16A014 The Brexit by Jim Davies, 4/19/2016    

In June, voters in the UK will decide whether or not that country shall remain in the EU. Should they say "no", Britain will exit that Union, as abbreviated in the title here.

Prime Minister David Cameron deserves credit for opening the question to that referendum. There was also one about entering what was then (in 1975) called the "Common Market" of Europe, so it's appropriate to have one about getting out. I voted (to join) in that earlier one - the last time I ever cast a political vote - so blame me for the result.

Accordingly, I apologize to all affected. My weak excuse is that I was fooled, by Prime Ministers Heath, Wilson and others at the time; it seemed sensible to me to tear down the immigration and customs walls that divided European countries, so that goods and people could freely travel without governments peering into their luggage and paperwork or restricting how much of what currency they could carry; I didn't understand much then about markets, but that much I did see, and I liked it, and still do. But I was fooled; what the politicians really wanted was a new layer of government, and shortly after the "yes" vote prevailed, the phrase "common market" was phased out. Today, "European Union" takes its place, and a raft of new laws governing trade and travel has been imposed.

That raft has irritated Brits - and others - including Cameron. He advises against a Brexit, but polls, though volatile as above, have shown that many disagree. If that is confirmed and Britain quits, there will be a most interesting situation with implications for the different case that will apply here in the US directly following E-Day, when the rest of the world has not yet caught up with us.

That's because as well as being a political union, European countries have agreed not to levy taxes on trades between people living there. If the UK quits, such import taxes and other restrictions might be levied against British goods. That provides a fair comparison with what might take place here, right after the FedGov disintegrates on E-Day; other governments may, being scared of losing their own existence, lash out with border taxes and controls.

In each case, unilateral taxes might be imposed; for example EU countries might levy a 10% tax on imported British goods, and after E-Day a similar levy might be placed on imports to anywhere from a newly-free America. Naturally, in the Former USA there would be no government to retaliate by imposing one on imports from the rest of the world, but how much damage would be caused, in each case?

Some. It's really obvious when we think about it; prosperity is maximized when everyone does what he does best. So if some service or product A is made best (quality, price) by Samuel & Co, while a different one B is produced best by Pedro S.A., all customers and employees gain maximum satisfaction if Samuel makes A and Pedro, B, regardless of whether a map line happens to cross the ground between them. The only effect of intrusion by a map-line-drawer is to skew the relative efficiencies and reduce the overall market satisfaction for everyone.

In our two examples therefore the imposition of import taxes will initially hold down the living standards of the societies affected; both the UK and the EU, and the FUSA and the rest of the world. If the UK were to retaliate with its own import taxes, that delay would be longer yet, for both parties; but as we noted, the FUSA would not.

But that's only the immediate effect. In neither case does the story end there.

In the case of the UK and EU, businesses in the UK will have a strong incentive to find new customers to replace those lost across the Channel, so will work harder to exploit them, and will do so without the suffocating rules of the emerging supra-government in Brussels. So what the British society will lose (some percentage of its export trade with Europe) will soon be offset by the freedom to innovate and manufacture with less interference. Offset, and very likely exceeded; for freedom is not only right. Freedom works.

In the case of the FUSA following E-Day, all the benefits of the disappearance of rules and restrictions will already be enjoyed regardless of what the rest of the world does, and since they will vanish altogether the increase in prosperity will be vastly greater. So much greater (even with the impediment of foreign import barriers) that people living under the governments imposing those barriers will certainly notice. And when they do, they will demand changes such as will just have taken place here. They will learn why, and leave their government jobs, and so cause their evaporation.

And at that point, the rest of the world will have joined us, and there will no longer be any artificial restriction on human progress. A century from now, our great-grandchildren will be astonished that we waited so long.