No apologies for writing
more about Scottish independence, which is a big deal for a Union that has been
around longer than the United States. However this post also has a more general
theme.
I was struck by one feature of the latest YouGov poll that has found for the first time
a majority (just) for independence. Here are the numbers:
As far as I know there has been no compelling new evidence that
has emerged between these two dates, so the obvious inference is that as people
have become more exposed to the economic arguments, they have found the
pro-independence side more convincing.
At one level this seems odd, because for me the evidence that
Scotland will be worse off for at least the first decade of independence seems
pretty clear. The fiscal position of an independent Scotland also looks worse,
as the highly respected and impartial IFS explain. These views seem to be shared
by a large majority of UK economists: here is the CFM survey of mainly academic
economists selected for their macroeconomic expertise. Now this survey is more
equivocal about whether the UK is right to rule out currency union, but again
the general view is that in such a monetary union Scotland would face severe
fiscal constraints. As Paul Krugman puts it:
“I find it mind-boggling that Scotland would consider going
down this path after all that has happened in the last few years. If Scottish
voters really believe that it’s safe to become a country without a currency, they
have been badly misled.”
So what is going on here? Perhaps voters have looked in detail
at the numbers, and concluded that most economists are wrong. A little more
plausibly, voters have decided the next decade or so are not critical, and in
the longer term the kind of dynamism that the Scottish government’s numbers assume will come to the fore. However, a more
worrying conclusion is that voters are simply not aware of what economists as a
whole think. They are certainly exposed to the economic arguments, and to some
economists, but invariably in the form of a two sided debate.
I suspect something very similar happened with
the macroeconomic debate on austerity. Once again, a survey suggests that the
vast majority of economists think that fiscal stimulus increases output and
employment. Yet there are of course many prominent economists who think otherwise,
and the format of media discussion is generally a debate between two sides,
particularly when issues become politicised. Another example may be climate
change, where at least in some countries public views have become more sceptical in recent years.
Maybe this is because of the weather, but maybe it is also because climate
change is increasing viewed as a ‘controversial’ topic which lends itself to
the two-sided debate format.
Returning to Scotland, it would be very easy to test what is
going on here. As well as asking people whether they think they will be better
or worse off, they could be asked what they think most economists think. If, as
is the case for climate change, public perception
about scientific opinion is very different from reality, then this is a big
problem for democracy and the media. If instead the public know what most
economists think but have rejected this expertise this is a big problem for
economists. It seems important to know either way.
I looked at the results for the 1975 referendum on E.E.C. membership in Butler and Butler 'British Political Facts since 1979' (2006, p111). For Scotland, the turnout was 61.7% with 58.4% voting 'yes', while in England turnout was 64.6% with 68.7% saying 'yes'.
ReplyDeleteWhat has happened in the last generation?
In 66 of the 68 counties that were counted separately for the vote in the UK (only Northern Ireland was taken as a whole region), 'yes' was in the majority, and it was Scotland's Shetland and Western Isles that had the majority of those voting 'no' (56.3% and 70.5% respectively).
Again, what has happened in the last generation?
Many of the Scottish people I've been discussing this with have referred to the "wee blue book" (to be found on Google) which provides answers to many of the objections to independence including those put forward by economists. As an economist myself, I find its explanations unsatisfactory and I agree with Simon's (and Krugman's and many others') assessment of the downside risks of independence. However I wonder if the power of the wee blue book is this: in a subject area where most people don't have expertise the simple fact that there are plausible explanations presented on the side of the argument one is emotionally drawn to is enough to neutralise the arguments of the other side. How are people without much background in economics seriously expected to evaluate competing claims about concepts about which they do not have a deep understanding. If we're expecting 16 year olds to understand that they are voting for something which for the next decade might well lead to lower per capita GDP, lower public expenditure per head, higher interest rates, lower exports, etc. then we need them to have some idea of how these outcomes are determined. Otherwise its just my economists say X, the other side's economists say Y hence I will decide on some other basis. Possibly a different point: Simon and I and most of the readers of this blog know that the IFS is respected and independent but a lot of the people voting next Thursday just see it as another branch of the UK establishment. The "new voters" in this election be they children or those re-engaged in politics by Salmond's spectacular grassroots campaign may not have the experience or background to judge the validity of the IFS claims or its independence from the No side.
ReplyDeleteI agree, but that is why it is so important that people are told 'the large majority of economists think' something, or 'the leading and non-partisan think tank on fiscal matters say' that. If the media does not do this, who will?
DeletePoliticians and media outlets alike should never get away with saying stupid things. However, if you don't, can't and shouldn't request a ministry of truth, you always suffer from a problem of credibility.
DeleteHow do you manage to credibly convey information about the accuracy of other people's statement? That's the right question because rigor is obviously not enough.
Mainstream economists lost any remaining credibility they had in 2007. Seven years later and most still don't know what happened or how to fix it.
