Brexit: Trade is free, people are not

flags-8220_640As a Brit living in the Netherlands, I enjoy the freedom the EU provides people. This week I was in Denmark – no border controls but a different currency and even that felt like an inconvenience compared to trips to Spain, Belgium, France and Germany.

The UK vote to leave the EU is a depressing turn of events.  Of course there are many issues but then no one would claim that there are no issues with Westminster either.  For Northern Ireland, Wales and Scotland, having UK governments you did not vote for is quite common.

It has been too easy to pin Britain’s woes on the EU.  Immigrants, bureaucracy, and an endless list of myths like Brussels banning the “Great British” bananas and sausages or whatever other nonsense some xenophobic rag cares to invent. Ironically the Brits have typically been the most zealous at implementing every rule to emanate from the EU.  Most other countries quietly ignore or indefinitely postpone anything that doesn’t suit (e.g. Dutch continue to provide tax breaks on mortgages).  Even more ironic it was the UK that pushed for EU expansion into Eastern Europe … and then acts surprised when these new EU citizens decide to move around a bit: who would have thought?

Immigration played a major role in returning today’s outcome.  People forget that immigration works in both directions.  When I came to the Netherlands I initially had a job contract for 6 months.  The immigration office gave me a “visa” for 6 months, but this was all bluster.  I could have quit the next day and hung around as long as I liked.

What will the UK be like for average people a few years from now?  Successive UK governments have shown little regard for human rights or for the well-being of workers.  The government has already floated the idea of exiting the European Convention on Human Rights (ECHR) which would bring the country on to the same footing at Belarus; the only country between the Atlantic and the Bering Sea that is not a signatory.  This will give free reign to all manner of Neo-liberal lunacy: zero hours contacts, no minimum wage, no welfare, no privacy, minimal rights.

The UK we are told would look to become a member of the European Economic Area (EEA), you know like super-rich mini-nations such as Norway and Switzerland.  It is convenient to ignore that they must still implement a rather higher percentage of EU rules but have little say in the decision making process.  A great position to be in for a large country like the UK, though maintaining a scapegoat is likely to remain attractive for British politicians.

The UK being a member of the EEA but not the EU represents a continuation of the flaw in globalization: trade is free, but people are not.  Democracy and Capitalism is the best system we have created for people to exist under, but it has rarely ever been truly implemented.  Permitting free flow of goods but not permitting the free flow of people (especially less educated, lower skilled people) is the major glaring fault and a scenario that will perpetuate inequality.  How many people slaving in sweatshops in Asia would leave if the door was open to them?  Would this not serve to drive up salaries and improve conditions in these countries?  And of course force the Western Empire to become more efficient while making more locally?

It’s unfortunate that the UK feels it needs to pull up the draw-bridge.  Have they kept the world out or just locked themselves in?  The rich and highly skilled will continue to enjoy crossing borders along with the goods and services they control; the rest of the population will learn that while trade is free, they are not.

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Programmers, Engineers and Politics

Should engineers and other technical people be more involved in politics?  Yes, we probably should.  With our analytic problem solving minds we could or should be able to provide a stabilizing hand to the sound-bite laden hubris.  However that means dealing with the kind of people that we’d normally prefer to avoid.  Almost universally there has been a rise in a political class – career politicians with no experience of the world beyond that of politics.  There is the amusing anecdote of former British minister for health under Tony Blair, Alan Milburn who by default was in charge of one of the world’s largest employers – the NHS.  He actually had business experience having run a second hand book store in the 60s caused Daze of Hope, which more usually went under the name Haze of Dope.  This is still more than could be said of his fellow ministers with the exception of John Prescott, who had been a ship’s steward in the 1950s.

English: John Prescott, British Labour politic...

English: John Prescott, British Labour politician, during his last day as Deputy Prime Minister. (Photo credit: Wikipedia)

The political class are the game players that have come to increasingly rule the landscape of governance, intelligence and even that of business.  And game is the apt word even if they are literally dealing with the welfare and lives of millions of people.  The financial crisis of 2008 and its continuing fall out remains a complex scenario.  The causes are well discussed and apparently were clear to see for many in the know, plus the all-knowing man in the pub who at heart knew that we can’t all get rich off selling each other houses with fantasy world values.  What remains a greater mystery is the inability to decide on a means of exiting the recessions and declining fates hitting many economies.  Is it possible to look at this as an engineering problem?  Here is my take on it.

First there was the bailout.  Now that was essentially done to stop global meltdown and general bad news by ensuring that banks could still lend to each other and keep the flow of money going.  Many too big to fails with men in the right places ensured that their institutions not only survived but were rapidly back to declaring record levels of profit (of which next to none is paid out in tax).  Meanwhile thousands of real world product and service businesses small and large went to the wall as they saw orders placed on hold or cancelled and their lines of credit drying up.

Second we saw the complete lack of prosecutions, or Too Big to Jail.  Unlike the Savings and Loans Crisis of the late 1980s we saw comparatively few prosecutions of guilty bankers – outliers like Madoff going to jail until the end of time and some French wet behind the ears minion (Jérôme Kerviel) getting a fine of €5 billion were meant to assuage our anger and thirst for blood.

