First independence, then more austerity

Opposition to austerity has given new impetus to Scottish Nationalism yet independence would ironically mean Scots enduring more austerity

In a scathing post on his Mainly Macro blog, Oxford Uni economics professor Simon Wren-Lewis dissects the claims made about the fiscal position of an independent Scotland. He observes that the’ independent and impartial’ IFS has indicated that an independent Scotland would be reliant for revenue on diminishing supplies of North Sea oil and tackling an ageing population. In addition, Wren-Lewis believes that being part of a currency union would mean Scotland having to pay more interest on its borrowing. The net effect of this would be to leave an independent Scotland looking at a much larger gap between the government’s revenues and its spending than would the UK as a whole.

He argues that the results would not be pretty:

Could Scotland just borrow more? I am all for borrowing to cover temporary reductions in income, due to recessions for example, which is why I have been so critical of current austerity. However, as the IFS show, North Sea oil income is falling long term, so this is not a temporary problem. Now it could be that the gap will be covered in the longer term by the kind of increases in productivity and labour supply that the Scottish government assume. Governments that try to borrow today in the hope of a more optimistic future are not behaving very responsibly. However it seems unlikely that Scotland would be able to behave irresponsibly, whatever the currency regime. They would either be stopped by fiscal rules imposed by the remaining UK, or markets that did not share the SNP’s optimism about longer term growth. So this means, over the next five or ten years, either additional spending cuts (to those already planned by the UK government), or (I hope more realistically) tax increases.
Is this a knock down argument in favour of voting No. Of course not: there is nothing wrong in making a short term economic sacrifice for the hope of longer term benefits or for political goals. But that is not the SNP’s case, and it is not what they are telling the Scottish people. Is this deception deliberate? I suspect it is more the delusions of people who want something so much they cast aside all doubts and problems.
This is certainly the impression I get from reading a lot of literature as I researched this post. The arguments in the Wee Blue Book are exactly that: no sustained economic argument, but just a collection of random quotes and debating points to make a problem go away. When the future fiscal position is raised, we are so often told about the past. I too think past North Sea oil was squandered, but grievance does not put money into a future Scottish government’s coffers. I read that forecasting the future is too uncertain, from people who I am sure think about their future income when planning their personal spending. I read about how economists are always disagreeing, when in this case they are pretty united. (Of course you can always find a few who think otherwise, just as you can find one or two who think austerity is expansionary.)

One thought on “First independence, then more austerity

  1. Pingback: “Spain without the sunshine” | Matter Of Facts

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