DeleteIn fact, yesterday evening I witnessed a bunch of them, that still hadn't worked out that FED Governor Bernanke, "dropping money out of a helicopter", was not possible, because that would be "fiscal stimulus" that could only be performed by the Treasury Secretary. Bernanke would have needed someone throwing "collateral" back into the helicopter to make it "monetary stimulus". ATB Acorn
Independence isn't an economic question. It is a political question. So economics are only part of it, and not necessarily the most important part. And besides, we all know economics is uncertain.
ReplyDeleteThat said, the dire economic forecast is perhaps something to keep in mind.
The polling above is entirely about economics. If people responded, "Economic consequences will be terrible, but we think it's worth it anyway," that would be one thing. But that's definitely not what they're saying.
DeleteMoreover (and I have no idea who you are), I've found that people with decent job security tend to be the most blase about the risks of austerity and tight monetary policy in downturns. I was just reading an older (but still working) tenured professor's opinion where he was basically said that there are risks with everything, who knows what will happen, blah blah blah. Something tells me that his grad students, who will actually have to deal with austerity cutting academic positions and restricting job opportunities (to the tune of 50% youth unemployment in Spain... this isn't nothing!), would be a bit more cautious if they understood the arguments.
I think you are ascribing too much rationality to the answers on the economic effects of independence. My own view is that many [most?] people make up their minds on more general, political/emotional, grounds. To avoid cognitive dissonance, they then select to pay attention to those economc claims that support the decision they have already made.
ReplyDeleteI was struck by the same phenomenon even amongst professional economists in the early 1970s, when UK entry to the EEC was being debated. A survey of economists showed that they (we) were split between those who thought that the economic gains from UK entry would outweigh the losses and those who thought the opposite. In my experience at the time, economists who favoured UK entry on political grounds usually fell into the former group and vice versa. (I answered the survey on the economic effects as a "Don't Know")
Another example I used to use in my lectures on "positive vs. normative" economics was capital punishment. Views the moral issue and and the empirical issue of whether it deterred murder usually went together to reinforce people's conclusion.
Empirical evidence on its own is often not completely conclusive. A fortiori when the "evidence" is a forecast about the net effect of the many factors in a future possible event.
Of course. But that is why, when non-partisan academics do by a large majority agree on something, people should be told. If people ignore that, fine, but if they do not know that, then we have a serious problem of communication.
DeleteBut who should tell them? That would have to be the No campaign. But why should the Tories and Labour lend credibility to the arguments of economists when economists argue against current government policies on other matters?
DeleteNo - its the media's role (or at least that part of it which is not involved in political propaganda). So interviews with a pro-independence politician should include questions like 'Why do most economists disagree with you', or 'so why does the widely respected IFS say otherwise'.
DeleteI would say that because the BBC and other UK broadcasters have a duty to be impartial and have to report both sides of the story.
DeleteThis was always a head v heart issue. Everyone assumed the head would win but in Salmond you have a master politician who is able to spin every argument as "Westminster is bluffing and bullying us." Even now he is claiming the reason that we are having these issues is because "Westminster refused to pre-negotiate with us."
The Scottish nationalists are increasingly looking like pariahs in a world that lived through one financial crisis and don't want another, totally avoidable one, happening in a major global economy.
They have to be impartial, but the fact that almost all economists in a survey thought Scotland would be worse off is a fact, which does not have to be balanced. If one side said the earth was flat, would reporters have to remain 'impartial' about that?
DeleteI agree. But this is being "spun" as the SNP have their own Nobel Prize winning economist who says something different. For most voters that is enough if it confirms their position on independence.
DeleteThe sad thing is that they are voting yes because they hate the Tories, as is clear from the last general election. If only they would wait until UKIP fracture the Tory vote at the next election and Labour get in. The next Labour government will be no more left-wing than the last one, but the 'brand' will be right.
ReplyDeleteA less toxic brand, certainly, but not exactly right. I think the Labour brand has been tainted more in Scotland than the rest of the UK - by both Blair and by the local government corruption and mismanagement which inevitably arose in what was for many years virtually a one party state. The need for a cleaner left wing alternative to Labour was a big reason for the rise of the SNP, many of whose supporters have not historically been nationalists themselves. Indeed my father has voted SNP for many years but is firmly in the 'no' camp for the referendum.
DeleteUKIP may fracture the Tory vote but its rise - and the drift towards xenophobia of the other parties in response - has shocked and alienated many Scots, certainly helping the separatist campaign.
Krugman's (perfectly reasonable) objections are primarily to the idea of a currency union, as proposed by the Yes campaign. I don't think he gives a view on the merits of independence if the country had its own currency.
ReplyDeleteI think Salmond knows that a currency union is sub-optimal. However, I think he's concluded - correctly - that it's the only option that he can sell to enough of the Scottish people to get the vote through.
