The European Union has never fared well when presented directly to voters. That puts the European togetherness project at a disadvantage in this week’s British referendum, even weighed against the natural impulse of phlegmatic middle-class voters (which we nevertheless expect to prevail) not to jump off any cliffs.
A larger fear is that an anti-EU vote could be the start of a cavalcade of anti-status-quo elections. Spanish citizens vote on Sunday and may elect a brand new populist party bent on tearing up debt-reduction agreements. Italian voters in October may reject a constitutional referendum backed by reformist Prime Minister Matteo Renzi aimed at making Italy governable. In America’s own anti-status-quo election, Donald Trump may triumph in November (assuming he doesn’t provoke GOP delegates into throwing him overboard in Cleveland next month).
No, the world will not end. Our time’s biggest disturber of the peace, Vladimir Putin, favors Brexit, a Trump presidency, any other vote that tends to upset Western apple carts, on grounds that Russia gains when the West is destabilized. He may miscalculate. Russian voters themselves may catch the anti-establishment bug when he faces them in early 2018.
Throwing the chips up in the air, of course, does not choose a path. It remains up to those who find themselves in power to set a course that will cause the public to re-elect them.
Our guess is that Britain can’t save the EU but gains nothing by contributing to its unraveling. The march toward greater centralism is already off; the EU’s attempts to expand its fiscal authority to address the euro crisis are stillborn; its immigration policies are breeding dissension in its French and German heartland.
Anyway, what’s really eating Western publics is the lack of economic growth, the fear that social relations are unsustainable given towering debts, endless commitments to spend money that doesn’t exist, and inexorable armies of unemployed young people and migrants.
George Soros is buying gold. Donald Trump is talking about reneging on a portion of U.S. debt, which some of his rationalizers interpret to mean unleashing inflation to drive down its value.
Bill Gross talks about a bond-market supernova getting ready to blow. Peter Thiel speaks of an unsustainable government debt bubble.
Today’s ultralow, even negative, interest rates and apparently low inflation are taken for granted by the secular stagnation theorists, who believe the status quo will persist for years and years. It’s a view that seems implausible in light of the industrial world’s debts. The path may be crooked, but the way ahead seems clear: Governments will increasingly pay their bills and expand their spending not with the fruits of the productive labor of taxpayers but by printing money. Inflation is inevitable.
Let’s stop and notice we’ve been here before, and inflation was not without productive political effects. The inflationary crisis of the 1970s led to the appointment of Paul Volcker and a revolution in monetary policy. It was instrumental in sparking a revolution in tax policy (known as the supply-side revolution, which cared about incentives and growth). And it made possible sweeping deregulation of energy and transportation, vital sectors of the economy.
Inflation made a lot of things possible that previously would have represented too steep an attack on vested interests and the status quo. It wasn’t public outrage over rising prices; it was the prospect of mass bankruptcies among regulated transportation companies, as already seen in the Penn Central bankruptcy, that panicked policy makers into productive action on deregulation. It was the prospect of Americans shivering in the dark from the collapse of domestic energy production, especially natural gas, under price controls. One example: When President Carter lobbied Congress to support the Staggers rail deregulation bill, he warned that the alternative was a $300 billion bill (in today’s dollars) for nationalizing the railroads.
The crisis of our own times has not yet become productive, but when and if inflation comes, it will make interest payments on government debts unsupportable. It will cripple the ability of Western governments (and Japan) to make good on promised health-care and pension benefits. There will be no alternative, presumably, except policies aimed at getting economic growth and productivity going again. Presumably.
Of course, accident can also play a role. If British voters thwart their betters and actually vote to leave the EU on Thursday, a simple timeline perhaps will explain the outcome: The EU referendum was put forward in the Queen’s speech to Parliament in May 2015; in August, Angela Merkel effectively threw open the EU to a flood of migrants from Syria and other failing Mideast states.