Last month, the UK relatively narrowly avoided being broken up when Scotland voted 55% to 45% not to secede. Although 55% to 45% might not seem like a “narrow” win in the context of a U.S. presidential vote (and it isn’t), but when 45% of a large area of your country say they don’t want to be a part of you any more, that is not something that can be dismissed. What tipped the scales in favor of not seceding was the fear that an independent Scotland would be economically worse off. While the Scottish National Party argued that Scottish control of the North Sea oil would allow Scotland to be independent and maintain its standard of living, enough of the Scottish voters chose to stick with the “devil” they knew rather than chance independence.

Had the Scots decided to go it alone, they would have had the freedom not only devise their own economic policy but their monetary policy as well. However, England had already said that they would not allow Scotland to use the pound in the event of independence, meaning that Scotland would have had to go through the trouble of launching its own currency with a value relative to international currencies that simply couldn’t be estimated in advance. A change over from one currency to another meant that it was impossible to see when voting for/against independence how competitive Scottish goods would eventually be on international markets. This uncertainty would have been a temporary cost of economic freedom.

Another cost would have been the fact that Scotland, as a new country, would likely have found itself outside of the E.U. While the E.U. would likely welcome Scottish membership, that process of making Scotland a member of the E.U. would take time (years). In the meantime, Scottish goods would be at a disadvantage when being sold in the E.U., meaning that there would likely have been less demand for Scottish goods at any given point in time, with the concurrent drag on Scottish employment. In addition, the fact that an independent Scotland would have been outside of the E.U. initially meant that it was possible that manufactures would have tried and relocate to England (or other E.U. countries), which would not help the Scottish employment picture.

Finally, while one major selling point of independence was to get control over the bulk of the oil resources in the North Sea, revenues from this source are projected to shrink. Although the SNP was arguing that Scotland would be able to use the North Sea Oil revenues to fund a social state preferred by most Scots, it appears that this would not have been a solution long term. Scotland would have had to find a way to grow its economy (and increase its tax base), live with higher taxes and a lower overall standard of living, or see a reduced social state.

Overall, an independent Scotland would have had the freedom to do many things as a sovereign state. However, simply having the freedom to make choices is no guarantee that they would make the right ones. If they made the right choices, unencumbered from London, Scotland could have found itself with a growing economy and a higher standard of living. However, there was also a lot that could go wrong if Scotland went out on its own, leaving it worse off economically. This uncertainty and danger would have been a cost that a free and independent Scotland would have had to live with for some time.

Economic freedom is not free.

Recent news this week that German exports crumbled and that the continent looks like it may be on the verge of a “triple-dip” recession has added to the fears that have caused the stock markets to decline over the last 3 weeks. However, Europe faces some real long term challenges that are going to provide significant headwinds to economic growth over the next 5 to 10 years. These challenges relate to the viability of the Eurozone (and E.U. as a whole) as a viable economic bloc.

The first thing to bear in mind when discussing the European economy in the context of the E.U. or the Eurozone is that we are talking about something that can’t possibly work in the long-term, if what is meant by “work” is a large, integrated, dynamic economy along the lines of the United States. The United States became the “United States” as a culture and economy expanded across a continent that was essentially empty. The European project, on the other hand, has attempted to fuse 28 countries with existing economies, political structures, histories, and cultures into a single whole by force of law. The Greeks didn’t stop being Greeks and the Germans are not going to stop being Germans simply because they are told that they are now in a single economic entity.

The second thing to bear in mind is that the Eurozone has essentially created a single monetary policy for multiple economies that are not integrated. The Germans may want a tighter monetary policy and the Italians may want a looser one. They can’t both get what they want (and may in fact need). The European Central Bank (ECB) essentially needs to balance competing needs/wants which means that it will not be able to produce a monetary policy suitable for all countries that use the Euro. Add to this the fact that the economic structures of many countries are so different from each other and it is likely the ECB will produce a monetary policy that is positively harmful to some countries. When one considers the different cultures and different political realities faced within each country, it is no wonder that many hard-right (and a few hard-left) anti-EU political parties have risen over the last 10 years; parties that would have been nothing but small inconsequential splinter parties 10 or 15 years ago.