English: Bernard Madoff's mugshot

English: Bernard Madoff’s mugshot (Photo credit: Wikipedia)

Thirdly, governments discussed how we may best reanimate the wavering economies.  Interestingly the weakest economies were dealt an additional blow when their credit ratings were downgraded which in turn increased their cost of borrowing.  Even more interesting is that the credit rating agencies that now chose to downgrade whole countries were the same agencies that saw fit to put AAA ratings on the toxic subprime mortgage packages.  And in parallel the same politicians who allowed the whole mess to occur were the same to decide how we’d crawl our way out.  Primary solutions involved slashing interest rates, quantitative easing and austerity.  Now the former two are essentially giving the banks access to more money in the laughable hope they will lend it to businesses that can resurrect the economy.  Austerity is even more controversial.

From what I can figure almost no country had ever managed to successfully use budget cuts to get out of a financial hole.  Yes there is no point in wasting money, but not every country is as extreme as Greece and therefore vast overspending on internal costs is rarely the key issue (Greece also received massive loans before the proverbial hit the fan in order to continue consuming foreign goods that they could ill afford).  Basically countries are forced by world or continent level banks (World, European, etc) to conform to certain economic indicators.  These include trade deficits, interest rates, spending, etc.  At stake is our ratings doled out as discussed previously which in turn affects borrowing rates.  Bizarrely enough making gross cuts in things like welfare and education scores big points with the lords that be, even if it is likely to result in a more unstable society and long term skills shortage.  When the public protests we hear “We’re all in it together, we must all suffer.” Unfortunately if you are earning €10K per year and you lose 10% of that, this is far more painful than losing say 10% of €100K.  Yes really.  Cutting back on care is also an idiotic move that is rooted in fiction and exposes a cruel element of human nature.  A government says they need to cut €1 billion from the home help budget.  Now has this got anything to do with needing that €1 billion somewhere else?  Let’s forget any level of human compassion here and act like a hard, cold blooded money man.  That €1 billion is paid to carers who help old and disabled people stay at home longer.  We cut it and watch the real consequences.  First of all those carers pay tax, so we get a decent whack of that back anyway.  Secondly, we end up paying unemployment money and housing benefit to have some capable person sit at home, or if welfare not present we risk increasing crime rates.  Thirdly we need more places for old people in nursing homes which is far more expensive.  Fourthly we lose flow of money that these now out of work people would bring to their communities, the sales tax and the taxes these people pay.   Such cuts have nothing to do with economic reality.

Despite being told by financiers that we engineers do not understand the complex world of national and global economics, that does not mean we cannot apply some hard pragmatism.  As far as I know finance does not break down as we go to the world level as Newtonian physics does when moving to the subatomic.  No, it is quite simple at heart and all the layers of shenanigans above are just that, a means of disguising and delaying hard truths.  Goldman Sachs fudged the books for Greece and in the 1990s and 2000s the Irish gave an impression that they were the Celtic Tiger and were richer per capita than Germany.  This was, as was borne out, complete bullshit.

A country within its own borders need only decide what standard of living it wishes to maintain.  Is there a minimum level that we refuse to see people live below?  We then as a society distribute the work to ensure we meet that level.  Infrastructure such as roads, power generation and distribution, water and sewage, roads, railways, airports need building and maintaining; we need healthcare, food, transport, education, and we want entertainment, some luxuries.  If we can meet all these needs within our own borders the state bank need only create enough money to grease the system.  The money is invented from thin air as it always could be and still is.

Hoover Dam Bypass

Hoover Dam Bypass (Photo credit: dherrera_96)

After the great depression of the early 1930s the USA embarked on a series of massive public projects.  They were broke but they could still invent the money to get the work done.  How successful this was is still debated, with many believing that real growth in the USA only began after World War II.  The rise of Nazi Germany was in response to the devastated German economy of the 1920s.  But if the economy was so poor how could they afford to build the greatest war machine in history?  And amazingly even a broke country busy with cutting social services can pull plans out of the hat to build say a high speed railway or fight yet another war in a far flung land?

Ultimately the country draws parallels with the family – if we decide to outsource our housework then we better have the means to pay for it in an external valid currency (at home we can choose to use monopoly money or barter, outside our home we typically use the national currency but there are also local community currencies and the likes of Bitcoin).  If we choose to close our own coal mines and steelworks because it is cheaper abroad then we better have enough foreign currency to pay for it.  That means we need to export enough other things.  When we don’t then we need to borrow, so we need a good credit rating.  The good rating is dependent on factors like our trade deficit.  This can be hidden by making arbitrary cuts in internal budgets and playing in the casinos that our financial centres resemble, but ultimately a country cannot go on forever importing more than it exports.

Challenger

Challenger (Photo credit: jesvwilliams)

Richard Feynman famously said that at the conclusion of the Challenger enquiry “For a successful technology, reality must take precedence over public relations, for nature cannot be fooled”.  I’d say this equally applies to economics and society.   As engineers, scientists and programmers we can keep this in mind next time we’re downwind of a mob of game playing bankers and politicians.