Sunday, July 3, 2016

On Brexit


The unexpected happened last week. The black swan event, which no one were expecting or hoping for, shook the world pretty hard, especially the power to be. Brexit[1] happened! A majority of British people, 52%, decided to secede from the European Union leaving the whole world in a shock. In this present blog post, after discussing briefly the history of British entry into EU, I am going to address two fundamental questions: Why the British people decided to leave the EU? And now that they have decided to leave, what are the short and long term repercussions of this ground shacking event?  

A Brief History of Britain’s Entry into EU[2]

British peoples’ love affair with the EU is quite old. The EU began in the fifties as a free trading economic community (European Economic Community or, in short, the EEC). As discussed by Philip Bagus in his book on Euro (Bagus and Soto 2012), which is a common currency of EU countries, there are two ideological camps involved in the formation of the EU. The major people who started the economic free trading community in Europe were driven by their ideas of classical liberalism ala Adam Smith and other Laissez Faire thinkers of the nineteenth century. These founders understood the benefits of a free foreign trade so they wanted to unite Europe without any protectionist trading boundaries under one single common market. That idea gave birth to the EEC. But, there were other people in the EU politics who wanted to use the pretext of free foreign trade to build one giant European Super State in the form of EU political union. These globalist people believed in the power of centralized government to direct the lives of the people. Over a period of time the EEC was taken over by these later globalists and turned, from a free market economic community, into a giant centralized powerful state being ruled from Brussels.

Britain was an economic power house of the world in the nineteenth century following the classical liberal ideas of Laissez faire, but it slowly lost its way fin de si├Ęcle under the sway of the socialist ideas of Fabians like Sidney and Beatrice Webb. From the beginning of the twentieth century Britain went in the wrong direction of socialism in full speed and lost its leadership of the world. They realized this mistake in the latter half of the twentieth century and decided to go in the direction of classical liberal ideas again. To fulfill this desire the British government applied for a membership of EEC twice, in 1963 and 1967, but both times the then French president de Gaulle vetoed their application saying the British economy is not in line with the ideas of EEC. Once de Gaulle was gone, Britain applied again and became member of EEC. In 1975 Britain held similar referendum as the present one where they decided to remain in EU. The things started to turn in 1993 when the EEC turned in a political union EU from an economic community EEC with the Maastricht Treaty. Once the EEC turned into a political union many parties in Britain started demanding fresh referendums about whether to stay in EU or not, especially the Labor and Independent Party (UKIP[3]). Finally the Conservative government of David Cameroon promised to hold the referendum before 2017, and after winning the election in 2015 he announced to hold that referendum whose shock result now we have in front of us. So, in short, Britain joined EEC because it was a free trading economic community. The moment it started to shape in a giant superstate political union, the Brits started having problems and they finally decided to leave. What are the specific reasons which made British people vote to leave EU is what we consider in the next section.

Why the British people decided to leave EU?

There are many reasons why the majority of the British people decided to leave EU. These reasons are mainly political and economic in nature.

Ruled by a Giant unelected Bureaucracy from Brussels

Remember that the main reason why British people voted in 1975 to join EU was economic in nature viz., to gain the access in the free trading market area of the European Economic Community. Years of socialist policies decimated the British economy, and joining EU was one of the many ways of reversing this tide of socialism. The problem started when the EEC itself started morphing into a political union instead of an economic one. As the time pass unelected EU bureaucrats with EU presidents and commissioners sitting in Brussels started dictating the economic as well as political, legal, and social etc., policies of the EU member states e.g., there are tens of thousands of new regulations, bans, prohibitions etc., put in place by EU politicians and bureaucrats on items as small as cucumber, bananas, chocolates, toilets, vacuum cleaner etc., to as big as cars, homes and businesses[4]. All these bans, regulations, prohibitions etc., in direct contradiction to the original goal of forming the EEC and Britain’s joining it i.e., creating of a free trading common market area. The British people wished to freely trade with other EU member states, but instead what they got was these myriads of bans and regulations coming from a giant bureaucracy in Brussels.     