The third thing to bear in mind is that the Eurozone has many economies that are over-leveraged and in massive need of economic reform. However, went not facing a flaming Greek-style crisis, the impetus for economic reform seems to be lacking. Many of the economies have been largely stagnant for many years, and entrenched interests (such as those in Italy) are making economic reform all but impossible except by force in the wake of Greek-style meltdowns. The fact that the countries don’t seem to be able to embrace much needed reforms makes it only a matter of time before we have another Greek-style meltdown with all of economic problems that will come with it.

Simply put, the internal contradictions within the E.U. (different economies, different cultures, etc.) mean that there will always be devolutionary tendencies and resentments. Trying to force integration means that there will continue to be an unnecessary source of tension and instability as countries are put through wrenching changes to their economic structures without the benefit of controlling their own monetary policy that would allow them to choose the appropriate monetary policy for themselves at any given point in time. This will result in less legitimacy for the E.U. and Euro both in countries being forced to adopt policies that they don’t want, and in countries being forced to bail out certain other countries. As long as countries are locked into a system that forces inappropriate monetary policies on them, they will be susceptible to melt-down style crisis. As long as this continues to be the case, the E.U. will continue to be economically unstable with the reduction in investment (and lower economic growth) that will result.

With great fanfare, the Labor Department released the last jobs report before the election: 248,000 new jobs in September (with some upward revisions in previous months), and an unemployment rate that has dropped below the magical 6.0% barrier to 5.9%. Under normal conditions, this would be a cause for celebration. New jobs and lower unemployment are signs of an improving economy. However, buried in the report is the fact that 315,000 people dropped out of the labor force at the same time, which is what caused the decline in the unemployment rate.

During the post-war period, the unemployment rate was broadly correlated with the health of the economy. As the economy improved, hiring picked up, and the unemployment rate declined. Or conversely, the economy worsened, people were laid off, and the unemployment rate increased. The government has never counted people who were not looking for a job as part of the labor force, and this hasn’t been a problem. In the post-war period, we had an expansion of the labor force as women started entering it in large numbers. However, we haven’t had an issue with people of working age quitting the workforce because they couldn’t find a job. Until now.

Today, the unemployment rate is less of an accurate measure of the health of the American economy, The decline unemployment rate over the last five years has been driven in large part by people leaving the workforce. This is not to imply that there has been no real job growth. There most certainly has been. However, this recovery hasn’t been robust, and people have become discouraged looking for work. In addition, many people have had to take part-time work and are struggling, and many who have full time work don’t feel secure. It is quite a testament to the weakness of the recovery that roughly half of America still thinks that we are in a recession. It is not necessarily that, as some have implied, that the unemployment statistic is being fraudulently manipulated to make the economy seem better than it is. It is simply that the unemployment statistic as it has always been calculated simply doesn’t reflect the reality that is a large fraction of the American populace any more. After all, we could get to full employment (that economists have defined to be around 4%-5% unemployment) simply by convincing enough people to stop looking for work.

Under normal conditions (i.e. conditions that existed up through 2007-2008), an unemployment rate of 5.9% would imply that there was a robust recovery under way. However, this is clearly not the case. Those who are predicting that this rate, broadly speaking, is good for the President simply don’t understand the new reality through which this rate should be interpreted. The American population doesn’t trust the Republicans more on the economy because they have touted a plausible economic vision. They haven’t. But after 6 years of Obama, it is clear that he has no real idea how to get the economy working for most Americans again. Until the unemployment rate starts dropping while the labor force is expanding at the same time, people won’t feel that economy is on the mend and won’t give the party in power (whichever one it is) the credit.