Brexit, Texit, and Exits

It was a rather historic moment for Great Britain last Thursday, with the vote of the people favoring leaving the European Union about 52-48.

One of dozens of photos I took of Big Ben
during my trip to London in May

It’s interesting, because they are our longtime friends; we share language and a fair amount of culture. And I think we can learn from what they’re going through.

The European Union was originally called the European Economic Community. It was meant to unite separate sovereign nations economically, for purposes of money and trade. And it was meant to make it easier for Europeans to travel from state (nation) to state.

In the US, that sounds familiar. We were sovereign states (nations) that united to increase our economic power as well. And also to increase our strength against invasion and takeover. So our union was actually intended to have the central government do more than the European Union was intended to do. But we had our Constitution to strictly limit the federal powers, which is probably why the experiment has extended beyond two centuries, rather than just four decades.

When the European countries signed on to this agreement, it was not supposed to give a central government power over day-to-day decisions of people in these sovereign nations. It wasn’t supposed to set rules on their immigration, or limit them in trade—or take wealth from the successful countries to bail out the profligate ones.

Maybe it’s too much central planning when your economic union decides what your imported bananas must look like, or how much power your vacuum is allowed to have, or how to label your jams, or that you can no longer use incandescent lightbulbs, or that bottled water is not allowed to claim that it helps avoid dehydration. Maybe those kinds of decisions are NONE OF THEIR BUSINESS.

Some of those might seem like trivial annoyances compared to the bailout requirements that drain resources, and the forced immigration-without-assimilation that has been going on.

And, of course, the argument against leaving has been the expected, “Only bigots and xenophobes are in favor of Brexit.” So now, 52% of the UK—one of the most cosmopolitan places on earth, where immigrants have long been welcome and fit into the culture fairly seamlessly until the recent mostly Muslim influxes—can’t possibly have a reason than hatred and fear of foreigners? That seems unlikely.

I don’t know what the economic fallout will be. Since Great Britain kept its own money—the euro was accepted, but the pound remained the usual currency—that will require less transition than some other countries might face. Still, it may take some time, especially in a world economy struggling with debt and recession.

But here’s what we know, based on the Spherical Model: when the government is as local as possible, that always works better than government from a higher level than necessary. Because the European Union was leftist, socialist, and generally anti-freedom, the British people at least have a better chance for freedom without that layer of tyranny hanging over them.

And because the EU was economically controlling, the British people have a better chance at prosperity without the EU’s interference and misuse of earned wealth. There may be some rocky times while things readjust, but the closer you get to earners deciding how their own money is spent, the more prosperity you get.

Various people have been commenting on the outcome. Nile Gardiner at the Daily Signal said,

Britain will no longer be subject to European legislation, with Britain’s Parliament retaking control. British judges will no longer be overruled by the European Court of Justice, and British businesses will be liberated from mountains of EU regulations, which have undermined economic liberty.

Bottom of Form

Indeed, Brexit will result in a bonfire of red tape, freeing the city of London and enterprises across the nation from European Union diktat. And at last, Britain is free again to negotiate its own free trade deals, a huge boost to the world’s fifth largest economy.

All of those things look appealing.

Texas Lieutenant Governor Dan Patrick has been thinking about it as well. He said on Facebook,

What were the issues in the election? The people of the U.K. feel they are losing their country. They are being swamped by illegal and legal immigrants and refugees. Wages are flat, immigrants are not assimilating to their new nation, taxes are high and the cost of living has increased. Seniors can't earn a reasonable rate on their savings, and they see a world where terrorism is the new normal. On top of that, they were buried in regulations, put in place not by their elected representatives, but E.U. officials who are elected by no one and accountable to no one. The people are angry and afraid for themselves and their children and grandchildren.

Those were the issues. And it’s not much of a stretch to say we face similar issues here. Patrick added,

As victory was announced in the U.K., media and opponents pronounced the leaders of the Brexit charge divisive, hateful, and dangerous. Sound familiar? Democrats here in the U.S. and their allies in the media, and sadly some establishment Republicans, frequently call those of us who simply want secure borders, lower taxes, increased wages through economic growth, a military that is given the freedom to crush terrorists and protection of our traditional values, liberties and the Constitution, divisive, mean spirited and dangerous.

