EDITOR'S LETTERMerryn Somerset Webb
The EU is the cure that kills
What’s the third biggest killer in America? It isn’t cancer. It isn’t heart attacks. It isn’t car accidents, gun shot wounds or obesity. It is iatrogenic diseases. These are illnesses caused or made much worse by doctors in their attempts to cure patients.
It’s a new word on me (learnt from my colleague Tim Price), but now I know it, I am finding uses for it all over the place. Modern monetary policy is effectively causing iatrogenic disease. It is designed to get rid of deflation. But as Tim points out in this week’s magazine, it is having exactly the opposite effect. By encouraging over investment and the misallocation of capital, and by keeping bad companies alive, super-low interest rates and quantitative easing (QE) are driving the oversupply of goods and services.
They could also be squashing consumer demand. Low rates are supposed to make us all want to spend more (why save when you aren’t getting a return on your cash?). But does it? I suspect many of us – aware that the magic of compounding isn’t very magic with rates at 0.5% – are saving more, not less, than we were. All this doesn’t cause inflation – it causes deflation. Not less of the disease, but more.
The next thing that could fit neatly into our new word is the European Union. It was supposed to reduce friction between neighbouring countries; to boost all of our economies; and one way or another make us all safer. It doesn’t take much thinking to find good examples of it doing the opposite. Would the economies of Europe’s peripheral nations be in the mess they (still) are, if the EU hadn’t pushed them into the eurozone?
Would Europe (and the UK) be safer without the Schengen area? Would the UK be on better terms with the rest of Europe if it wasn’t starting to feel bullied by various European institutions? And would nationalist organisations be popping up all over the EU if its populations weren’t beginning to be bothered by the democratic deficit that Europe represents?
We look at some of these issues in this week’s magazine – and we’ll be looking at the rest in future issues (as well as at the consequences of the whole thing for your money). There’s John Stepek’s take on Brexit (he’s voting out) and we look at what the debate and the uncertainty it brings means for sterling.
Alexander Rankine gives his take on the consequences of Brexit for the rest of the EU. He says that, while the elites in the EU think the break-up of their empire is impossible, Brexit could make it happen: its departure would open the way for others to leave, or to demand special privileges to stay. So the push towards closer integration in the EU – the thing that has so spooked the British – could end up being the very thing that smashes it. You really don’t get much more iatrogenic than that.