In practice, the terms on which a currency union is available (if at all) may be so unattractive that the "Scottish Pound" becomes the preferred option after a couple of years of sterlingisation.
Incidentally, I also think that the next 10 years could, ironically, see the pro-European Scots deciding to remain outside the EU but within EFTA - to avoid being forced into the Euro - while the Euroskeptic English remain full EU members. No worries about loss of influence - Scotland's too small to have much anyway - and none of England's political concerns about adopting the necessary labour protection rules. Regaining fishing rights (I think?) would be another bonus.
"Krugman's (perfectly reasonable) objections are primarily to the idea of a currency union, as proposed by the Yes campaign. I don't think he gives a view on the merits of independence if the country had its own currency."
DeleteThis is probably because no one's talking about other alternatives, as you mention later in your comment. It seems like the best case here is that people are being sold a false bill of goods ("wait, why did you believe us several years ago, when it counted? Staying on the pound is crazy!").
But still, Krugman did mention trade restrictions, even if there is a free trade agreement in place, because borders matter. Having to convert between currencies will add another inefficiency to trade, which will lower long-run productivity.
"I think Salmond knows that a currency union is sub-optimal. However, I think he's concluded - correctly - that it's the only option that he can sell to enough of the Scottish people to get the vote through. In practice, the terms on which a currency union is available (if at all) may be so unattractive that the "Scottish Pound" becomes the preferred option after a couple of years of sterlingisation."
DeleteThis is spot on.
Rather than "will I/we be better off" voters are asking themselves "which political structure provides the best incentives for political actors to look out for me, to care about my opinion". Scotland, within or without Union, will always be buffeted by global capital and 'events, dear boy'. Maybe being tethered to London means less buffeting, but maybe it also means too strong a currency and a remote response, bottom of the list, lacking local nuance.
"If Scottish voters really believe that it’s safe to become a country without a currency, they have been badly misled.”
ReplyDeleteAgain, I think it is a good idea to put history before model. Before the Euro, Holland, Austria, the Netherlands and Denmark essentially had currencies fixed to the DM. East Asian countries essentially had/have US dollar boards. And they all did very well. There are a lot of advantages for small countries heavily dependent on trade, particularly heavily dependent on trade with a single trading partner in either using a hard currency that is not their own or locking their own currency into it.
The Scottish choice to keep the pound I feel is being governed not by model, but by the facts on the ground. There are lots of small traders in Scotland who are heavily engaged in trade with the north of England. The border from an economic point of view to these people on both sides is meaningless. They do not have the resources for currency hedging that larger multinational trading companies do. Such businesses need certainty, being small such things can very quickly send them into bankruptcy, especially in this environment. Scottish leaders have judged this trade and the businesses involved as economically and politically important.
My view for the best option would be to have guarantees of the maintenance of a fixed currency against the pound (or a weighted average of the Euro and pound) rather than keep the pound. The important thing though is commitment - that is the whole point of a hard currency.
More broadly I think the best thing for Scotland, and the north of England is genuine devolution without independence. There is London and there is the rest of the UK. I think this is more pertinent than the England/Scotland distinction.
But of course, in any case, there is a lot more to all of these questions than economics. And this might just be the only opportunity for Scots to free themselves of Westminster and its orthodoxy.
Pegging your currency is not the same as using another country's currency. You can re-peg anytime you wish. And the risk is in the economic argument about the Impossibility Theorem. Devolution is probably what Scots would want more than Independence-- and I do see it as a reaction to the current UK governing majority.
DeletePerhaps when Scots see "Scotland" they think not "Scotland's economy" but instead "The economic well being of the median Scottish earner"?
ReplyDeleteIt is not so hard to believe that given the essentially neoliberal consensus in the south and the inability of Scotland's 7.5% of UK voters to meaningfully affect the overall direction of the UK's economic policy that they can imagine an essentially unchanged personal situation from independence because the losses in economic output suffered by Scotland will not really contribute to the average Scots' well being - ie: the drop in economic output would be offset (from the perspective of the average person) by a drop in the gini coefficient due to changed taxation and economic priorities.
"Better off" and "Scotland" are not simple things to pin down.
This is a good point, which I did think about. But as far as I am aware, the SNP's only commitment to changing taxes on independence is to cut corporation tax. Given the evidence I linked to in an earlier post about how Scottish attitudes are only slightly more social democratic than English attitudes, I wonder what makes you so confident that the kind of offsets you hope for will take place. I suspect you will be told after independence that unfortunately the higher tax rates cannot be raised, because everyone will move south if they were.
DeleteIf you were confident that Scotland would be significantly more social democratic than the rest of the UK, do you think it would be worth the economic risks/costs?
