Wednesday, 17 September 2014

The Economic Choice on Thursday

Over the last couple of days I've tried to lay out a series of mechanisms whereby independence - perfectly conceivably - leads to better outcomes. Mechanisms for economic gains from independence #1, #2. #3, #4 & #5.

This is partly in response to articles like this in the Daily Record in which some economists claim that the evidence all points one way. It clearly does not. This is not to say that Yes has all the evidence on its side: in particular, a currency union is bad idea; and I would hope that an independent Scotland adopts a Scottish currency. Such a currency should be pegged to Sterling initially to allow existing Sterling denominated liabilities (mortgages etc) to be paid without currency risk. New liabilities that are taken on should be denominated in the Scots currency, and when exposure to Sterling is minimal, the peg can be broken if appropriate.

I think the economic choice on Thursday can be summarised in the following way:

The Scottish economy is performing as well as the UK economy at the moment, and the Barnett Formula roughly compensates Scotland for North Sea oil tax revenues. But on the horizon are two major challenges: an ageing population, and the decline of the North Sea. The campaign pitches are both, fundamentally, about how these challenges are faced.

# The No position is to not do anything about these issues at all. What it proposes instead is that Scots can be reassured that they will start to receive transfers from the rest of the UK that allow public services, pensions, etc to continue to be paid even as economic output in Scotland falls.

# The Yes position is that we don't want these transfers and that we need to do something to make sure that economic output does not fall. This something is not exactly defined: "a government with the best interests of Scotland" is a sentiment consistent with this aspiration, but what exactly will differ policywise is not completely clear. A policy of increased immigration is clear and consistent, but other than this, little has been spelled out (which is of no surprise given that it is a matter for 2016 election).

Both these pitches have logic behind them. One is not necessarily more reprehensible or laudable than the other. An individual should vote on how appealing these pitches are (what are your preferences over them), and whether they trust them to be deliverable (how credible do you believe them to be).

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