Thursday, 21 March 2019

When The Fantasy Brexit Is Better Than The Real Brexit Options

To me, the Brexit negotiations are a bit like a group of vegetarians and a group of vegans arguing about how to make the best beef burger - they don't really believe in the cause for which they are fighting.

Let's play a pretend game: if we were to take out all the politics, the corruption, the self-serving manoeuvres of bureaucrats, and the perverse incentives to stop other countries also leaving the EU, and pretend that the outcome of Brexit could be solely based on sound economics for the benefit of as many people in the world as possible, then Britain would be better to have a bespoke arrangement to stay in the EU single market (because it’s best to preserve the free movement within the EU of goods, services, labour and capital), and leave the EU customs union while at the same time enjoying a bespoke deal that confers all the trade advantages of being in it, and at the same time all the advantages of not being entirely under its regulatory thrall with regard to the rest of the world.

And once you understand why that is true in this pretend game, you see that it points to a bigger argument in the real world about trade: wherever they are in the world, all countries should trade without tariffs, and as freely as possible without the deadweight losses incurred from excessive political interference.

The EU customs union is a trade bloc agreement to abolish tariffs and quotas between EU member nations, in order to encourage free movement of goods, services, labour and capital, while adopting a common external tarif on non-EU countries. The customs union is based on the problem of having a tariff free trade bloc and a different attitude to those outside it. If Britain had zero tariffs on Japanese cars, but Germany had a 10% tariff, then Japanese cars are better going to Germany via the UK, which adds layers of additional complexity to trade relationships, as does every other likewise situation.

If all tariffs are removed across the world, then there would be a huge gain for every domestic nation - free trade would eliminate billions of pounds of deadweight costs in global trade negotiations, all of which is picked up by taxpayers in countries across the world.

One of the reasons politicians have become so powerful in the global economy is because the project began with conditions under which many countries had different rules on quality control, product safety and environmental standards - meaning there was no common, all-encapsulating set of rules that could govern trade across the world.

If everyone understood that a) global free trade is the most desired economic goal, and b) that that would happen most optimally with a multilateral, fairly common set of standards for quality control, product safety and environmental standards, then every country would have done their best to achieve this much sooner than now. It would have started domestically, whereby effective regulations ensure that businesses meet the standards required for consumers, and would then be applied across the global marketplace, under the assurance that if a business operates within its own domestic laws and regulations, it operates within a globalised system of commerce too.

But alas, in the real world, thanks to the plethora of unnecessary political interferences, this doesn't happen particularly well at all. Coming up against this more economically-friendly model is the reality that countries are governed by self-serving politicians, eager to protect their careers, fatten their wallets, increase their power, and preserve their status at the expense of the people from whom they confiscate earnings.

A global trade environment that worked best for everyone would no longer work best for the bureaucrats that have their ever-wealthier fingers in the pie - it would mean less tax for the state, reduced control over competition, and less special-protection for their domestic businesses. Even though the citizens of their country would be immeasurably better off, the political establishment would not - they would no longer reap the rewards of their crony capitalist agreements with domestic firms who can’t compete with more efficient foreign competition, or personally benefit from the self-serving legislative measures designed to keep money flowing into their country, and from the spoils creamed off from customs taxes that pay for their lifestyle.

One of the near-insuperable laws of economics is that when people who are not creating any wealth are getting paid to impede the progress of those who are, there is something that badly needs addressing.

EDIT TO ADD: I mean, basically, the Establishment never thought for a moment that Remain wouldn't win - they thought that Leavers were just 5 or 6 million older people scattered around coastal towns, nostalgic for the days of 1960s Britain. When they heard the result, they pretty much said something like:

"Crikey, we are in big trouble now, and we can't let this Brexit scenario happen! Here's the plan to thwart it- during the lengthy 2-3 year negotiations, we'll construct countless subsidiary arguments about hard and soft Brexit, different types of hard and soft Brexit within those subsets, etc, and turn everything into a squabbling morass of indecision and ambiguity, until the majority of the population is a tiny bit satisfied with some of it, but mostly unsatisfied with the rest of it. And then we'll make out that it's such a mess that the only way to resolve it is to take it back to the people, by which time, a lot of those old xenophobes in Great Yarmouth and Lincoln will have died, and a lot more young neo-Marxist children will have come to voting age, so we'll be able to stay in the EU by then, and when we get excoriated by the centre-right, we'll be able to refer to the 'will of the British people' in both referendum 1 and referendum 2."

Whether they pull it off remains to be seen - but that was the Establishment's plan - and it was set in place from pretty much the day after the 23rd June 2016.