Cameron’s EU Policy Uncertainty

So, David Cameron wants a referendum?

I believe that small is beautiful, and that the European Union system is big and fragile. I am all for free trade, freedom of movement and immigration. But as for regulatory, monetary and fiscal integration — which is the direction that Europe has taken, especially since the self-inflicted Euro crisis that grew out the fundamentally flawed Euro system — how can Europe be responsive to its citizens when they are so numerous, so diverse and so geographically and linguistically dispersed? How can it be viable to have the same regulatory and political framework for Poland, Spain, Austria, Britain, Denmark and Greece? Political and monetary frameworks that are local and decentralised are usually responsive and representative. Big bureaucratic juggernauts are very often clunky and unresponsive.

That means that I am quite open to the idea of Britain leaving the political union, so long as we retain the economic framework that Britain voted for in a referendum on joining the European Economic Community — the predecessor to the European Union — in the 1970s. Britain never voted for political union, and the British public has been shown again and again in polls to be broadly against such a thing.

But David Cameron’s plan for an In-Out referendum in 2017 — but only if the Conservatives win the 2015 election — is misguided. It will just create five years of totally unnecessary policy and regulatory uncertainty.

There is empirical evidence to suggest that policy uncertainty can be very damaging to the economy. A 2013 paper Scott Baker, Nicholas Bloom, and Steven Davis used automated text analysis techniques to count key words relevant to uncertainty in the media. They combined the news analysis with data from tax code changes, disagreement among economic forecasters, and information from equity option markets to create an “uncertainty index”:

UncertaintyIndex

They looked at changes to gross domestic product, private investment, industrial production and unemployment, and found that spikes in uncertainty foreshadow large and persistent declines in all four. First, GDP and private investment:

GDPInvestment

Next, industrial production and unemployment:

Policshocks

The last thing that Britain needs is five years of policy uncertainty. If Cameron wants to have a referendum on E.U. membership, why not do it now? 82% of the public favour such a referendum — presumably not only UKIP and Conservative voters, but also Liberal Democrats and Labour voters. If we vote to leave, then we leave, if we vote to stay, we stay. We — and the markets — will know exactly where we stand.

Frankly this strikes me as more of a political ploy. The Conservatives are haemorrhaging support to UKIP. They are roughly ten points behind Labour in the polls. This strange announcement just seems like an attempt by Cameron to claw back support and distract from the disastrous state of the economy which just entered a triple-dip recession and which has been depressed since 2008. Ironically, this announcement may actually worsen the economic woe.

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44 thoughts on “Cameron’s EU Policy Uncertainty

  1. Indeed! How can it be viable to have the same regulatory and political framework for Texas, New York, California, Alaska, Alabama….
    The UK and all EU member states should learn from the disaster that is central planning in Washington, DC.

    • The USA has a common language, common culture and much, much, much higher interstate mobility than Europe, so it has fewer problems.

      But actually my view on the USA is that basically there is a fairly high probability of breakup one day. It already happened once.

      • You may be right. Matter of time and only time will tell. However the difference between the Americans and the Europeans are: The Americans are about who they want to be. The Europeans are about who they are.

        USA was found by people who want to be who they want to be so they left their old homes and countries in search for a new place to be something new and different. Americans created their own new culture laws, and life style etc and their speak one language.

        The Europeans are all about who they are. They are all speak different languages and all are extremely proud of their own cultural heritages background. If Europeans will form an empire one day, what official language do they speak? German? French? Italian? Spanish?

        But it’s all possible that a new concept of new empire will come out of it. It may work if people all have their own freedom and share the same currency, rules, and values at the same time. As long as everyone follow the rules everything will be easy.

        • But it’s all possible that a new concept of new empire will come out of it. It may work if people all have their own freedom and share the same currency, rules, and values at the same time. As long as everyone follow the rules everything will be easy.

          For the reasons you list, this is quite a tough ask. Europe is really still to culturally, linguistically and philosophically disparate to work as a single state. Even moreso than America and China, which both suffer from problems of size and overcentralisation.

        • The EU should become a Commonwealth of States under the UK. They all speak English as a second language anyway. God save the Queen.

      • The Los Angeles Yellow Pages are printed in 11 languages. What used to be a melting pot isn’t anymore. As we celebrate “diversity” we become…well…diverse!
        It’s happening in most of Europe, too, much to the consternation of those who cherish their heritage.

        • The problem with Europe is that the young 1-5 and youth 6 and up have access to culturally specific TV programming via satellite.

          We don’t have this in Australia so within one generation a Sudanese refugee family is speaking Australian “G’day Mate”. It all starts with the children and what they watch before going to school. They all start on the same cultural page so to speak.

      • Agree with you for Europe.