British Businesses suffered

The direct implication of above mentioned EU regulations was that, instead of flouring under a free trading area, the British businesses like the fish industry, science and agricultural biotechnology, ports, financial service industry etc., started collapsing one after another. This damage is done slowly over a period of time.  

British Sovereignty under Threat

The increasing collective bureaucracy in Brussels threatened the very sovereignty of the British nation. According to estimates anywhere from 13% to 50% of British laws and acts are directly or indirectly regulated or controlled and influenced by the EU laws[5]. That means the British government and judiciary system lost their independence in making separate decisions for the British people. 

Immigration Crisis

In the onslaught of crisis of one proportion to another, it seems, the straw that broke the camel’s back is the on-going immigration crisis in the EU countries under their so-called open border policy. The wars in Middle East (Syria, Libya, Iraq, Yemen, Afghanistan), Africa etc., has created a huge population of refugees. These refugees are either crossing the Mediterranean Sea or going to Turkey to enter EU countries because EU politicians have decided to keep their borders open for these migrants. UK government has decided to maintain its own borders but still under the quota system they are forced to accept these migrants. This forceful act of assimilating diverse cultures has backfired in EU. Also, the Islamic State fighters are sending their fighters amidst these migrants who are spreading violence by attacking one country after another. The local British people were fade-up of this migration crisis.

Struggling to cope with EU regulations, economic and migrant crisis and a loss of national sovereignty ultimately resulted in Brexit.     

Implications of Brexit

The major implications of Brexit are political in nature. Surely there are economic implications too, but they are not as big as the political implications.

Economic Implications

Immediately after Brexit the stock markets around the world collapsed. A few days activity wiped out some US$ 2 trillion from the world stock markets. The globalist uber rich people lost around US$ 450 billion. The Pound sterling also tanked by around 10%, but is now stabilizing. The currency will continue to weaken further as the Bank of England governor Mark Carney has declared to print more pounds if needed in the wake of Brexit to stabilize the British market. Ironically this very quantitative easing is the cause of pound’s weakening and further destabilization of the British economy[6]!  After the initial carnage, as I am writing, most of the markets have already erased the losses which they incurred immediately after Brexit. One needs to understand that Brexit never was the cause or will be the cause of the problems that economies around the world are facing today. It is only the trigger of the crisis which was already created by the loose monetary policies of the central bankers around the world. Brexit didn’t create the crisis. Even in the absence of Brexit the economies around the world were, are and will continue to face problems as long as governments are interfering in the working of the free market via myriad of regulations, bans etc., and central bankers are continuing to manipulate the market rate of interest via their policies of creating money out of thin air.

In the long run Britain can again emerge as an industrial powerhouse of the world if the leaders now follow the policy of Classical Liberalism on all front i.e., free internal market and free foreign trade. It is a good thing that Britain is now free of all sorts of crazy EU regulations and controls, but if the British politicians will again impose the same controls on the local economy then the good economic impact of Brexit will not be felt in future. Brexit or not, the economies of any country can only flourish when people are given freedom to pursue their goals (given they don’t physically hinder others ‘goals). Free market capitalist system is the mother of progress. Socialism will kill any economy sooner or later e.g., the chaos in present day Venezuela. British industrialism can be unleashed again if the government don’t shackle it with socialist chains. The forces which made Britain great in the 19th century can again make it great.

