Britain and the EU

Though Ireland and the UK joined at the same time, the UK always remained semi-detached from the EU. Brussels affairs received barely a mention in the Blair-era diaries of British government ministers and advisors. That this was not even noticed by British reviewers is telling. London regarded itself as more significant on the world stage than Brussels. And, strange as this might sound to Irish ears, until German reunification it had perhaps good reason to do so.

The “supra-national” nature of the EU was designed by France to limit German post-war independence. As Ernest Bevin, Britain’s post-war Labour Foreign Secretary, commented: “when you open that Pandora’s box you’ll find it full of Trojan horses”. Britain felt neither the need nor the desire to have its independence limited in this way. For centuries it had stood secure in its island fortress, holding the balance of power between competing continental states. In the immediate post-war period it looked as much to the US and the Commonwealth as to Europe. The US was of much greater military importance. And as the world’s first industrial nation Britain had long pursued a ‘cheap food’ policy: the agricultural protectionism of the Common Market held little appeal.

Britain’s interest in Europe is as a free trade area. It viewed the creation of the single currency as a federalist step “far too far”, a position with which very many economists agreed.

Post-referendum Britain is not the only polity in existential crisis. The EU itself is clearly in the same position. The eurozone crisis side-lined the European Commission as member states looked to their own interests first. As a leading academic wrote recently, “supranational agents’ ability to take autonomous decisions can only be sustained in matters where the extent of disagreement among national governments over policy outcomes is relatively low”. The European elite thinks that the only way forward is through further integration: “more Europe”. But there is almost zero support across the European electorate for this.

The reaction to the referendum outcome has thrown a sharp light on clashing cultures. British political culture has always been suspicious of grandiose schemes and popular culture has always been irritated by layers upon layers of bureaucracy. (Ireland bears some responsibility for the latter, in that “a Commissioner from every member state” was given to us as a concession after one of our ‘no’ votes. Every commissioner views as their legacy the amount of legislation that they leave behind on the statute books.) The other side of the culture clash is reflected in the furious reaction of the European elite to the British vote, and the apparent desire to get the British out the door as quickly as possible. Twice the Irish voted no, and twice we were asked to vote again. Why did Europe react so differently to us, when there was so much less at stake?

The British vote is also clearly an inchoate reaction to globalisation, or perhaps more accurately to its “collateral damage”. In this it seems as one with the political support for the Trump campaign in the US.

Surely European leaders would be better advised to take a long hard look at how such widespread concerns might be addressed rather than rush to accept a British withdrawal? The latter may well lead to the break-up not just of the UK but to the withdrawal of other EU member states over time. It will entail years of negotiation on future relationships – at the bare minimum between the UK and Europe, and between the UK and Ireland. More worrying perhaps – given the class, age and geographic fault lines reflected in the referendum vote – is the legacy of bitterness and, quite possibly, civil strife that it will bequeath to Britain.

There is no need to rush Britain to withdraw, other than as a threat to other potential waverers. But this is hardly what the European project was supposed to be about. A year or two of uncertainty, particularly given the fragility of the global economy, is clearly undesirable. But the next general election in Britain is likely to offer the electorate an opportunity to visit the issue anew. Europe can use the hiatus to consider how the concerns of so many of its electorates can be addressed. A substantial electorate has spoken. Is Europe prepared to listen?

This really is a slow train wreck

I see that everyone is now arguing that globalisation has distributional consequences, and that losers may eventually decide they have had enough. Which is something that I and others have been writing about since at least the 1990s.

I don’t expect anyone to take much notice of a bunch of academics, but how can we be surprised at the Brexit vote when we have had practical, political experience of the class divides surrounding European integration (viewed and experienced as a regional manifestation of globalisation) since at least 2005, when the French rejected the so-called Constitutional Treaty? And here is my very first ever Vox.Eu column, on the Irish Lisbon 1 vote.

And so my question is: when this has been so obvious for so long, how come nobody has done anything about it? Where are the enhanced safety nets, or the more elastic provision of public housing and other services that would surely have made a difference in the English debate? It really is quite extraordinary.

The History of Economic Thought Website

With the support of the Institute for New Economic Thinking (INET), the History of Economic Thought Website has been re-launched.

It is an excellent resource and provides an Alphabetical Index of Economists, Schools of Thought and a collection of Essays and Surveys.

The Essays and Surveys section includes an “Edgeworthian Exchange” link dedicated to Edgeworth’s Tales and The Edgeworthian Revival. Aside from the obvious Irish connections, this link is a fascinating read and might be of particular interest to some.

The Davos Lie

Larry Summers coined the phrase “The Davos Lie” back in 2007; my latest column in Critical Quarterly covers some of what I’ve written on the subject over the years. Here is another recent piece on the subject.

Update: a glitch having been sorted out, the CQ column is now freely available.

Macrofinancial History and the New Business Cycle Facts

Jordà, Schularick and Taylor have produced a must-read paper, summarising the results of a decade-long research effort to create a long-run macro-financial data set for 17 countries. The paper is here (.pdf) and they provide some new stylized facts they document should “prove fertile ground for the development of a newer generation of macroeconomic models with a prominent role for financial factors”.Screen Shot 2016-04-17 at 21.57.06

In particular, they document a ‘hockey-stick’ effect of private sector creditto GDP for a range of economies, and one of the hockey sticks can be seen in the figure below. After about 1950, for most of the elements the authors study, finance and leverage takes a more and more central role in the development of modern economies.