Thursday, December 6, 2018

Brexit and democracy

Tyler Cowen has a very interesting Bloomberg column on Brexit. Essentially, he views the UK getting this right -- which I agree it does not seem to be doing -- as a crucial test of democracy. Tyler notes that the current agreement serves neither leave nor remain sides well.
Brexit nonetheless presents a decision problem in its purest form. It is a test of human ingenuity and reasonableness, of our ability to compromise and solve problems...
The huge barrier, of course, is the democratic nature of the government.... 
So many of humanity’s core problems — addressing climate change, improving education, boosting innovation — ultimately have the same structure as “fixing Brexit.” It’s just that these other problems come in less transparent form and without such a firm deadline. We face tournament-like choices and perhaps we will not end up doing the right thing.
...Brexit would likely cost the U.K. about 2 percent of GDP, a fair estimate in my view. But that is not the only thing at stake here. Humanity is on trial — more specifically, its collective decision-making capacity — and it is the U.K. standing in the dock. 
I guess I have a different view of the merits and defects of democracy. My view is somewhat like the famous Churchill quote, "democracy is the worst form of Government. Except for all those other forms."

Democracy does not give us speedy technocratically optimal solutions to complex questions revolving around 2 percentage points of GDP. Democracy, and US democracy in particular, serves one great purpose -- to guard against tyranny. That's what the US colonists were upset about, not the fine points of tariff treaties. US and UK Democracy, when paired with the complex web of checks and balances and rule of law protections and constitutions and so forth, has been pretty good at throwing the bums out before they get too big for their britches. At least it has done so better than any other system.

2 percentage points of GDP? Inability to tackle long run issues? Let's just think of some of Democracy's immense failures that put the Brexit muddle to shame. The US was unable to resolve slavery, for nearly 100 years, without civil war. Democracies dithered in the 1930s and appeased Hitler.  The scar of Vietnam  is still festering in US polarization today. On the continent, when France stood for democracy and Germany for autocracy, France's defense decisions failed dramatically in 1914 and 1939.

And if we want to raise UK GDP by 2 percentage points, with free-market reforms, there is a lot worse than Brexit simmering on the front burner. A team from Cato and Hoover could probably raise GDP by 20 percent inside a year. If anyone would pay the slightest attention to us.

Yes, Brexit is a muddle which nobody will be happy with, until the UK decides if it really would rather remain or become a free-market beacon on the edge of the continent. But do not judge democracy on it. Democracy's errors as the mechanism for collective decision-making capacity have been far worse. And then there are the failures of all the other options.


  1. 2% is surprisingly low given the work Prescott has done on the dynamic effects of forming a common economic area in Europe

  2. A failure of democracy would be a situation where there is one obviously correct answer and we can’t come to it. Brexit doesn’t look like that to me (as a disinterested, but admittedly uninformed outsider). The most prominent argument is economic growth against sovereignty, the value of which is measured partially in cultural terms, not just economic terms. The U.K. is clearly not careening toward disaster, as you point out. A 2% reduction in GDP is bad, but it may well be a price Leavers are willing to regain sovereignty. Moreover, Leavers argue that the hit will not be that bad because part of the reason for Brexit is to get out from under the bad EU bureaucracy. So this just looks like a hard problem, where the arguments are closely matched and there is lots of empirical uncertainty about key factors. I agree that May’s government doesn’t seem to be doing a very good job – my impression is that the deal may be a compromise which is worse than either Remain or a clean Brexit. But the fact that both parties are unhappy does not strike me as a sign of democratic failure. A compromise, even a poor one, in the face of strongly held opposing views, may be the right outcome. If one side gets a clean win, that won’t be the end – it might entrench bitterness and division that will undermine generalized trust and political efficacy for generations. The current US situation suggests that compromise for the sake of compromise may be a democratic value worth embracing for its own sake.

  3. Regarding your views on democracy, Prof:
    You say: "I guess I have a different view of the merits and defects of democracy. My view is somewhat like the famous Churchill quote, "democracy is the worst form of Government. Except for all those other forms."

    Not that I disagree, but democracy can give you really bad outcomes.
    Just 3 examples:
    1) State of Illinois: Michael Madigan is the Speaker of the state assembly in Illinios, he's been there for over 30 years, and is probably single-handedly responsible for Illinois' catastrophic disaster. But, he got elected again, and again, and agin. The Economist has a full page feature about him in the latest edition.
    2) The country of Uruguay: my native country. Uruguay was a democracy for over 80 years, a model for South America politically, but economically it was simply ruined by those democratically elected. Politicians pursued ruinous autarkic policies with very high tariffs and huge government intervention. For 40 years Uruguay did not grow, and in the early 70s, the country looked like a country from the 1920s. It took a military government to get Uruguay out of the rut, and an especially brilliant finance minister who stuck to his guns (Alejandro Vegh Villegas).
    3) Argentina - don't get me started on Peronism. Peronism is (still) hugely popular in Argentina, and Peronism was and is simply the ruin of of that great country.

    So yes, democracy is the best of all worst. But...