DeleteThe combination of slightly more social democratic attitudes, a whole lot amount of less lobby power from the City and the fact that an independent Scotland is a more of a monoculture and people tend to be more altruistic towards their own ingroup (sad but true), could together lead to quite a big shift over time.
DeleteI actually think it's weird that the 7% number keeps on getting thrown around, as if that means 0 representation. London's population is around 12% of the UK's. Does that mean that their voices aren't heard in the democratic process either? They're clearly outnumbered.
DeleteI cannot help feeling that there are a lot of contradictory wishes going on here. You talk about lobby power of the City, but what about the finance industry in Edinburgh? Are you assuming it goes South on independence, and what would take its place? But what really worries me is that Scotland is not being told the truth about the economics.
DeleteMy guess is that a similar elite will emerge in Edinburgh as in Westminster/City. In fact most likely it will be part of the same clique.
DeleteI also find the intervention of the Governor of the BOE in this highly political discussion quite extraordinary. Apart from the fact having an ex-Goldman Sachs figure in such position sends all the wrong signals - in many ways this sort of nexus of power is exactly what Devolution and Independence ideally hopes to escape from.
"a government cannot have sovereignty without its own currency"
DeleteHow they hell did he get away with saying that??
These last two comments really worry me. What he is saying is what pretty well every macroeconomist knows - being part of a currency union severely curtails national freedom over fiscal policy. Ask people in Ireland or Greece or Portugal! To suggest otherwise is delusional.
DeleteI see your point Simon. But really the BOE Governor has no more right to make comments about this political issue than the Queen. He is there to implement the elected Government's policy (yes, even though we have an independent central bank). He is a civil servant. Making comments on something as political as sovereignty is completely out of line.
DeleteA small open country that has to trade in a key currency is going to get limited sovereignty either way. That is why many successful small trading countries peg their currencies to the US dollar etc. The distinction between having your own currency and seriously pegging it I believe is a largely artificial one (you lose the whole point of the commitment if you continually re-peg).
Anyway these issues should be discussed by the political leaders involved - with contributions from academics and others - but the BOE Governor as a civil servant should stay out. Retired BOE Governors would be OK.
I am Irish myself and Salmond's entirely rational, if not entirely laudable, commitment to reduce corporation tax makes us sweat a little. Far more sensible (and fairer) for English companies looking to escape tax to move to Edinburgh than Dublin. (The morality of a race to the bottom in international "tax competition" is another question entirely, lets not talk about it!).
ReplyDeleteAs far as Scotland only being a little more social democratic than England that really is a good question (the Scots leftists I follow are solidly pro-Union). The larger sample size of national elections does makes the results of the poll you referenced seem a little dubious to me but perhaps post independence politics could move to the right in Scottish terms. However outcomes might still be fairer because the interests of the rulers and ruled would be better aligned on average in this new smaller polity. It is hard to believe that indifference to Glasgow's situation would not be lower if those in power lived closer to it.
I know that independence is a separation and the rump UK has cultural and educational resources that should not be let go of lightly. How many people anywhere in the UK realize the glorious anomaly of it having 0.8% of the worlds population and 3 out of 15 of the worlds top universities? Or how good the BBC national history unit is? Or having in London one of the world's great cities?
There however is the rub. Most of the UK's centres of excellence, power and wealth are English. Can you look honestly at the UK and say that Scotland is or can be an equal part of that Union when England is 10 times its size? With 8% of the population and industrial and economic policy naturally focussed on the vast majority of the population that live in the south why would policy ever be tailored to Scotland's needs? The way that the wealth and the top business of the UK have become so concentrated in London also makes the idea of there being an equal Union a little hard to take seriously.
So Scots may not feel they are breaking the Union but coming to terms with it not being their Union any more.
"How many people anywhere in the UK realize the glorious anomaly of it having 0.8% of the worlds population and 3 out of 15 of the worlds top universities? Or how good the BBC national history unit is? Or having in London one of the world's great cities?"
ReplyDeleteThese are not things that benefit most English people let alone most Scots. It only benefits a small (unrepresentative and cosmopolitan) elite. You are better off being an average German, Swede or Dutchman than an average Englishman, even more so the further you go down the income ladder.
I think there is an enormous amount of misunderstanding of what drives independence. Discussion of the currency issue ignores the many successful 'pegging' initiatives, currency boards or simple shadowing that goes on around the world. Sure, there are costs and times when it won't work so well, but ask a lot of people how well the existing system works ... One point I have NEVER seen addressed is the experience of Ireland (Republic) between independence and the EMU. Am I wrong in thinking that for all that period two independent countries used the same currency?
