Scotland Can Break the World

This week I asked, Can Scotland Break the World?

George Friedman of Stratfor says yes indeed, Scotland can break the world.

Scottish Independence Would Shake Up the Global System

The Scottish issue -- the claim that the Scots are a separate nation and that all nations have a right to self-determination -- simply cannot be asterisked. Having this happen in the heart of Western Europe would set a clear precedent that would expand geographically and conceptually. It would legitimize similar movements globally and force a reconsideration of what a nation is. Ultimately, a nation would be whatever the majority says it is.

U.S. foreign policy explicitly supports separatism and U.S. policy is Western policy and to some extent global policy where the U.S. can apply pressure. The U.S. opposes separatism when it doesn't suit it, such as in the Ukraine currently or within its own borders, but the U.S. has no inoculation against separatist movements per se, rather the U.S. declares separatist movements invalid if it opposes U.S. interests (this includes internal secession movements) or U.S. ideology. For example, if for some reason a nation wanted to break away and form a monarchy for whatever reason, the U.S. would probably oppose it unless it furthered U.S. interests.

Still, the default U.S. position is the Wilsonian position of self-determination. A successful Scottish independence vote will reignite nationalist movements in Canada, Spain, Belgium and Italy to name a few with extant or developing separatist movements. It will also breathe life into the growing separatist movement in the United States, which is not driven by geography, but by ideology. The emerging political debate in the U.S. will not be over voice——giving people a say in politics——but the right of exit, the ability to leave the current political arrangement and form a new one. Or as the Declaration put it, "...it becomes necessary for one people to dissolve the political bands which have connected them with another, and to assume among the powers of the earth, the separate and equal station to which the Laws of Nature and of Nature's God entitle them..." This new debate is not about borders entirely, it is also about allowing choice in government (where possible) within a single jurisdiction.

The Right of Exit

I argue that a right of exit is important in order to limit government power. I sometimes think that what kept the U.S. government small in the early 19th century was not so much the Constitution as the fact that people kept leaving the then-current United States for adjacent territories. The option to exit would have made it quite difficult for government to grow large and intrusive.

Can Scotland Break the World?

Since Scots invented the modern world, it only seems fair that they can take it down.

With the Yes vote crossing above 50% with less than 10 days to go before the vote, the British pound slumped and shares tumbled as a potential exit by Scotland became more of a possibility. Losses didn't end there though, the euro, yen and Swiss franc remain weak, with the yen slumping to a new 6-year low. The breakdown in the yen now opens the door to a big drop for the yen. China is in an even worse position at it gains against the U.S. dollar amid the strongest U.S. dollar rally in years.

Should Scotland vote to exit, the balance of power in England will tip in favor of the euroskeptics who want to leave the EU. In France, National Front is leading in the polls (though no election is imminent) and leader Le Pen has called for an exit from the euro. Meanwhile, Scotland wants to join the EU as an independent nation, but Spain does not want to allow it to join for fear that this would increase support for the Catalan independence movement. In Germany, Alternative for Deutschland won seats in a regional election last month. The party wants Germany to leave the euro.

One theme here has been social mood drives the events we're seeing in Europe, not economics. The debt problems are details, sideshows to the main events. Indeed, the economists do not really understand what is happening because these events are not at all about economics, but about identity and sovereignty. The fallout from this political debate is economic though, and investors should be prepared for more trouble ahead. As I put it a couple of years ago:

If you understand the origin of the conflict comes from social mood and that mood is expressing itself via politics, the situation makes perfect sense. No need to wonder why Greece, France, Germany, Italy, Hungary, Spain, Ireland, Finland or Portugal make decisions that appear "irrational" when there are workable solutions; no need to question whether the euro can survive, whether any members will leave. There will be conflict, it will be political in nature, and several nations will exit the eurozone. If Prechter's long-term forecast for the markets is correct, a few years from now this will seem like a happy time in Europe.

Prechter has been off so far on his forecast, but the first part remains true.

One politician who understands exactly what is happening is Nigel Farage. No wonder UKIP is going from strength to strength.

At around minute 20 in this interview, Nigel Farage On UKIP's Recent Success, interviewer Laura Ingraham says she gets called a liberal (U.S.) by libertarian friends because of her position on some economic issues. Farage responds by saying that arguments move on. Reagan and Thatcher fought the battles that needed to be fought in their day,

...but the key argument today isn't the battle between free markets and state control, the key battle today is about community and identity, who are we as nations? Who are we as communities? How do we want to live? And this stuff has all been threatened by excessive immigration, and by things like our small businesses being closed down and our communities changing. The politics of the future, the politics of the next decade is about community and identity.

Exactly right. In the comments to the Ricardo Was Wrong, Free Trade Doesn't Work, a commenter responded:

It seems like you are drawing your line in the sand here instead of there. Why define your box of acceptable free trade as within a country's borders as compared to within an alliance of countries, a continent, or the entire world?

This is entirely what the political debate is now about. Where are the lines. How you draw the lines determines the system you end up with. Free trade is good within whatever you define as your borders or larger region, but beyond that there cannot be laws against capital, goods or labor in order for the benefits of free trade to be felt everywhere. And if there are no borders to goods, capital or labor, then there are no nations, or at least their won't be democratic ones. It is telling that the nations with the most open of borders: Hong Kong, Singapore and Arab Gulf States, do not have democracy or severely restrict democracy. They are also very small. None of this is not a coincidence.

A nation, a large aggregate of people united by common descent, history, culture, or language, will always draw borders around itself. The European project will fail because it tried to erase the nations by moving the lines. Don't take my word for it: EU should 'undermine national homogeneity' says UN migration chief

The EU should "do its best to undermine" the "homogeneity" of its member states, the UN's special representative for migration has said.

Peter Sutherland told peers the future prosperity of many EU states depended on them becoming multicultural.

He also suggested the UK government's immigration policy had no basis in international law.

......"The United States, or Australia and New Zealand, are migrant societies and therefore they accommodate more readily those from other backgrounds than we do ourselves, who still nurse a sense of our homogeneity and difference from others.

"And that's precisely what the European Union, in my view, should be doing its best to undermine."

Unfortunately, even in the U.S. lines are being drawn. The Best Map Ever Made of America’s Racial Segregation. Despite the best efforts of the elites, people draw lines and choose to live around people who share their language, religion and culture. Economics is in part an expression of culture, which is why it is now subsumed by the larger issue of sovereignty. EU economic rules, for example, favor large corporations over the small businesses that are favored by Anglo-Saxon culture. The EU rules hurting UK small businesses are a question of sovereignty, not economics.