Friday, 28 February 2014

End February Links

# Simon Wren- Lewis on the English floods, and the economic policy & climate skepticism of the Tories. It may come back to bite them. Austerity and flood damage & Are the UK floods Cameron’s Katrina?

# Is Liberal England starting to "get" Scottish Independence? Aditya Chakrabortty in the Guardian

# Fantastic point by Matt Yglesias about public policy incentives in Scotland: "A place like Scotland is a sufficiently small share of the United Kingdom that it makes sense for a Scottish political activist to be more focused on 'how much money does this program bring to Scotland?' than on 'how good is this program at generating social benefits in a cost-effective way?' An independent Scotland ... would have politics that I think would ultimately be more constructive." The whole thing is good though too, Should Scotland become independent?

# I love Robin McAlpine's new website C'monScotland (though he needs to get an RSS feed sorted or it's going to be too easy to ignore and miss new posts). It's focus is on the bargaining powers of Scotland in Post Yes vote negotiations, and I think he has it spot on. Some choice quotes:
   - A thousand years old and brand new: "If Scotland is a continuing state then both Scotland and the remainder of the UK inherit all aspects and elements of the preceding state in a proportionate manner. If the UK is party to a treaty, after independence both the remaining UK is a party and independent Scotland is a party. If the UK owns an asset beforehand, rUK and Scotland then own that asset proportionately. If the UK has any obligations (such as debts) then those obligations pass to both rUK and Scotland ... Or you are a successor state in which case there is not a single certainty ... If we're out of the EU and we have no access to Sterling, we have no obligation to UK government debt ... there are some downsides to that position. Yes we'll need to agree terms for EU entry ... But it's not all downside; with no obligation to accept debt (and no mechanism via which it can be imposed on us) we have a very strong bargaining position. In fact, if only we could start thinking about ditching Sterling we'd have all the cards."
   - On unicorns for tea: "let there be no more talk of default. Let there be no more talk of 'crippling rates of interest' which (a) recent precedent suggests is pure scaremongering not related to events and (b) refers to the crippling interest to be paid on debts we don't have. If the worst came to the worst and Scotland was left in a position where it had to play its most aggressive card, we would walk away with no debt, no default and no problem raising money."
   - The difference between having and using: "if we set up a deal [the shared constraints implicit in a Sterling Union] to maintain a sensible approach to running deficits in the early years of independence ... that means we're not independent?... Apparently, however, the loss of interest rate-setting and the need to hold to a reasonable pact on deficit are the red line that must not be crossed. Neither of these things are anything like as fundamental to the operation of the state as the loss of control over trade, state investment or domestic law, but for some reason we are supposed to hang our heads and give up. It's not real independence. ... There are only two constitutional positions; sovereign and not sovereign. Being a nation state puts you into the former of these categories. What you do with your sovereignty – and for how long you do it – is then up to you. Hence 'sovereignty'. Britain has given up much more sovereignty already than even the most cautious SNP position proposes we additionally give up post independence. Germany has given up even more. In fact, Germany will probably have given up more power than Scotland when all is finalised. Is Germany a sovereign state? How do the poor Germans get through the day when they realise that their 'independence-lite' constitutional status is barely worth having? ... A sovereign nation is in control, not just now but indefinitely. If Scotland joins a Sterling Zone-pact and if that pact is badly negotiated ... we can just change our mind. We can leave whenever we want, irrespective of what we've agreed. It's called realpolitik and it happens day and daily."
  - Born honest, born clever: "unless the UK accepts Scotland beginning its independent life as a continuing state (something the UK point blank refuses to even contemplate), we have no formal obligation to do, accept or agree anything. This is not Scotland's doing, it is the rules of the game as chosen by Whitehall. ... Still, the people of England were robbed by these bandits every bit as much as the people of Scotland. ... My position is clear on this; if this debt was to be repaid by the elite that created it I'd be off like a shot, leaving them to drown in the backwash of their corrupt financial system. But it isn't. The elite are never the ones that pay for their crimes; it's always the people. And it is the people of England, Wales and Northern Ireland who will be paying for the behaviours of the elite. I for one will have no part of leaving them on their own with no cash to invest in their society while Osborne and Darling enjoy their personal millions. But – and oh what a size of but this is – the terms on which we repay our debt to the English, Irish and Welsh people will be our terms. Every intransigent action take by Whitehall in negotiations which costs Scotland money will be subtracted from that debt. If they really did refuse access to Sterling then the cost of a foreign currency reserve (the cost of running a currency pegged to Sterling) would be taken off that debt. If they mess us around on our share of the assets, we'll make the unilateral decision on what we're deducting in kind. And so on. If the people of the rest of the British Isles want us to take our share then they have the responsibility to make their democratic government behave in good faith. "

# And this post by Prof Christine Bell, Currency Reflections: The Legal Issues, shows that Robin McAlpine is not out on a limb in his interpretation.