ReplyDeleteLikewise, the costs measured by economists of Scotland 'leaving' the UK are pretty analogous to those of UK leaving Europe, Slovakia leaving Czechoslovakia, Baltic States leaving Soviet Union/Russia - I could go on. As economists we 'know' these costs are real, but as people living in the countries concerned don't necessarily see it the same way. The point made above about the distinction between impact on total GNP and impact on median income is very pertinent. If Scots are fed up with the way that the UK economy has been working for a long time (not just the last seven years) they have the right to try something different and the fact that a large majority of economists think they will be 'worse off' says more about the blinkers that economists wear than the real experiences of people who will be making the decision. In the last analysis economists rely on their models to the defiance of real world evidence (as you and Krugman and others have repeatedly underlined).
If I werer voting I would ask mysefl: do I want to be a subordinate part of something bigger that (in my opinion) has largely worked against the interests of myself and those around me, or do I want to see decisions taken by people with whom I have more in common. What I would not want is to be told that a majority, even a large majority, of UK economists think I would be worse off. The message of the NO camp is almost entirely "Always keep ahold of nurse for fear of finding something worse".
I think this misses the point. Of course Scotland can make the choice to be worse off in aggregate. The question I ask is do they know most economists think they will be.
Delete"The question I ask is do they know most economists think they will be."
DeleteI am sure they know, but I am not sure it would help. They probably see economists behind a lot of the ideas that led up to the events of 2008. They would see them as part of the elite and the maintenance of their power. Economists were also not warning about the consequences of deindustrialisation, the loss of a broad production base when it mattered, which among other things hit the Scotland and the North hard and led to a greater reliance on the London finance industry. "Non-standard" economics says you have to keep some inefficient industry, it is an important supply base for a skilled labour force needed in the more high technology sector. If not, you get hollowing out.
I would argue if Scotland really wanted to be successful economically it could do a lot worse than following ordo-liberalism and the German development model, in spite of what the IMF/World Bank/Treasury/MIT elite and their gadgets say.
How are you sure? But on your main point, unfortunately in the near term this has got to do with rather boring stuff like declining North Sea Oil revenue and demographics, rather than some grand economic model.
DeleteHow are you sure?
DeleteBecause the German model has a proven record. It was also adopted directly by Japan and northern Europe.
I think the North Sea Oil and Demographic issues are over-played. Scotland would be a small country (and sure in such countries balance of payments issues are crucial), but I would be surprised if the oil-revenues did not at least cover fuel self-sufficiency - the big worry for countries dependent on such price volatile imports that try to maintain a stable currency. Demographic issues I think are also exaggerated. A lot of what is behind that is OECD economists during the Great Moderation looking for research funds and anything that raises alarm bells about government deficits will get them. Really I heard a top expert say,while not something to be ignored - it gets more attention than it should and is not as urgent as, say, climate change.
I suspect that Scotland's real challenges relate to high youth and long term unemployment - as in much of England. It is the problem and the solution. The long term answer to tackling it may be gradual integration into the Eurozone that includes fiscal union (which will take some adjustment due to its economy being dependent on small business which is heavily connected to England.)
This comment has been removed by the author.
ReplyDeleteMaybe the Scots are simply sick to the teeth of having had, by default, imposed on them the kind of society England has become in the last three decades. It may well be that "gut feeling" of rejection of the English Tory model of society is driving the "YES" bandwagon.
ReplyDeletePaul Mason said on c4 news yesterday that people were telling him they didn't understand the economic arguements or the words used the describe them "fiscal, deficit" etc so they weren't taking it in to consideration when deciding how to vote. That said I have many friends who do understand and will read the literature yet still plan to vote Yes. Didn't realise I had so many reckless friends!
ReplyDeleteI saw this too and was so angry. It is his job to explain the arguments! He said the No side would be better off going for more emotional issues. But many voters say their decision will depend on the economics. The information is there, so why are people like him not telling people.
DeleteDavid Sweet
ReplyDeleteIf I werer voting I would ask mysefl: do I want to be a subordinate part of something bigger that (in my opinion) has largely worked against the interests of myself and those around me, or do I want to see decisions taken by people with whom I have more in common."
I think the most compelling case for not leaving the UK is Ireland's recent experience in the EU, and the EU's policy since the global financial crisis (austerity, the SGP and the various other economic suicide pacts). Being a small country in Europe now is not as easy as it once was and the ordoliberal consensus of the European Institutions and Deutsche bloc countries is at least as bad as Osborn's economic policies at their worst. Scotland's influence in UK policy making is far greater than it would be in EU policy making.
In fact you can easily argue that the UK's system has worked better in that Osborn has quietly rejected austerity while under German leadership balanced budget fundamentalism and the mania for structural reforms has continued unaffected by the terrible consequences.
It is a tough call, adopting the Euro is every bit as constricting as sharing sterling and more restrictive than pegging to it. Scots might see the EU as being a good deal more progressive, flexible and welcoming than it is.
It's worth bearing in mind that 'economically better off/worse off' considered broadly (including heterodox economists and others in the mix) is not as clear-cut as it may appear to those schooled in the standard measures of GDP/GNP and mean monetary incomes. It's also important not to prejudge post-independence debates and events - especially with regard to current SNP policy pronouncements.