Political Implications

As I said above, the major implication of Brexit is political in nature. British peoples’ vote against the European Union is the beginning of the peoples’ revolt against the globalist powerful peoples’ plan of creating a one world government. EU politicians want to create a giant all controlling Superstate (the United States of Europe), and Brexit has effectively put a brake on this nefarious plan. Brexit is not only a vote against EU, but a vote against all the centralizing forces of the world. Now there is a hope that the plans of the power to be to create a one world government, which then can be used to systematically rob and kill people, can be and will be stopped. Taking an example of Britain many people around the world, who are suffering under one or the other type of centralized nation state, will now start demanding their right of self determination. Immediately after Brexit six more countries, France, the Netherlands, Italy, Austria, Finland, and Hungary, have demanded referendum to leave EU. The voice for the state of Texas in America to exit the United States of America also became louder in the aftermath of Brexit (the phenomenon of Texit). Many secessionist movements around the world will now take inspiration from the courage of British people and they will start pushing for their own independence too e.g., in Spain Catalonia or Scotland from Britain or Kashmir, Assam etc., states from the India. The political reverberations of the Brexit will continue in future for a very long period of time. It will change the political map of the world in future.

And all these decentralizing process if for the good of humanity. The state (and all its officials like politicians, bureaucrats, diplomats, technocrats etc.) is a territorial monopolist which lives and thrives by plundering productive members living under its borders. The bigger the state, bigger is its plunder, and vice versa. As the author of very important book Leopold Kohl said,  

There seems to be only one cause behind all forms of social misery: bigness. Oversimplified as this may seem, we shall find the idea more easily acceptable if we consider that bigness, or oversize, is really much more than just a social problem. It appears to be the one and only problem permeating all creation.Whenever something is wrong, something is too big.  And if the body of a people becomes diseased with the fever of aggression, brutality, collectivism, or massive idiocy, it is not because it has fallen victim to bad leadership or mental derangement. It is because human beings, so charming as individuals or in small aggregations have been welded onto overconcentrated social units. That is when they begin to slide into uncontrollable catastrophe. For social problems, to paraphrase the population doctrine of Thomas Malthus, have the unfortunate tendency to grow at a geometric ratio with the growth of the organism of which they are part, while the ability of man to cope with them, if it can be extended at all, grows only at an arithmetic ratio. Which means that, if a society grows beyond its optimum size, its problems must eventually outrun the growth of those human faculties which are necessary for dealing with them.
Hence it is always bigness, and only bigness, which is the problem of existence. The problem is not to grow but to stop growing; the answer: not union but division. 
"A small-state world would not only solve the problems of social brutality and war; it would solve the problems of oppression and tyranny. It would solve all problems arising from power."[7]

As Kohl pointed out above, the solution of our miseries lies not in bigger political unions like EU or India or United States of America or Russia or China, but a division of these bigger political unions into smaller states[8]. If we look at around the world then mostly the bigger states like USA are busy spreading death and misery via wars while the smaller ones like Singapore or Hong Kong are largely peaceful and prosperous. It’s the bigger states who are more interested in wars of all types. Smaller ones are by and large interested in peace and free trading with others. Brexit is good because it has started this process of breaking down nations into smaller units. Once the world is divided into smaller countries, it will be more peaceful and prosperous compared to today’s world which is being ruled by giant leviathan states.

References


Bagus, Philipp, and Jesus Huerta de Soto. 2012. The Tragedy of the Euro. Lrg edition. Auburn, AL.: CreateSpace Independent Publishing Platform.

Hayek, F. A., and Joseph T. Salerno. 2010. Prices and Production and Other Works on Money, the  Business Cycle, and the Gold Standard. Ludwig von Mises Institute.

Mises, Ludwig von. 2010. The Causes of the Economic Crisis: And Other Essays Before and After the Great Depression. Ludwig von Mises Institute.

Pinder, John, and Simon Usherwood. 2013. The European Union: A Very Short Introduction. 3 edition. Oxford: OUP UK.

Rothbard, Murray N., and Paul Johnson. 2009. America’s Great Depression. Ludwig von Mises Institute.



[1] Brexit is a shortened form of British Exit from the European Union. This term signifies the referendum vote of British people about deciding whether to stay in the European Union or not. The other side, who wanted to stay with the EU, is known as Bremain (British Remain).