In our last post, we talked about that as the secular progressive religion—and it isn’t a religion of invitation or peace, but one of coercion and hate.

We can continue to show them the good outcomes of living the rules of freedom, prosperity, and civilization. And they will ignore evidence and obvious facts, and then demagogue.

But the Brexit example may be starting something. There comes a time when it is appropriate to stop submitting to the tyranny and take back the rights God has given us.

On Friday, while I was talking over the Brexit vote with son Political Sphere, we both almost simultaneously came up with the idea of Texit—for a Texas exit. Not that we want a split to happen; we want our US Constitution to be the law of the land—and have government abide by it. But the name is a natural. And apparently it’s so natural, I learned later that day it was a top trending hashtag on Twitter—so plenty of others thought of it as well.

There are already murmurs of possible other exits from the EU. For those of us that remember the dissolution of the USSR, we’re not so surprised at that kind of thing.

We’re a week away from the celebration of the US Declaration of Independence. Some of the words feel so current:

WHEN in the Course of human Events, it becomes necessary for one People to dissolve the Political Bands which have connected them with another, and to assume among the Powers of the Earth, the separate and equal Station to which the Laws of Nature and of Nature’s God entitle them, a decent Respect to the Opinions of Mankind requires that they should declare the causes which impel them to the Separation.

That’s a beautiful way of saying, sometimes there needs to be a dis-union, and since that is such a weighty thing, honor requires giving a full explanation. The Declaration of Independence goes on to enumerate many of the despotic usurpations, “all having in direct Object the Establishment of an absolute Tyranny over these States,” which had been committed by the king.

We, the people of the United States, have been infinitely better off than we would have been under tyranny.

And we became strong and loyal friends to the British people—which we could not have been if kept in submission for any longer, let alone an additional couple of centuries.

But when the US government becomes the tyranny we fought independence from, how long can that continue?

Just this morning we got another ruling from the Supreme Court, overruling a just, duly legislated law in Texas: Justice Kennedy leaned to the pro-abortion side (the coercive religion side) and refused to allow Texas to require abortion clinics to meet the health standards of other similar medical facilities. No woman would have been prevented from getting an abortion through the law, but women seeking abortions will now have no health protections against clinics with grisly, unsafe Gosnell-type practices. No abortion clinic was forced to close, but they were simply required to meet the same standard other types of clinics meet.

But unelected members of the Supreme Court threw out the Fifth Circuit ruling, and came up with their own law, not based on the Constitution, but based on their preference for abortions to continue unhindered in as many places as possible. The ruling is so broad as to make it difficult for any state to have any law related to women’s health and safety concerning abortion clinics.

Is this a line too far? Combine it with forcing the state to accept unvetted Muslim refugees in large numbers. Combine it with forcing states to adopt policies for bathrooms, locker rooms, and dressing rooms that give advantage to sexual predators while taking away the right to bodily safety for women and children. Combine it with high taxes, high debt, Obamacare, Common Core, failure of care for veterans—the list of grievances begins to look as substantial as the founders’ list in the Declaration of Independence. And it looks every bit as substantial as the reasons Britain voted to exit the EU.

The Declaration also points out,

In every stage of these Oppressions we have Petitioned for Redress in the most humble Terms. Our repeated Petitions have been answered only by repeated Injury….We have warned them from Time to Time of Attempts by their Legislature to extend an unwarrantable Jurisdiction over us. We have reminded them of the Circumstances of our Emigration and Settlement here. We have appealed to their native Justice and Magnanimity, and we have conjured them by the Ties of our common Kindred to disavow these Usurpations, which would inevitably interrupt our Connections and Correspondence. They too have been deaf to the Voice of Justice…

Here in America—and particularly here in Texas—we are at the “petitioning for redress” stage. Texas won one battle last week, proclaiming that the president did not have authority to change immigration law by edict. Other battles continue.

We are currently John Adams, in the 1770s, situated in Great Britain, petitioning for justice again and again. We are not yet Thomas Jefferson penning the Declaration of Independence. But, as Britain has just shown us, in the course of human events, there may come a time.