ReplyDeleteIt is, I think, not an unreasonable point of view that the so-called 'economic experts' - which doesn't only include academic economists of course - have got things so hopelessly wrong that a major shake-up in the status-quo is worth the risk. It might even be seen that the currency crash to come may ultimately even play a positive part in that shake-up!
Which all is of course very bad news for mainstream economists (and I like to think you are only on the edge of that mainstream these days, Simon) - but perhaps they've had it coming for a while!
So what am I going to vote...? It's a secret ballot, thankfully - so I won't have to justify myself after the event! Just like the rest of us Scots - try to make the best of either outcome.
Oh dear. So economists failed to call the financial crisis, and suddenly the rules of accountancy and basic macro no longer apply. Ask the people in Ireland whether they think all this conventional economics stuff about GDP and unemployment and public spending is overrated.
DeleteI did not hear too many warnings about financial regulation and capital controls and loose credit from economists during the bubble leading up to its crash. Perhaps ask the Irish people about this? They were probably also told to keep budgetary expenditure under control because of ageing.
DeleteI guess the Irish problem really shows up the difficulty in having a common currency area without centralised taxation - the problem a lot of people have pointed out for decades. The answer: fiscal union in the Eurozone. What happens in this regard is going to be crucial to Scotland as an independent state. There is good reason to believe, however, that Germany is very serious about it.
DeleteAnonymous @ 08:25
ReplyDeleteThe answer: fiscal union in the Eurozone.
<splutters incredulously>
So the ECB has been an utter failure at fulfilling its mandate of 2% inflation causing serious hardship to non creditor countries and the lesson from this is we need fiscal union too? We repeat the mistakes until they work? What gives you the impression that fiscal union would be any less unfavourable to the peripherals?
As an Irish person the lesson I would take is that monetary union was a terrible mistake, that Germany is both run by neoliberal cultists and has an effective stranglehold on EU policy and that its a very, very, very serious mistake for small countries to invest in any trust in the institutions of the EU as in reality they have no influence over them.
So, no, the lesson is not that the EU needs fiscal union, it is that small nations should not share sovereignty with larger ones because in reality there is no sharing of sovereignty, there is only donation of sovereignty to the most powerful political bloc.
I wish that Ireland had been as sceptical as the Swedes or Danes about EMU and the European project and I advise Scotland to be similarly cautious.
"I wish that Ireland had been as sceptical as the Swedes or Danes about EMU and the European project and I advise Scotland to be similarly cautious."
ReplyDeleteThe Swedes and the Danes had well-run economies before the Euro. They have well run economies with the Euro. They have a legitimate case arguing either way. Still, I am sure, they would go with the Euro.
For Ireland, Spain, Italy, Greece and Portugual, what do you suggest? That they go back to their glorious pre-Euro days? They need a different economic development model. The German/northern European one might be the right one.
I also do not believe Germany is neo-liberal, not in economics anyway. The shining stars of that are the US and the UK.
anonymous@09:09
ReplyDeleteAre you by any chance under the age of 30?
I ahve a feeling that you are not familiar with Ireland's economic performance pre/post EMU, ECB rates policy in early and mid 2000s and why that might have contributed to Ireland's "bad managed economy", why Sweden and Denmark are not in the Euro (particularly Sweden) or what differentiates ordoliberalism and neoliberalism at the national and international levels.
When talking about the ordoliberal model apparently in operation in Denmark and Sweden why not compare the relative sizes of the public sector with that in Germany?
Some reading might be in order.
I appreciate your comment, and I am glad you pointed out my major mistake re Eurozone and Sweden and Denmark. Membership looks someway off for both.
ReplyDeleteOrdoliberalism in economics generally posits a strong role for the state in the allocation for resources and the flow of funds systems. This does not mean the same things as G/Y. For example there could be a lot of regulation that segmented and decentralised banking. There could be special bond raising provision for capital expenditure. And prices in the labour market are determined by centralised wage fixation systems. Basically I see it as a system that advocates rules rather than discretion when it comes to the exchange rate and budget deficits, but within this is a lot of discretion by the government when it comes to the allocation of resources. MP as I understand it during the classical variation of this system relied on the targeting of monetary aggregates via the discount window.
Neo-liberalism advocates free markets - free trade, capital flows and migration flows. Comparative advantage arguments figure heavily. They do not like government direction in the allocation of resources, but they nevertheless can be socially liberal - ie support a welfare system. Sometimes neo-liberalism is taken to mean IMF style SAPS during the Asian Financial Crisis or Thatcher style privatisations - but I think that is probably right of neo-liberalism.
