Dismal Scientist

Yesterday a good friend in California (one of the whip-smart feminists to whom I referred recently) forwarded two Op Ed pieces from the prestigious New York Times. Apparently it is not only the London press corps who have woken up to the magnitude of events unfolding here in Sconnie Botland. In one Why Scotland Should Stick With Britain guest writer Gordon Brown explains why the four ‘countries’ of the UK are just dandy the way they are; “Scottish patriotism did not demand expression in a separate state”, as he puts it. Though worth rebuttal, it did not cry out for deconstruction because it was, to be fair, a pretty articulate take on his long-held unionist views.

No, what screamed out for counterargument was a piece from the prestigious Nobel prizewinning Princeton Prof. Paul Krugman; Scots, What the Heck?  To assist readers, it is reproduced below in full (or at least until the NYT lawyer SWAT team come through my skylight), followed by an e-mail I fired back at my friend (with cc to Kaufman before my sense of outrage subsided). It is one thing to opine on another’s future. However, the weightier your qualifications to do so, the more imperative it is that you do it right.


“Next week Scotland will hold a referendum on whether to leave the United Kingdom. And polling suggests that support for independence has surged over the past few months, largely because pro-independence campaigners have managed to reduce the “fear factor” — that is, concern about the economic risks of going it alone. At this point the outcome looks like a tossup.

“Well, I have a message for the Scots: Be afraid, be very afraid. The risks of going it alone are huge. You may think that Scotland can become another Canada, but it’s all too likely that it would end up becoming Spain without the sunshine.

“Comparing Scotland with Canada seems, at first, pretty reasonable. After all, Canada, like Scotland, is a relatively small economy that does most of its trade with a much larger neighbor. Also like Scotland, it is politically to the left of that giant neighbor. And what the Canadian example shows is that this can work. Canada is prosperous, economically stable and has successfully pursued policies well to the left of those south of the border: single-payer health insurance, more generous aid to the poor, higher overall taxation.

“Does Canada pay any price for independence? Probably. Labor productivity is only about three-quarters as high as it is in the United States, and some of the gap may reflect the small size of the Canadian market (yes, we have a free-trade agreement, but a lot of evidence shows that borders discourage trade all the same). Still, you can argue that Canada is doing O.K.

“But Canada has its own currency, which means that its government can’t run out of money, that it can bail out its own banks if necessary, and more. An independent Scotland wouldn’t. And that makes a huge difference.

“Could Scotland have its own currency? Maybe, although Scotland’s economy is even more tightly integrated with that of the rest of Britain than Canada’s is with the United States, so that trying to maintain a separate currency would be hard. It’s a moot point, however: The Scottish independence movement has been very clear that it intends to keep the pound as the national currency. And the combination of political independence with a shared currency is a recipe for disaster. Which is where the cautionary tale of Spain comes in.

“If Spain and the other countries that gave up their own currencies to adopt the euro were part of a true federal system, with shared institutions of government, the recent economic history of Spain would have looked a lot like that of Florida. Both economies experienced a huge housing boom between 2000 and 2007. Both saw that boom turn into a spectacular bust. Both suffered a sharp downturn as a result of that bust. In both places the slump meant a plunge in tax receipts and a surge in spending on unemployment benefits and other forms of aid.

“Then, however, the paths diverged. In Florida’s case, most of the fiscal burden of the slump fell not on the local government but on Washington, which continued to pay for the state’s Social Security and Medicare benefits, as well as for much of the increased aid to the unemployed. There were large losses on housing loans, and many Florida banks failed, but many of the losses fell on federal lending agencies, while bank depositors were protected by federal insurance. You get the picture. In effect, Florida received large-scale aid in its time of distress.

“Spain, by contrast, bore all the costs of the housing bust on its own. The result was a fiscal crisis, made much worse by fears of a banking crisis that the Spanish government would be unable to manage, because it might literally run out of cash. Spanish borrowing costs soared, and the government was forced into brutal austerity measures. The result was a horrific depression — including youth unemployment above 50 percent — from which Spain has barely begun to recover.

“In short, everything that has happened in Europe since 2009 or so has demonstrated that sharing a currency without sharing a government is very dangerous. In economics jargon, fiscal and banking integration are essential elements of an optimum currency area. And an independent Scotland using Britain’s pound would be in even worse shape than euro countries, which at least have some say in how the European Central Bank is run.

“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.”


S:

this is typical of the kind of Op Ed pieces that pour from mighty organs like the NYT—written by intelligent, educated people who actually don’t know what they are talking about. None of this is about you but bear with me while I fulminate.

It is fair comment to take the jaundiced view of a critical friend in such weighty matters and, yes, look at places like Canada, Florida and Spain as possible models to predict what might happen to Scotland; it is poor journalism not to back up assertions with economic realities, including numbers,—and he is qualified and trained to do so.

The Canada/US model works as an example only from the view of relative sizes: 318.7m ‘Murcans to 35.4m Canucks is about 9:1 while the UK (less Scots) 58.8m vs the Scots 5.3m runs out at 10:1. NAFTA means you share $735bn in trade each year. That’s 62% of all Canadian exports, with the next two (China and Japan) dwarfed at 5.2% and 3.6% respectively. In other words, economically, you’re joined at the hip.

Scotland exports £58.3bn to rUK and £35.6 to elsewhere in the world. That’s a healthier division and we’re not even a proper country—yet. £6.9bn of the latter is engineering product (mostly oil & gas), £4.1bn is chemicals and £3.9bn is whisky, all of which have global penetration. 14.4% go to the USA, 11.1% to Netherlands, 8.1% to France and 5.7% to Germany. Growth markets like China we have barely started on. Name one Canadian product beyond maple syrup. If the US sneezes, Canada gets pneumonia; we Scots look far more diversified so his comparison collapses as you dig into it.

Where we agree is his bit about Florida is valid—but only for a ‘state’ (as you call them) that is not a proper country; the Feds had no choice, like in the S&L debacle I lived through in the 1980’s. Don’t start me on bank bailouts or this will get really tedious.

Then he compares us to Spain? That’s like comparing Massachusetts to Bolivia. Three decades ago, Spain was a third-world fascist dictatorship. EU investment (and turning a blind eye to its piratical fishing fleet practices) has dragged it into the Western World. Its banking system is just one step away from the mafia-driven Italian variant. Thanks to their banking hubris (comparable to the UK’s when Gordon Brown hobbled the UK equivalent of SEC/FINRA and everyone played ‘emperor’s clothes’) their economy went to hell in a handcart in 2008 and they have since had 27% unemployment (Scotland’s is right around yours at 6.4%). No wonder the Catalans want out themselves. Name one Spanish product beyond sherry/wine.

The man is a professor of Economics and International Affairs at Princeton, for heaven’s sake; he was even given a Nobel prize. He should KNOW better—but he writes like the closest he’s ever got to Scotland is watching Scotty fondle dilithium crystals on TV. When we Scots are within an ace of achieving a sensible independence of a country that boasts a longer history than yours (and in whose cause we pride ourselves no-one has yet died), I really don’t appreciate such people running off at the mouth about issues so vital to others about which they apparently haven’t even had the damn courtesy to do their homework.

If you’re ever in NY, tell him. 🙂

D

“For, as long as but a hundred of us remain alive, never will we submit to English rule. In truth, it is not for glory, nor for riches, nor for honours that we fight, but for freedom alone, which no honest man gives up but with his life.”
—Declaration of Arbroath, 1320

About davidsberry

Local councillor, tour guide and database designer. Keen on wildlife, history, boats and music. Stood for the Scottish Parliament 2011; lost by 151 votes.
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