        But China is different. China has been a centralized middle kingdom for over the past four thousand years. Really as long as Chinese people can remember. There were some decentralized period in history but they had been very bad, worse than centralized period. because regional wars civll wars all the time. People were dying like bugs. This is because Chinese are poor in resources and big chunk of the country is inhabitable. People were always fighting to get better lands, water and other resources.

        The methods to keep the middle kingdom together had has always been the most brutal bloody, inhuman in human history. But people know Chinese history know to take less of the evils and the only way you can keep such diversified lands and people to live together side by side peacefully is the centralized brutal government, or in the past the emperors.

        People have cyclical relapse of memories. Now as more democracy and freedom the Chinese get, the country will break apart one day. Then, there will regional wars civil wars all over again. Then there will be massive regional civil wars and people dying like bugs again. After people want their brutal centralized government back again so at least they can live. But hey each generation entitle to live the live they want. The young ones’ wants of more freedom and something different is the force of the nature. Nothing can stop them.

      • Everyone should be very scarred if the USA break apart because most and most advanced WMD are located in the USA. Whose’ hand and which state /states will in in control over those WMD?

        • Ukraine had to give up the Nukes. Kuchma did a deal for cash from Russia and USA and ruined Ukraine’s bargaining power with Russia. He is the ultimate traitor.

      • That’s because you have the US leading to keep the world in order. If after the US break up, who will be the world’s leader? Or there will be leaders? Like the Greek Ancient tales, when there where many different Gods in equal, the Gods will fighting themselves to death and there will be wars more often then you know it.

    • Right Paul, and so should US voters!!! Mayor Bloomberg is smart but a political hack, so we can understand his stupid “I’m for Obama because of his positions on abortion and same-sex marriage”. What will all the environmental nuts, gays, welfare queens, atheists, single swingers, etc. say when their nanny government is broke?

      • What do you mean “WHEN the nanny government goes broke”? It borrows 40 cents for every dollar it spends, and has been for many years. If you or I did that, we’d know we were broke. But 51% of the populace, having been “educated” in government schools, can’t balance their own checkbooks. They voted for more of the same.

  2. I don’t understand, should every country or county have its own currency and central bank for local reasons? What about every individual? Does producing more central banks solve anything? Do local Marxists serve the people better than far off, distant Marxists? Or does each group just profit at the expense of other, more hard working people? The problem, it seems, is the institutionalisation of applying unwanted force onto unwitting or subservient people who don’t fully comprehend that they are right now effectively the property of their relevant government.

    • I don’t understand, should every country or county have its own currency and central bank for local reasons? What about every individual? Does producing more central banks solve anything?

      Why should we limit central banking to states? Shouldn’t local communities, and ultimately the individual be free to coin and use whichever currencies they choose?

      Do local Marxists serve the people better than far off, distant Marxists?

      If my choice is Stalinism or the kind of more decentralised socialism in Scandinavia, I choose the latter every time.

      The problem, it seems, is the institutionalisation of applying unwanted force onto unwitting or subservient people who don’t fully comprehend that they are right now effectively the property of their relevant government.

      My experience, unfortunately, is that substantial majority of our societies have no real problem with the status quo. Trying to convert people who do not want to be converted is painful and wasteful. But, you know, there is still hope for us as libertarians if we can think creatively:

      http://azizonomics.com/2012/09/23/the-next-industrial-revolution/

      • “Local Marxists”? Sounds contradictory, but maybe you see an old fashioned “company town”, e.g, a remote mine, as Stalinist and farm “co-ops” as decentralized voluntary socialism. But the latter, if not both, wouldn’t be truly Marxist, would it?

      • John you asked above: “Interesting point Buddy.

        Is multi-cultural satellite TV really not ubiquitous in Australia like the rest of the world??”

        No, and I think this is the major problem Europe has with Muslims not integrating for example in Germany, they can watch Turkish shows and live as if they are in Turkey. When I was in Ukraine I was shocked there were 300 channels on the satelite. I felt like a backwater in Australia. All our TV is Anglo US. We have a multicultural Channel “SBS” but that is really a highbrow arty type programming staion. It is very good, but not focussed at any one particular ethnic group.

      • The thing about Scandinavia seems pretty random, to be honest. Obviously less negative is better than more negative but no negative is the preference. Nobody should be allowed to force any currency onto anyone else, period. No taxation is legitimate, period. To say otherwise is just to give into moral cowardice, something which I doubt (and, indeed, hope) you will not submit to, Aziz. Your mind is too beautiful to waste on such garbage.