When it comes to Ireland, Greece, Italy and Spain, these are not high performing countries, and never were in the post WWII period. In the true Neo-Marxian meaning of core - periphery (which interestingly is a framework Bernanke has used) they are peripheral. And for a reason. You could go back to that era. We know how they fared. But why go back to something that was not really very successful? Surely you want to emanate a country that is successful?
It doesn't make sense to compare Scotland to Spain in terms of potential currency problems. Scotland already uses the pound and its economy is closely connected to the UK. When Spain joined the eurozone it was the equivalent having a currency that spiked in value boosting purchasing power which led to a speculative housing boom and huge current account deficit. That problem obviously isn't going to happen if Scotland separates.
ReplyDeleteAs for having to bailout investment banks that make risky bets? How much did Spain and Ireland benefit from doing that, exactly? How did the US benefit from doing that? They wasted huge amounts of taxpayer dollars and bank executives awarded themselves lavish bonuses for the hard work of receiving the free money. And their economies are still in shambles!
Iceland did the right thing by letting the banks fail. That's what's supposed to happen in a free market economy. Taxpayers are NOT responsible for the actions of corrupt plutocrats who play musical chains with the financial sector.
My bet is that the Scots don't buy what the Very Serious People are saying because they think they have political motives. Economics is, after all, nothing more than politics with math thrown in to lend authority to political agendas. It sure in hell isn't science.
What utter nonsense! This idea that you can suspend the science of macroeconomics just because it doesn't fit in with a political agenda reminds me of the formation of the Euro. Asymmetric shocks - no worries, everyone will converge so these shocks will not matter. Look how that turned out.
DeleteMacroeconomics is not a hard science which is why it's so easy to rationalize political agendas. Scientists use double-blind experiments because they know how easy it is for biases to influence test results. With economics, it's all wide open with no restrictions put in place. Economists stake out an idiosyncratic position on the left-right economic spectrum based on cultural biases (what they're taught) and their ideas of how society should be structured (left is egalitarian; right is oligarchical.)
DeleteIn Krugman's books, he basically says how well two countries using the same currency works out is dependent on how closely related their economies are (e.g., it's bad for Brazil to peg its currency to the US dollar because the economies are far apart and not interrelated through trade.) Clearly the problem with the eurozone is that the economies of Ireland, Spain and Greece are out of kilter with Germany in terms of geography, competitive wages and position in the business cycle.
The same problem doesn't exist with Scotland and the UK. Their economies are closely interrelated. And it doesn't matter if Scotland is a part of the UK or not, if its economy is out of kilter with the Britain's, it's still going to suffer from monetary policy set by Britain's central bank.
(As for social transfers, the Scots might do better managing their own than having their money going out to an austere neoliberal Britain with a big war machine.)
So Krugman sounding off the alarm that Scotland can become another Spain sounds an awful lot like the austerians who claim Greece is just around the corner unless drastic spending cuts are made.
BTW, with real sciences like physics and medicine, real progress is made. Definite knowledge is established and built on. But with macro it can be said that no progress has been made. There are different economic schools and none agree on anything. In my opinion, macro is pre-Copernican because economists can't agree on whether the Sun revolves around the Earth or the Earth around the Sun. There is no organization to weed out the charlatans and quacks with political agendas and build up an evolving body of hard evidence.
The only thing economists seem to agree on is free trade and Ricardo's comparative advantage. But this ideology put in place through free-trade globalization has led to a regulatory race to the bottom just when common regulations are needed most (to stop Global Warming.) Common regulation blocks (instead of free-trade blocks) could punish nations that have a mercantilist agenda, abuse the environment and exploit workers. But all economists can agree on is that this would somehow be a terrible idea. Everything will sort itself out in the long run. (In the long run we're all dead.)
"And it doesn't matter if Scotland is a part of the UK or not, if its economy is out of kilter with the Britain's"
ReplyDeleteSimon has responded to a lot of the comments here made re North Sea Oil, demographics and other issues with a particularly sharp post drawing on an important study by the IFS. Still I think the above comment you make is still true. London has let Scotland down. Scots have a right to want to try something that might work better.
Perhaps though the best outcome will materialise: it stays in the Union but with much more power to govern its own affairs, including macro-economic decisions. This would be a fantastic result that would make, even with a no-vote, the Referendum and the debate worthwhile. Perhaps the rest of non-London UK will eventually get something out of this too.
Warning I am not an economist, but I do live in Scotland. I am amazed that so many economists are able to confidently predict the future of an independent Scotland when they have no idea what economic and social policies we will develop. I will be voting Yes because I want a different Scotland, not just a mini UK. Post 2016 we might even elect a radical, but non SNP government. Perhaps you should be a bit more cautious with your predictions until we all know the outcome of the first elections in an independent Scotland.