It is not “crazy right-wingers” or "bigots and xenophobes" that bring an exit closer. Despotic usurpations bring it closer. Big-government oppressors around the world should take heed.

Interference and Consequences

Last week’s Economics 101 lesson (week 6, through Hillsdale College, online for free) was on “Incentive and the ‘Information Problem.’” There were several points worth repeating.

Hillsdale Courses online

Early on, lecturer Gary Wolfram, asks the question, why can’t centrally planned systems provide wealth for the masses?

Market Capitalism, Wolfram tells us, solves a number of problems:

·        Information Problem—how can a central planner possibly know what all the Americans are going to want for breakfast tomorrow, or what they’ll want to read seven months from now? Market capitalism answers this through the price system.

·        Incentive Problem—innovation requires risk taking, and without an incentive to take risk, producers don’t innovate; they do the safe or easy thing.

One example he gives about the incentive problem, near the end of the lecture, is a caveman example—because economists like to demonstrate principles with simple societies. Suppose you’ve got a caveman, and he comes up with the idea of a stone axe. He has to form the axe head out of stone. He has to fashion some kind of handle, and figure out how to attach the axe head to the handle. All this is going to take time—time that he could have been spending grubbing for roots and berries. That’s his opportunity cost.

Suppose then, some other big ol’ caveman comes and takes it from him, because there are no property rights. It wasn’t worth the risk of time and effort, if he couldn’t guarantee that he could keep what he’d made for his use. Without property rights, there’s no incentive to innovate.

There are two types of systems that fail to protect property rights. I’ll give you a clue: on the Spherical Model, they are both southern hemisphere. There’s the anarchy side, like in the caveman example. And there’s the statist/government control side.

The pleasant alternative is the northern freedom zone. In economic terms, it’s where you find free markets. And, he agrees with the Spherical Model, that political freedom and free market systems go together.

Wolfram offers comparative examples between free market capital systems and centrally planned systems. Think about where you’d rather be planted, if you were destined to be poor. Always it’s better to be poor in a market-based economy, rather than an authoritarian ruled system. Think about, if you had to be poor, but could choose anywhere in the world to be born and live, where would it be.

As he points out, “Nobody says, ‘Send me to North Korea.’ They all say, ‘Send me somewhere that’s a market economy. Send me to Australia. Send me to the United States. Send me to Canada….’” We know centrally planned states cannot produce wealth for the poor. Only market capitalist states can do that. [31:30 into the video]

He referred to studies comparing economic freedom across the globe, done by the Fraser Institute and the Heritage Foundation—the Index of Economic Freedom, and compared countries in the to 25% of economic freedom—Hong Kong, Singapore, Australia, New Zealand, Switzerland, Canada, Chile, Mauritius, Denmark, and the United States—and the bottom 25% of countries, including Iran, Turkmenistan, Equatorial Guinea, Democratic Republic of Congo, Burma, Eritrea, Venezuela, Zimbabwe, Cuba, and North Korea.

The average per capita income of those in the top 25% countries is $36, 691. The per capita income of the bottom 25% countries is $5,188. If you’re in those top 25% countries—the ones most like market capitalism and least like authoritarian centrally planned—you’re seven times wealthier on average than those countries in the bottom 25%. [34:00]

It’s even clearer when you compare the poorest of one set of countries to the poorest in another. The poorest 10% in those freer countries make on average $11, 382 (per capita income). Or more than double the average per capita income of those in the centrally controlled countries. Worse, the poorest 10% in those controlled countries make on average $1,209. The poor in market system countries are nearly ten times wealthier than the poor in controlled economies.

Wolfram says, “It’s not a matter of theory; it’s a matter of fact. Governments that rely on central planning simply can’t produce wealth for the masses.” [35:00]

Why is that? Why are centrally controlled governments/economies such abysmal failures at providing wealth? One of the problems is the ever-increasing unintended consequences of interference. He referred to Ludwig von Mises, in his 1927 book Liberalism [a term that refers to freedom the way our founders thought of it, rather than the way the word has been co-opted by central controllers since then].