  3. Adam Posen told Parliament on Tuesday that nominal GDP targeting would be a “serious mistake”, Aziz, do you agree? Because it feels like you are starting to think like Frances Capola whose ‘prescriptions’ are quite similar to Hitler’s Hjalmar Schacht, insofar as she has an utter disregard for capital, i.e. savings – the backbone of any and all economies, blinded as she is by her bizarrely ideological quest to produce more fiat money.

    • Adam Posen told Parliament on Tuesday that nominal GDP targeting would be a “serious mistake”, Aziz, do you agree?

      Yes, NGDPLT would be a serious mistake. The existence of the Cantillon Effect has been empirically demonstrated. It transfers wealth to the rich, big corporations, financial sector.

      If we have to have a fiat system, we should use a different transmission mechanism than the financial system, because of the Cantillon Effect.

      Personally, the currency system I endorse is the free market. If people want to have state-endorsed fiat currencies as a store of value/unit of account/medium of exchange then that is fine, but others should be allowed to choose to transact with whatever they want. Banks would be an inter-currency matching system:

      http://azizonomics.com/2012/08/29/currency-competition/

  4. “The world can be understood as a machine” says the CIO of largest & most profitable hedge fund in the global economy. He is wrong.

  5. Pingback: Cameron’s EU Policy Uncertainty | My Blog

  6. The thing about Scandinavia seems pretty random, to be honest. Obviously less negative is better than more negative but no negative is my preference. Nobody should be allowed to force any currency onto anyone else, period. No taxation is legitimate, period. To say otherwise is just to give into moral cowardice, something which I doubt (and, indeed, hope) you will not submit to, Aziz.

    Your mind is too beautiful to waste on slippery slopes to nowheresville.

    • Al & John: I think it was NATURE that was characterized by “There are no good or bad (right or wrong)? choices, only CONSEQUENCES”. Applies to economics?

      • “In nature there are neither rewards nor punishments — there are consequences.”

        Same author (R.G. Ingersoll) on understanding and prediction: “Every cradle asks us, ‘Whence?’ and every coffin, ‘Whither?’. The poor barbarian, weeping above his dead, can answer these questions as intelligently as the robed priest of the most authentic creed.” On morality: “Justice is the only worship. Love is the only priest. … Happiness is the only good. … The way to be happy is to make others so.” On character, to use MLK’s term: “I am the inferior of any man whose rights I trample under foot. Men are not superior by reasons … of race or color. They are superior who have the best heart — the best brain.”

        Let MLK’s recent birthday remind us of his dream: “That my four little children will one day live in a nation where they will not be judged by the color of their skin, but by the content of their character.” In addition to racial equality and justice (“civil rights”, equal protection under the law), He spoke out for nonviolence and love, and against revenge, aggression and retaliation. Obama and the radicalized Democratic Party have quietly disowned MLK; for despotic power (e.g., “redistribution” and “diversity” are civil WRONGS), they have switched to Apartheid — race and class “warfare” — intentionally stirring up envy, hatred, violence, retaliation and revenge. The MLK statue recently set in a place of honor in Washington D.C. carried some quotes — but NOT his dream of ending racial prejudice.

        • ” The MLK statue recently set in a place of honor in Washington D.C. carried some quotes — but NOT his dream of ending racial prejudice.”

          What does it say? This is interesting.

          I have been to D.C. I love the Abraham Lincoln Statue (Sarcasm). Bigger than Zeus. Now in the context of understanding American History a little better, he is no better than a Statue of Saddam Hussein.

        • BR, taking shots at AL (npi) is pretty risky, no?

          There’s only three off limit people in the U.S., AL, GW, and TJ.

    • The thing about Scandinavia seems pretty random, to be honest. Obviously less negative is better than more negative but no negative is my preference.

      Mine too, but you specifically asked for a comparison of uber-centralised socialism/Marxism and more localised socialism/Marxism.

      Nobody should be allowed to force any currency onto anyone else, period.

      I agree. This is why I think the banking system should act as a conversionary intermediary to mediate between different desired media of exchange and stores of value. This free-floating multi-currency system would likely be more stable and stronger than the status quo.

      No taxation is legitimate, period

      What are you going to achieve with just that argument? It’s an argument people have been making since the dawn of taxation, yet taxes still exist. The only way to stop paying taxes is to get out of the system and live self-sufficiently. New technologies now exist that will allow humans to live a modern lifestyle self-sufficiently. If you’re not using the government’s monetary system and minimising reliance on their infrastructure, then there will be very little left to tax.

        • Not just welfare payments. Transfer payments in general. In fact, whenever there is a deficit, the nation in general is by definition paying “negative tax” (at least for the fiscal year in question).

  7. Dr Marc Faber on Davos

    “I dont think the ‘thinkers’ are in Davos. I think it’s a group of liars, and people that go along with the system, and perpetuate fraud and abuse, and dubious practices in the financial system…”

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