[2] For those who want to know more about the history of European Union itself are suggested to read (Pinder and Usherwood 2013).

[3] UKIP’s leader Nigel Farage is an outspoken critic of the EU.

[4] For a quick glimpse of mind boggling regulations of the EU please check out this EU legislation page sample: http://eur-lex.europa.eu/legal-content/EN/TXT/?qid=1467517276565&uri=CELEX:32013R1308.

[6] To understand how quantitative easing creates more destabilization in the economy please refer to the literature of Austrian Business Cycle Theory (Rothbard and Johnson 2009; Mises 2010; Hayek and Salerno 2010).

[8] Ultimately every individual citizen having a right to self determination.

Sunday, June 19, 2016

Rajan's Exit from RBI and It's Implications for India


So finally the RBI governor Raghuram Rajan decided not to accept the second term at RBI's helm under the barrage of ludicrous attacks from the BJP MP Subramanian Swamy (see here, here and here). This decision was expected of Rajan and anyone who has left little bit of self-respect inside them. Rajan announced, in an internal letter to RBI staff, that once his term finishes in September he will return to academia where he basically belongs. Rajan is a professor of finance in the Booth School of Business, University of Chicago, USA. In my latest economic analysis below I discuss two things: why Rajan decided to resign from his position as RBI governor and, most importantly, what are the implications of his decision, especially how this decision will affect the Indian economy in future?

Saturday, May 21, 2016

What is the Root Cause of Our Suffering?

What is the root cause of most of the good and bad that is happening in our world? What is the root cause of our pleasure and pain? Matt Ridley answers these questions in his new book The Evolution Everything.

Ridley brilliantly uses Charles Darwin's theory of evolution via natural selection, which he calls the "special theory" of evolution, to analyze various phenomena like the universe, morality, life, genes, culture, economy, technology, mind, personality, education, population, leadership, government, religion, money, internet and everything, and shows how all these phenomena have evolved naturally bottom-up rather than being planned and designed by someone (Gods or politicians or bureaucrats or monarchs or dictators or relgiious leaders or geniuses etc.) from top-down. These phenomena are result of bottom-up forces, especially the forces of human action. They are result of human action rather than human design. 

After analyzing these bottom-up evolutionary phenomena, Ridley gives the answer of the question that we posed in the title of this blog post. Ridley in his own words:
the flywheel of history is incremental change through trial and error, with innovation driven by recombniation and that this pertains in far more kinds of things than merely those that have genes. This is also the main way that change comes about in morality, the economy, culture, language, techology, cities, firms, education, history, law, government, relgiion, money and society. For far too long we have underestimated the power of spontaneous, organic and constructive change driven from below, in our obsession with designing change from above. Embrace the general theory of evolution. Admit that everything evolves.

It is fair bet that the twenty-first century will be dominated mostly by shocks of bad news, but will experience mostly invisible progress of good things. Incremental, inexorable, inevitable changes will bring us material and spiritual improvements that will make the lives of our grandchildren wealthier, healthier, happier, cleverer, cleaner, kinder, freer, more peaceful and more equal - almost entirely as a serendipitous by-product of cultural evolution. But the people with grand plans will cause pain and suffering all along the way. (pp. 219-120, emphasis mine).
 In all the areas like the economy, education, health, environment, religion, spirituality, morality, culture, society, law etc. etc., the pain that we all are suffering is mainly because of the central planners - politicians, bureaucrats, so-called experts helping state officials, religious leaders, monarchs, dictators etc., - and their grand central plans for designing our lives, which never succeed because they are against the nature of things. As F A. Hayek said, The more the state "plans" the more difficult planning becomes for the individual.

And the phenomena like the free market capitalist economy or science and technology etc., which have evolved bottom-up spontaneously out of individual human action are the root cause of all the pleasures that we enjoy today. 