Once government begins to intervene in a system, intervenes in a market, it’s going to create these unintended consequences…. When it creates these unintended consequences, what happens is we get further government intervention, because there’s a political clamor. “Oh, now we need to deal with this problem.” So the government intervenes again. More political clamor as it creates more unintended consequences. With Mises arguing that eventually you end up with central planning. The government continually intervenes, creates more problems, intervenes again, creates more problems, intervenes again—until it’s intertwined with our economic system in such a way that markets aren’t allocating resources anymore; the political system is allocating resources. [35:30]

If we were to look at current events, and try to come up with some example of this happening, what could it possibly be? Oh yeah, Obamacare.

He gives us the  history, in more detail than I’ve done in the past. (The transcript of that section more than doubles this blog post length, so I’ll summarize, but, really, you should listen to the whole 40-minute speech, and especially this example, from about 36:00 to 44:00.)

·        There was a labor shortage during WWII, with labor resources going to the war effort.

·        Government didn’t want the price of labor to rise, so it set price controls on labor, which guaranteed greater shortages.

·        Someone who wanted to attract manufacturing labor came up with the idea of supplementing wages with employer-based health care insurance—as additional pay for labor that wouldn’t count as higher wages.

·        Employer-based health care insurance separated the receiver of care from the payment, thus causing a rise in demand for health care.

·        A rise in demand for health care increased costs of health care.

·        In 1954 the IRS ruled that employer-based health care insurance did not count as income, which was a way for employees to receive higher payment without paying the exorbitant (91% top margin) income tax.

·        This meant that employer-based health care insurance became more widely used, raising demand for health care from people who weren’t paying for it, and thus raising health care costs.

·        In 1965 government stepped in to help those who were retired or not employed, who could no longer afford to pay the artificially high health care costs without insurance, and government created Medicare and Medicaid.

·        So of course, with more people getting health care they weren’t paying for, health care costs rose further.

·        Eventually government intervenes with the Affordable Care Act, which forces employers to provide health care coverage, forces insurance companies to provide insurance for pre-existing conditions, and forces healthy young people to purchase health care insurance they wouldn’t otherwise purchase, and forces everyone to purchase a standard of plan the central planners decide, rather than the individuals making the purchases.

·        Results of the interference: higher health care costs, lower quality of service, bankruptcy for insurers, devastating costs and fines for people who can’t afford the new standards.

We have this system of health care insurance tied to employment. We don’t have that connection for car insurance, or homeowner’s insurance. The only reason health care is tied to employment is government intervention, followed by unintended consequences, followed by clamor to fix the new problems, followed by more government intervention, then more unintended consequences, and on and on.

It looks like it might be a good idea to just get rid of government. But that’s not the solution either; remember the caveman anarchy problem? What we need is just enough government to protect us—our lives, liberty, and property. In economic terms, government is there pretty much just to protect our property rights: with contract laws, police, armies, courts for settling disputes.

Wolfram gives this rule of thumb:

So when we look at a law, we ought to decide, does that law in making it easier for markets to work, or does it make it harder for markets to work? And fundamentally, is that law expanding our property rights? Is that law expanding our ability to act according to our own plan? If it is, it’s a good law. If it’s making it harder for markets to work—if it’s infringing on our property rights—if it’s making it harder for us to act according to our own plan, then that law ought not be there.

I think that’s pretty much what the writers of our Constitution had in mind when they delineated limited government.

Lesson from Economic Sphere

With Economic Sphere visiting this week, we’ve covered a few economic topics. And mostly I’m reassured that I’ve been on the right track.

Lesson 1: Thou Shalt Not Covet

One conversation the other day was about income redistribution. He asked me, of two job situations, which would I prefer? In the first one, I’m offered $50,000 a year, and my boss makes $55,000, 10% more. In the second I’m offered $100,000, and my boss makes $200,000, 100% more.

I answered sensibly: I’d prefer making $100,000. First, because I’m making twice as much money as I would have in the other job, and second, because the amount my boss makes shows a lot more growth potential for a career.

Surprisingly, when this question was asked in a study, an alarming number of people preferred making less money, as long as their boss made only a little more than they did. They thought it was immoral to have the boss make so much more than the employee.

We agreed that the morality is skewed. And the problem lies in that least of the Ten Commandments: Thou Shalt Not Covet. Why should it matter to me what a boss makes as long as I’m being fairly compensated for my work? The amount the boss makes is irrelevant. His job is different. He takes different risks, and has different expectations placed on him. His job probably includes some advanced education and experience in strategic planning.