    1. Chavez and ruinous Venezuelan socialism, heavily supported by voters and so many US elites (safe, so very safe, in their overpaid ivory towers) -- the ruin of Venezuela is due to the problems of democracy. Excess pensions are likely to cause state finance crises in the USA in the next 30 years.

  4. The EU federation builders made a significant mistake by allowing such a high degree of labour mobility within the EU.

    Roughly 1.5 million Poles moved to the UK within a half decade period.

    Self-styled liberals, progressives as well as freemarket libertarians tend to underestimate the importance of community norms and social conventions in terms of regulating social behaviour on a daily basis.

    Everybody is generous with the commons until the commons start to bite back (e.g., the Trump movement).

    For the most part, decisions to allow large scale immigration of others into rich democratic countries have enjoyed widespread support. If there is an enemy here, it is us and our democratically chosen, quaint notions of 'generosity'.

    Removing trade barriers to the poorest developing countries would be an alternative. Reducing rich country subsidies of agricultural exports might be another.

    In the EU, Poland would have thrived with just freer trade and investment. The common market in labour might have actually slowed down Polish economic development.

    A common labour market was, still is, not necessary in order to inoculate Europe against inter-state violent conflict.

    Erik Poole

    1. except that the UK was the only EU country to wave a 7-year moratorium on free labour mobility from the new accession countries in 2004. This was seen at the time as a coup by the Blair government (and both Labour and Conservatives agreed!) over the rest of Europe, given strong growth, strong productivity etc. Faced with a similar choice, Germany chose the capital export route to Poland rather than the labour import one, they won that gamble handsomely. Moreover, Germany, under Schröder, used the impending opening to the East as a spur to reform the German labour markets, making them more competititive and reaping huge dividends in terms of both relative and absolute competitiveness. He also signed his own political death by doing so.

      Bottom line, there is a wide spread hypocrisy and envy in the UK driving Brexit views (let's gloss over the sovereignty argument coming from a country that still has an unelected upper house), it's not the ideology, it's self interest and the always thin line between a right and a wrong decision. The truth in my opinion is that some quarters believe that 2% (or 5% or vevn 7%) of GDP is an acceptable price to pay as an option premium for regaining status and influence over Germany and stirring the EU pot.

  5. Well. I suppose my exposure to White's path determination and Stiglitz has informed my opinion on the matter.

    Paths can change and that's certainly apparent with GB here. Stiglitz has written extensively about how while having a unified currency is a good thing (efficiencies), cobbling together a unified political agenda across different nations is tougher. Look no further to the migrant mess and xenophobia as being primary drivers for Britian leaving the EU. I'm not sure how they can have their cake and eat it, too. Sure, they still want access to the huge market known as Europe, but trading away some sovereignty to Brussels got to be too much.

    Maybe a 2% hit in the short run isn't a bad thing. I think it'll adjust just fine in the long run. Democracy may be incremental most of the time, but something like Brexit can really put democracy to the test and reveal its inefficiencies and shadow elitism. But, hey, is anything ever really truly efficient when humans are involved?

    The idealism of capitalism or central planning all look good intellectually to various people. Implementation is the problem -- look at history's track record of all forms of governance.

    Reality eventually makes itself known.

  6. The problem is that the UK leadership does not want Brexit and is doing everything in its power to make it a bad deal.

  7. My impression is the referendum offered UK voters a clear choice...leave or stay...the result wasn't that's clear to me EU is determined to make an example out of UK to deter any future attempts to sense is leaving will result in short term pain and long term gain...there are serious systemic faults within the EU

  8. "On the continent, when France stood for democracy and Germany for autocracy, France's defense decisions failed dramatically in 1914 and 1939."

    In 1914, Germany certainly did not stand for autocracy. For example, among all major powers, Germany was considered to have the most democratic voting laws. See for example Margaret Anderson's research, also just round the corner from Stanford.

  9. Andrea Zazzarelli

    Excellent post and thank you for a number of details of which I was not aware.

    In passing, many western democracies retain very anti-democratic instutitions like an unelected upper house. Democracy "Yes!" as long as it is accompanied by significant condescending paternalism. -Erik

  10. I know it is a joke but Cobb-Douglas really did not save the Titanic, and Cato cannot save the UK. It is about the flow of resources and particularly the flow of BTUs/Kilowatts. Or it might be helpful to us biophysical economics cultists to explain in an appendix, where the resources are going to come from. Problems for the UK became more acute as the North Sea oil began to dwindle.
    Democracy needs cheap energy. Or failing that, much smaller scale.

  11. Reviewing it all, there is no reflection on the referendum itself. First, a fundamental principle of democracy is a provision for safeguarding the rights of a minority. Second, any fundamental decision requires quorum. Instead, Brexit was voted by a simple majority. The consequences are painfully apparent. It's rather sad and pointless to dwell on GDP loss/gain as an important argument. Anyway, historical trends are telling us that the future is in integration across national borders. The other large economies may hope for a temporary benefit in weakening EU and UK. Still, EU needs to become better in managing European integration. The EU Commission needs to become a better manager of the process. :)


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