army will have to follow EU orders”; “We will be ordered what to say at the UN: the new EU foreign minister will speak for Britain at the Security Council”; “We will lose control of our borders and have no say in who enters the country.” There is no truth in any of those statements: all armies will remain under national control; the EU foreign minister will not be able to speak for Britain unless every country (including Britain) first signs up to a common policy; and Britain has an opt-out from EU policies on borders.

British journalists get away with such factual inaccuracies because editors and proprietors encourage them, and because they face no sanction. Whatever the rights and wrongs of the constitutional treaty (The Economist has argued that it belongs in the dustbin), no fair-minded person can claim that the British press will cover the referendum in an even-handed way. Eurosceptics can justly argue that in other EU countries the media will lean towards the treaty. But the bias of the continental papers will lack the strident, visceral and mendacious style of the British press.

(Emphasis mine).

This mendacious style applies to all issues concerning the EU. For example, a staple is the ‘flood of rules and regulations’ the EU is allegedly afflicting on the member nations. The British press also likes to single out the most silly examples.

Guess what: All national governments are issuing an astonishing amount of rules and regulations, and if you put a similar spotlight on those you’d get comparable results. The EU also is replacing existing ones in the member states by its own, to facilitate the free flow of goods and services across Europe. This streamlining of the rules and regulations of the 25 members also saves companies and individual citizens from having to navigate an incredible bureaucratic thicket, every time they want to do business across national borders. Yes, the powers of the individual member states is curtailed, but more often than not this is in the interests of the individual citizens of said states.

Like I said above, there is much to criticize in the EU, but an honest critic will at least acknowledge the advantages it brings once in a while.

The European Union is a great success story

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The European Union is the biggest and wealthiest continous trade zone in the world, and ten new members joined last year without a hitch. Other countries are lining up to follow, and are doing everything to shape up and meet the Union’s standards. The EU is thereby spreading rule of law and democracy ever wider eastwards. There is a reason why the United States pushes the EU to take in ever more countries, you know.

Now, why don’t I see anyone in the so-called ‘Anglosphere’ acknowledging this success story, instead of endlessly obsessing about its faults?

One of those voices calling for leaving the Eurozone

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Quite amusing, given the context:

Italy’s labor minister called for a referendum to see if Italians want to temporarily bring back the lira after widespread popular discontent over high prices that many blame on the introduction of the euro.

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A leader of the euroskeptic Northern League party, Maroni appeared to realize his proposal, made in an interview with Rome daily La Repubblica, would be attacked.

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Industry Undersecretary Roberto Cota, also from the Northern League — one of Berlusconi’s main coalition partners — insisted on Sky TV24 news that going back to the lira was technically possible.

When the euro came into circulation, many merchants steeply raised prices on goods and services from fruit and vegetables to plumbing repairs and dining out.

What makes this so amusing is that

a) The Northern League is a coalition of cranks and oddballs whose ultimate goal is the secession of Northern Italy from Southern Italy (how’s that for a meme?)

and

b) Italians and the Italian government are blaming the Euro because Italian merchants used its introduction as an occasion to raise their prices. They’ll use just about anything as an occasion to raise their prices, and it would have been up to Italy to prevent it by proper supervison. It’s too late now anyway, for the merchants wouldn’t take the increase in prices back, even if the Euro would be exchanged for the Lira again. And last but not least: Why is this anybody’s goddamn business except the Italians’, huh?

As it happens, none of the arguments now suddenly brought forth against the Euro are any more convincing than Maroni’s, as I’ll demonstrate in the posts I’m going to put up over the next days.

Some European governments get the vapors, take potshots at the Euro – and miss

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This started out as a comment to Jonathan’s post below, but became too long, so I’m putting it here:

The most important point to remember here is that Europe’s problems are almost exclusively the work of the individual members, and not that of the European Union, which is not a huge disembodied entity, but an organization that can make only such decisions which are approved by all of its members’ governments.

Take the example of Italy: Whenever they ran into problems in the past, they devalued the Lira to make their products more competitive. At the same time imports, especially imports of raw products, and parts the Italian companies need to buy abroad to make their own products, became more expensive. The result was a double-whammy: Increased demand for Italian products and an increase in prices for imports drove up inflation, which in turn led to higher wages and therefore higher inflation. To compensate for these problems, the Italian central bank again devalued the Lira etc, etc, ad nauseam.

This vicious circle led to ever higher inflation, and also ever higher interest rates. Italy gained two benefits by joining the Eurozone: Their inflation was suddenly under control, and they had much lower interest rates. If they had reformed their ruinously expensive social systems, all would have been well, but they didn’t, so that the government now needs a scapegoat. As most governments here do, the EU and the Euro are first choice when it comes to that.

Now to the really sad truth: If Italy hadn’t joined the Euro, it now would be in the same situation Argentina is in – the high inflation and and high interest rates would have dragged it down by now. If they left the Euro, that’s exactly what would happen, only a lot faster – government debt of 106 % of GDP would see to that, if they had to pay the market interest rate rather than the interest rate payable by members of the Eurozone. And if they don’t change their ways, they might even get kicked out.

The problems of France, Germany etc are somewhat different, but these, too, aren`t caused by the EU or the Euro, but rather by the behaviour of the governments in Berlin, Paris etc. It also should be remembered that there are similar, and sometimes even greater, differences in growth and general economic cycle between different regions of the United States, without anybody calling for the abolishment of the Dollar.

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