I will advise all my readers to read this important book of Matt Ridley. Understanding the central cause of our suffering and all the bad that is in this world is important because only then we can stop that suffering and bad things from happening. As Ridley said, we should know how things like the economy or education or culture or morality or technology or population or law evolve bottom-up on their own out of spontaneous individual human action without any direction from the central planners. And how this evolution is, in the end, inevitable, inexorable and unstoppable by the central planners. Change is the law of nature, and anyone trying to stop this change from coming is fighting a losing battle. It is better that our human societies embrace these changes instead of fighting them. If we people want our suffering and pain to end then we must stop central planners, whether that be Narendra Modi or Kejriwal or Rahul Gandhi or Mamata or Jaylalita with their grand plans (Swaccha Bharat, Make in India, Odd-Even scheme etc. etc.) for the Indians or Obama or Putin or any other politician or Raghuram Rajan or Janet Yellen or any other such central banker etc.,  from desinging our lives from top-down. As long as they are in charge of our lives, we will suffer.      

Tuesday, April 26, 2016

Modi's Foreign Policy Disasters

Since coming to power the present prime minister of India Narendra Modi is making one foreign policy disaster after another one. The reason why we have to keep these disasters in mind is because they exactly contradict the public image of this hindu nationalist leader as a strong man with a chest of 56 Inch. This image was very carefully crafted by Modi's marketing people during the 2014 election run-up to win votes. They portrayed then prime minister Manmohan Singh as a weak man who speaks nothing at all or barely opens his mouth. Compared to Manmohan, Modi was portrayed as an outspoken strong personality which India was in a dire need to have at the helm. As I said during the election run-up, this image was only a marketing propaganda of the Modi campaign. Modi was and is an extraordinary popular delusion and madness of crowd phenomenon. I urged people to see Modi's actions, and not his words. The following list throws a light on his foreign policy actions contrary to what he is saying from election rally platforms.
  1. Inauguration ceremoney foreign policy move of inviting Pakistan prime minister Nawaz Shariff and subsequent Saree diplomacy: What is the end result of this foreing policy move and niceties? Nothing. The relationship between India and Pakistan is only becoming worst with every passing moment.
  2. Modi's myriad foreign trips in the name of foreign policy: What is the end result of all these costly tax payer funded trips? Nothing. For example, 
    1. Modi went to neighbouring Nepal twice on foreign policy diplomatic visits and today the relationship between India and Nepal are worst than what it was before these visits (see here). Not only this, due to this foreign policy hara-kiri by the Modi government, Nepal is now ever closer to China (not that there is something wrong with Nepal close to China, but this is just to point out the contradictory results of Modi's foreign policy).
    2. Modi went to USA thrice after becoming PM, but those visits have failed in stopping America from selling war planes to Pakistan!  
  3. In another foreign policy's, according to home minister Rajnath Singh, "innovative diplomacy" move Modi had a surprised stopover in Pakistan to meet Pakistan PM Nawaz Sharif! This is the same Narendra Modi whose party's chairman Amit Shah last year, during Bihar election run-up, was saying that if BJP will lose in Bihar, fire crackers will go-off in Pakistan! These actions of Modi just shows that he can do just about anything to fool the public to win votes and absolute power. And what is the end result of this stopover? Nothing. As I said above, the relationship between the Indian and Pakistani government is just becoming worst day by day e.g., the recent diplomatic talks have failed again.      
  4.  In another foreign policy disaster of taking sides with empires, and the one which is falling and not rising, Modi government for the first time allowed the US military to use its bases (Indian land, air and water) for war purposes (see here)! This really is a dangerous geopoltical move which can trouble India in future. American empire is slowly dying and China and Russia are rising. Most people believe that the 21st Century belongs to China. In such situation being an ally of the crooked American government can only prove to be costlier than beneficial. Modi doesn't understand that American government is using India only as a pawn in its fight against rising mighty China. The best foreing policy is always a neutral one taking side with no one and doing trade equally with everyone. By taking side of a wrong empire, Modi is only exhibiting his cluelessness about foreign policy matter.
  5. Inviting Pakistan investigation team to probe Pathankot terrorists attacks: What is the end result of this, according to the home minister Rajnath Singh,  "brilliant" (sic) move? Pakistani team after going back to Pakistan blamed India of fabricating the whole attack to tarnish its image in front of foreign governments!!!
  6. Pakistan humiliated Modi government when it, in turn, didn't allow the Indian investigation team to enter Pakistan to probe the Pathankot air base attack. Modi government was fooled by the Pakistani politicians again. 
  7. An alleged Indian intellgence agency RAW's agent being caught in Balochistan by Pakistan was a real embrassment for the Modi government. Everyone knows that both government's spies are active in both countries, but the way Modi government accepted that the caught agent was indeed retired Indian navy officer but he wasn't its spy only revelead the inexperience and naivity of the Modi government.
  8.  The Chinese government blocked Modi government's move of declaring JeM leader Masood Azhar a terrorist in UN. The only thing that the Indian government could do was to express their anger with it!!! This only shows who has the diplomatic clout in the international agencies. Modi is projected as very popular and strong PM of India in international community, but this foreign policy disaster just shows how hollow that claim is.
  9. As if the humiliation of China blocking Modi government's bid again Masood Azhar in UN was not enough, to retaliate against this Chinese government move, the Modi government issued a visa to Uyghur dissident Dolkun Isa, whom China has declared a terrorist, to participate in a conference which was organized in India. Many in India started celebrating this as a big victory of Modi against China; Many said this was Modi's "master stroke". But in a big foreign policy emberassment the Modi government later on had to cancel this visa of Dolkun after the Chinese government protested aganist it!!! So much for the master stroke.     
This small list, I think, is just a beginning. More foreign policy disasters will come in future for sure looking at the, so far, track record. The PM of India Narendra Modi is just exhibiting his inexperience and naivity in dealing with these delicate and dangerous foreign policy matters. Foreign policy is not like delivering a rousing election speech! It requires immense amount of statemanship and detailed research of myriad of geopolitical issues. It requires a deep understanding of history of various regions of the world. It requires astuteness, which Modi is lacking. Any mistake by him, like giving the Indian land for use of American military, will plunge India into a big chaos.    

