What liberal economists get wrong about Brexit

Britain will vote on June 23 on whether to leave the European Union. One of the major reasons is that EU policymaking has been an absolute catastrophe for the last seven years, particularly with respect to the eurozone countries of southern Europe.

Since the eurozone crisis began in 2009, liberal economists like Paul Krugman have repeatedly wrung their hands over the moralizing of northern European creditor nations. Elites from Germany and France explained the crisis with an argument that southern European nations like Greece and Italy behaved irresponsibly, and the brutal austerity imposed on them by eurozone elites was merely just deserts for their wrong behavior.

Counter-posed to this moral narrative, Krugman and company put forward a technocratic explanation. By their reading, the problem with the eurozone is simply poor mechanical design. Moral narratives must not be allowed to intrude on value-neutral analysis: "Economics is not a morality play," to quote one of Krugman's signature phrases.

Their technical analysis of the faults with the eurozone is very convincing. But this explicit disavowal of morality is ethical nonsense and politically blinkered. One cannot possibly understand why the eurozone has failed, much less counter the rise of revanchist nationalism, without promulgating a morally grounded alternative.

Take the conservative argument against foreclosure relief, which says that people who borrow are morally obligated to repay the money. Liberal economists respond with a slew of often-confusing arguments that such a position doesn't make technical sense. They say debt writedowns can increase overall output and employment under certain conditions, a debt overhang can leave lasting economic damage, economy-wide debt reduction will be systemically challenging during recession conditions, and so on.

All these arguments are correct. But they are also non-responsive to the basic impulse animating the conservative position — that some people are getting a bailout they don't deserve. It's not too hard to construct a simple moral argument that supports the technocratic arguments. Steve Randy Waldman has one: Creditors are just as responsible as borrowers for bad loans. This replaces a false morality play with a better one, placing blame where it is due and laying the foundation for a more just policy.

That brings me back to the eurozone. It is true, of course, that the euro was not designed according to the dictates of optimum currency area theory, and that recent eurozone policy has been stunningly inept from a technocratic perspective. Practically everything done to Greece by eurozone elites has been a failure according to their own definition of success.

But the euro crisis has also featured an endless parade of gross moral atrocities, especially on the part of the eurozone leadership. It was odious to put the entire blame for a Europe-wide crisis at the foot of southern European countries who had only a partial share of the blame (particularly when eurozone elites knew all about the shadiness of the Greek government when it was admitted). It was odious to force brutal austerity on countries when it was perfectly obvious it would only make their debt problem worse. It was odious to breathe life into dying ethnonationalist stereotypes to distract from the great sins of French and German banks. It was odious to overthrow the government of Italy. It was odious to deliberately cause a bank run in Greece to coerce the Syriza government into ignoring the results of a popular referendum. (As T.S. Eliot once wrote, "It is impossible to design a system so perfect that no one needs to be good.")

Most of that goes unnoticed by Krugman in a recent column arguing against Brexit; instead he laments the German "morality play" once more.

Economics — like any first-rank policy question — is unquestionably a morality play. The only question is what kind. Arguments about whether or not Britain should remain in the EU should of course take technical questions — like what might happen to trade — into account. But human beings are moral animals. Portraying one's own position as uninterested in moral questions — or worse, actively immoral — is to set oneself up for defeat.