Wednesday, 17 September 2014

Mechanisms for economic gains from independence #5

# Timing

Some people seem to think that the aftermath of a financial crisis, when public debt levels, and the risk of hitting the zero lower bound for interest rates, are high, is a bad time for declaring independence. I'm not denying their mechanisms, but they are ignoring the headline lessons of Keynesian economics: times when labour is un/under-employed, and when capital is cheap (risk free interest rates are low), are the best times to incur the transition costs of independence.

In times of full employment, with "normal" interest rates, the need to spend resources setting up the institutions of a new state would crowd-out resources from the private sector. However, in these depressed times, this additional spending could pay for itself by drawing upon otherwise unemployed resources.

Notwithstanding today's good news on jobs (which certainly doesn't go as far as getting us back into the realms of full-employment or away from the zero lower bound on interest rates) the additional demand from the need to cover the transition costs of independence could be just the kick-start the Scottish, and rUK, economies need.

1 comment:

  1. This is an interesting argument. I actually thought this was a supply side argument for undertaking public investment during a recession (or any investment) rather than a Keynesian argument. None the less, it is one plus side for the timing, although unclear how well it weighs up against the other timing issues. However, it is not an argument for independence in itself. Is it?