ReplyDeleteTo get back to your main point, "If instead the public know what most economists think but have rejected this expertise this is a big problem for economists"
ReplyDeleteI think the economics profession does have a problem. It did not properly foresee the 2008 crisis, and once the immediate crisis passed was divided over how to deal with the ensuing depression. You may argue that the fault lay with political judgements but economists were found to back them up.
Expertise can be equated with knowing how to solve problems. With economists instead we typically get many opinions and no hard knowledge.
Economists are not alone in this incidentally, 'expertise' is a debased currency now across many fields.
So it is understandable that in an existential question like sovereignty that people will not pay great attention to technical experts who they will not understand in any case but instead will be swayed by emotive arguments and gut feeling.
I suspect you are correct that there will be a steep price to pay for Scottish Independence, and I would be a No voter.
But I believe the economics profession should question itself and explain itself a lot more to the public, and this is what is really needed right now.
Douglas Muirden (Scot living in London)
"It did not properly foresee the 2008 crisis, and once the immediate crisis passed was divided over how to deal with the ensuing depression. You may argue that the fault lay with political judgements but economists were found to back them up."
ReplyDeleteYou cannot expect macro-economists to predict the future. They have advice central banks and treasuries for policy reasons which entails estimates. But such economists are not around to give economic weather forecasts.
Where the modern macro-profession failed was to warn about the dangers during the Great Moderation, even though there are umpteen numbers of historical cases - some very recent like Japan - and works such as those by Minsky who very carefully portray how you get animal spirits followed by deflationary psychology. I was very annoyed at Yates's review of Wolf who seems to think that such analysis is useless unless it is "formally presented" ie - dressed up in gadget. We are simply casting critically valuable and useful knowledge aside for such nonsense.
It is a shame because if such knowledge was kept in the centre of the profession, they would proved right and people would listen to their anti-austerity arguments and costs of currency union arguments now.
All said I have to agree that Krugman is spot on - models are fine as long as we remember they are models:
ReplyDelete"I guess the problem is that too many economists have the wrong attitude toward models. They’re not Truth; they’re intuition pumps, gadgets you use to clarify your story. You go badly wrong when you take them too seriously, and either forget that they’re just models or reject them because the world isn’t that simple."
Why not talk about the positive aspects like Scotland creating its own central bank to backstop the currency? Maybe how we could break away from austerity and create a more cohesive society? The truth is London and the square mile are too powerful this has seen the emergence of the most right wing government in my life time and Labour are now occupying s space where Thatcher might have been happy to sit. The financial crisis illustrated that those failed institutions still have all the political power. I know am being too qualitative for a quantitative man like yourself! However, economist are great at analysing the past and current events and you are one of the best. However, where do we go in this structure? It has been boom and bust throughout my life. I grew up on a council estate and saw the misery that Thatcher brought. I went to University earned enough to live in a nice house and work in a good private sector job, but I see it all again a recovery born on the back of the poorest. I do feel solidarity with England half my family are English, but the appetite is not there to do anything. Immigrants are to blame and the elites listen to easily to knee jerk reactions to kick the poor. Simon I agree with you and Krugman about the currency Union and I don't think rUk will agree which will mean scotland will create its own! i would be happier in a poorer more equal scotland that what we have just now. I know that sounds irrational, but that is how I see it!
ReplyDeleteAndrew
DeleteI don't think this sounds irrational at all - in fact quite the opposite. If this had been what the SNP had said I would have much more sympathy. My posts have really been about getting the facts straight rather than a crude support for No regardless. I am much less sure that you are wrong.
So what I say next is much more instinct than solid analysis. My worry is first that things could go very badly for Scotland in the longer term. If the short term costs are large enough, you may find too many people leaving to go where the jobs are south of the border, and a process of cumulative stagnation could set in. The SNP's plans on migration are sensible, but people will only come if there are jobs. In addition, an rUK that was without Scotland would be more likely to do stupid things, like leave the EU, and this would really put Scotland in a difficult position.
I can also be more optimistic about a future UK, and don't quite see the past in such uniformly pessimistic tones as you do. But as I said, this is all very speculative.
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ReplyDeleteThe problem with surveys is that not only will people lie about their motives but they will lie to themselves about their motives.
For example, ( and maybe not a good one ), but what is the probability that what people are really annoyed about is culturally dissimilar immigration but have rationalized a more publicly acceptable reason to themselves?
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Deleteand by the way, for me to prove that I am not a robot would require that I prove that free will exists.
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A case study is any kind of study in which you study cases. In other words, rather than design and conduct experiments or make up surveys, you study subjects and try to draw conclusions based on observations, interviews and other data, usually retrospective data, collected about the case. Thanks for sharing the useful information.
ReplyDeleteDisseminating economic expertise: a Scottish case study
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ReplyDeleteSo the ECB has been an utter failure at fulfilling its mandate of 2% inflation causing serious hardship to non creditor countries and the lesson from this is we need fiscal union too? We repeat the mistakes until they work?
ReplyDelete