The Ten Commandments, if they'd been written in English
image found here

I agree that some executives are overpaid. That’s a concern to the company, its board and stockholders, and to the extent that affects the company, also to the employees. But if the highest paid employee makes 20-fold what the entry-level employee makes, who cares, as long as he’s worth it to the company? Difference in income is simply irrelevant.

When you ask someone with that alternative moral belief, “What is immoral about someone making more than someone else?” and you get kind of a sputter answer. They think it’s self-evident; it’s unfair. But they can’t explain why different outcomes for different inputs equates to unfairness. They just have this internal sense that it does. What they don’t recognize is that refraining from jealousy over another’s fortune is a higher morality. Forcefully taking from a producer to give to a non-producer is simply theft, whether the state does it or a thug.

That’s why you see the argument for leveling the outcome for everyone in the southern hemisphere of the Spherical Model, where you also find tyranny and savagery. What you see in the northern hemisphere is actually more fair. And, because that is where you also find a more moral people, you also find them willingly giving aid to those truly in need—which means a two-way exchange of love as well. The giver gives to the poor because he loves and cares about him and wants to relieve his suffering. The receiver humbly receives, recognizing the gift was voluntary, and he is both grateful and determined to become productive and giving if he can. Love and gratitude are eliminated between people in the southern hemisphere, with the state placing itself in a godlike benefactor role, requiring gratitude and allegiance for its theft.

Lesson 2: No Central Planner Can Know Enough

This conversation was about the Superman comic strip nemesis Brainiac, which I was not familiar with. So I’m summarizing here without expertise. In the Superman, the Animated Series version, Brainiac was a “character” on the planet Krypton, where Superman was born. The people had developed a sort of central computer repository of knowledge, that became sentient—Brainiac. The idea was that everyone who learned anything would upload their information into this central brain, and then it would have all the knowledge necessary to make the wisest decisions for all.

This went well until a certain point in the history of the planet. Using only nonspecific technical jargon (which is what the series does), we learn that something has gone awry with the core of the planet, and it is going to blow up. This was the first time that Brainiac, the know-all computer, had a discrepancy between his purposes and those of the people he served. If he let the people know of the danger, they would expect him, even directly order him, to help them find a way to get everyone safely off the planet. He would thus be destroyed, but the people he served would survive. Or, he could use his processing power to upload himself onto something that he would get off planet—thus the people’s history and culture would survive, because he held it all within his brain, but the people themselves would die. He decided that was the better option; in order to accomplish it, he lied to the people, claiming the disturbance in the core was simply some seismic activity, nothing to worry about.

From Brainiac Attacks
image found here

Superman’s dad, Jor-El, as we know, knew about the danger to the planet. He tried spreading the word, but when people asked brainiac, Jor-El was contradicted. So he put his efforts into getting his son safely off planet before the explosion. So, there were two pods leaving Krypton in time, Superman’s and Brainiac’s.

The comparison here is that a central knowledge source is not simply a servant of the people who built it; it sees itself as its own entity of value—surpassing in value the individual people.

That led to further conversation about central planning, and how, no matter how all-knowing, no central planner can make decisions as consistently appropriate as individuals. The reason is that the central planner can never know the one most important thing necessary for making a decision about how I will spend my money: my preferences. I may not know them up until the time I find a pair of jeans in a store and try them on. I might prefer the feel of one pair over another. Or the way one pair fits my exact shape better than another—not measurement-wise, just in where things pull or tug. Or maybe there’s a subtle difference, like the topstitch color or the buttons that are the deciding factor for me. And I don’t know those things to feed the information into a central decision maker until I actually make the decision. How much worse is it if I am not allowed to make my decision, but must depend on the computer, using whatever amalgam of data it has up to this point, spits out as my decision?

The point is, no central planner, no matter how all knowing, has enough information to make better decisions for individuals than the independent individuals do. Friedrich Hayek’s The Road to Serfdom has this as a major theme. Economist Thomas Sowell explains it from time to time (here is one piece). 

Things that have been common sense to the common man (AKA: We the People) for centuries continue to be true.