# Whilst claiming that 'we really really want a currency union and if we don't get one then our outside option looks pretty good' may be a masterstroke in the bargaining process, it remains the case that a currency union is fundamentally not a good idea: even Krugman agrees.

# This is great: Lasers blast a way forward for nuclear fusion power; but this is disastrous: Fire in the hole: After fracking comes coal

# I like Chris Dillow's examples in When good ideas turn bad

# "So, if you were a ranting leftist, you might say that political attitudes are shaped by class, and that ideological justifications for high inequality are just a veil for class interest. You might also say that “sound” economic policies are really just policies that redistribute income upwards. And it turns out that the econometric evidence more or less supports your rant."

# Data visualisation:
   - Guardian Cities interactive map on life expectancy in cities based on LSE Cities’ data
   - James Trimble's maps:

Tuesday, 11 February 2014

How could independence cost more to provide just the same?

Last week the FT reported that Owen Kelly, the chief executive of Scotland’s financial services industry trade body, Scottish Financial Enterprise, said: "A yes vote would require the creation of an additional financial regulator with hundreds of staff. The cost would run into millions and have to be paid for by the industry in Scotland".

Why would having a regulator in Edinburgh as well as London cause, or not cause, increased costs? Increased costs would arise if the work of the regulator involved a large percentage of fixed costs (say writing regulations) rather than variable costs (e.g. dealing with individual cases). I don't know much about the detail of financial service regulation, but I would have thought that checking the compliance of individual companies (i.e. variable costs) would account for much of the total costs and that any additional fixed costs could be covered by the savings made through reduced office rents and salaries for operation from Edinburgh rather than London.

Suppose there are no additional costs, but no savings, then would this be positive for or against independence? Clearly For. No additional costs so increased activity in Edinburgh must be at the expense of reduced activity in London (they have fewer cases to process because some firms now under jurisdiction of Scottish regulator). 2 minutes of speculation leads me to think that a Scottish regulator is likely to be a net positive for Scottish economy, and net neutral for Scottish financial service firms. But as usual the scream of 'there might be some changes' goes up and it's a massive blow for the independence campaign.

It does highlight a wider issue that many people possibly get wrong: there are public services provided for the UK as a whole that are not currently provided in Scotland - mainly central government services like HMT etc; surely it will cost Scottish taxpayers money to provide these services post independence? Well, no: unless there is evidence for fixed costs in public good provision, then reducing the amount of services required by UK by 8.4% and creating this level of service provision in Scotland, has no net cost to taxpayers. It may be a loss to the London economy and a boost to Scotland's economy to have the high status employment of providing these services located here.

But are there fixed costs in public service provision? You might have thought so, but perhaps surprisingly Deaner & Phillips (2013) (*) do not find any evidence of scale economies when looking across Europe at the costs of providing public services in countries of different sizes.

(*) Section 5.1 ‘Spending by service area – how might it change?’ on page 62 and 63

Wednesday, 5 February 2014

End January Links

# Interesting stats about (English I think) housing markets: 4 charts that prove you know nothing about the housing market

# Francis Coppola has Three posts on Basic Income

# Dude, where's my North Sea oil money & Was the UK government’s use of North Sea Oil a scandal?

# My interview with Michael Greenwell at Scot Independence Podcast

# Read some of the Papers prepared for the Sixth Urban Research and Knowledge Symposium

# Some more interesting material from Business for Scotland, dating from the pre-North Sea Oil period, that I should follow up on: Scotland's century of lost wealth

# The case for Land Value Tax by Noah Smith: This 100-year-old idea could end San Francisco’s class war

# On the Labour proposal to raise the additional rate of income tax back to 50p (related to the behavioural responses in my inequality paper):
   - The IFS: 50p tax – strolling across the summit of the Laffer curve?
   - Frances Coppola: Oh no, not again
   - Chris Dillow: Taxes and growth
   - Simon Wren-Lewis: Understanding ever increasing executive pay

# Absolutely brilliant post from Matthew Yglesias about forthcoming Piketty book on capital and inequality: The Return of Land Prices, featuring the following chart: we're back in the world of Henry George...