A loyal Yelnick reader and occasional guestblogger asked what the take is on the rejection of the European constitution. Two issues: the currency union (Euro) and the political union (Constitution).
The Euro issue is whether it is better to have local floating currencies or a larger common currency. Jane Jacobs, a brilliant Canadian commentator and author of Cities and the Wealth of Nations, has a trenchant analysis of how the core economic engine is a city-region, not a nation-state, defined as the area around which one can go and come back in one day to conduct business. A good exemplar of her theory is the Pearl Delta Region of China (downstream from Hong Kong), which is the primary growth engine of that country. Some city-regions are robust, like Milan; some dead, like St. Louis. When there is a strong national currency, it tends to hurt the up and coming regions (like Italy in the EU) and help the financial centers (like London). Hence Italy would arguably be better off with a Lira that is devalued against the Euro, and therefore makes Milan fashion more price competitive. The problem with a narrow currency is that it can be orphaned in world markets, raises other costs such as borrowing, and makes imports more expensive. The mercantilist view of exports uber alles is a limited one, and if all nations pursue beggar-thy-neighbor mercantilist export policies the whole system sputters and fails. Also, in the 19th Century, under a gold standard, the world economy had higher growth than under fiat currencies as today, and had more trade right before WWI than we had after WWI until the mid-90s. Thus a broad currency like the Euro or gold can work as well or better than little floating currencies, provided economic policies are in sync. Unfortunately for Italy, the EU economic policies are getting more and more out of sync with the needs of nations such as Italy, let alone Poland or even smaller economies, due to the centralization of power in Brussels. And that leads to the second issue.
The Constitution issue is whether it is better to continue to centralize power in political institutions that are farther away from the people being regulated, or structure a more federal system with taxation and spending close to the affected peoples. The general trend in the US since 1776 has been centralization. The first union, the Articles of Confederation, were a disaster as too decentralized. The next union, the Constitution, was better but suffered from a split being the forces of banking and commerce (Hamilton) and the forces of small business and farmers (Jefferson). The next union, the post-Civil War power shift, went decidedly towards commerce, and the US grew very fast into 1929 - the China of its day so to speak. The next union, the Welfare State, emerged after the Great Depression, and, as in Europe, government began to tax and spend up to half the national economy. Even steps that appeared to be back from the centralization trend, such as Proposition 13 in California which lowered property taxes, had the unintended effect of putting more power in the State government and less in the local level.
We have now approached the moment when some better forms of World Government need to be structured. The WTO and similar loose confederations are working pretty well, but across a number of issues more is needed. The choice is between more centralized power or some alternative structure where power is appropriately given and held back. The record in the US is concerning, since at ever juncture the choice put more power in the center, to the point now where Congress passes a specific law to intervene in a right-to-die case in Florida (Terry Schiavo), seeming to feel empowered to intervene in matters far from its competence. This is not what the Founders had in mind when they set up the US Constitution as one of limited powers. Yet it seems the inevitable behavior of political institutions to seize more when opportunity presents. They seldom give back.
Thus the rejection of the Euro Constitution shows that the Euro voters have a collective good sense, much as the Michael Jackson Jury. The direction of political union in Europe needs to shift, and perhaps they can craft a more federalized model which proves a better one for world institutions than following the path of the US since 1776.