Sunday, March 27, 2016

Are Lower Interest Rates Good for India?

Recently the Modi government's finance minster Arun Jaitley announced a big reduction in the interest rates of major small saving schemes like the PPF (Public Provident Fund) and Post Office Term Deposit: The government announced new interest rates on small savings instruments on Friday, slashing the returns on Public Provident Fund savings from 8.7 per cent to 8.1 per cent and one year post office deposits from 8.4 per cent to 7.1 per cent (source). Before this big cut in the rate of interest of these small saving schemes, Mr. Jaitley also dared to impose a tax on EPF (Employee Provident Fund) withdrawal in his fresh budget. He had to rollback this tax proposal later on after a big backlash from the salaried class people of India (see here)!

After the announcement of this rate cut, there surely was another uproar in the country from the savers class. Mr. Jaitley, to do the damage control work, came out and defended these interest cuts by saying the following:
The economy needs lower interest rates to become more efficient and high deposit rates would keep it “sluggish.”
“Interest rates had risen a lot, so the cost of borrowing for the government and others was high, but now they have come down. The way the economy is moving, we cannot have a situation where lending rates are going down but deposit rates remain high,”
To make the economy more efficient rather than sluggish, the country has to move towards lower interest rates in both,” (source)
So is there any Truth in what Jaitley is saying? Is the Indian economy right now sluggish because of the higher interest rates? Is the government's policy of lowering interest rates going the make the Indian economy more "efficient"? In my latest economic analysis below I give real answers of these questions.