The Big Mac

As has been well rehearsed in many places, yesterday (18th August) was GERS day, when the undead, sorry Unionists emerge to condemn not just independence but the futility of even seeking independence. Needless to say, and as pointed out elsewhere, the Herald was all over this. There was the usual one-eyed nonsense from Tom Gordon, but also a piece by the former Adam Smith Professor of Economics at the University of Glasgow (no less), the interestingly named Ronald MacDonald (now Research Professor).

As is well known, the Prof is a dyed in the wool Unionist who will condemn independence at the very mention of the word. His area of expertise is international finance – check out his cv, he’s done the lot – IMF (no fewer than 14 times), European Central Bank, World Bank, Deutsche Bundesbank, Royal Bank of Scotland (in the 1990s GU was careful to add), Credit Suisse First Boston, Gartmore and Deutsche Morgan Grenfell etc – he really is neo-liberalism’s man and they have repaid the debt by awarding him buckets of research cash which he transformed into journal articles, books etc, which in turn got him a Chair at Strathclyde before moving to the more sophisticated environment of Gilmourhill. Yes, I went to GU as well (and yes, we did refer to it as Strath Tech, but that’s for another day), and sometimes wonder how quickly Tom Wilson (Adam Smith Prof in my day) and Andy Skinner (subsequent Adam Smith Prof and one of my most influential lecturers) must be birling in their graves that that man occupied “their” Chair. Anyway, enough of character assassination ….

His contribution yesterday is headlined “GERS report: ‘Sheer folly’ of SNP’s independence plans highlighted”, so we can’t complain we couldn’t know what to expect. The thing is that as a piece of Economics writing it just isn’t very good (in the humble opinion of a retired Senior Lecturer at the UWS Business School at Paisley, albeit with a 2:1 in Political Economy and Sociology, as well as a GU PhD).

Let’s leave all the criticisms of GERS to one side, given where we were (according to GERS) last year, and adding Covid to the mix, how surprising is it that a “fiscal deficit figure of 22.4% of GDP” is all that much of a surprise? But MacDonald is all over it, as if it were a surprise. His problem is the absence of any benchmarks – comparators to give an estimate of scale. And the further the piece goes on the more glaring and serious this failure becomes. He bangs on at length about “the fiscal insurance provided as part of the UK” as if the UK somehow uniquely was able to do this. Once he starts on this, it becomes more evident why he doesn’t use benchmarks.

If he wont give us benchmarks, let’s get a few of our own, starting with the “wee country” just across the North Sea – Denmark (just about the same population). The current UK deficit as a proportion of GDP is 13.43% (Countryeconomy.com), while in poor wee Denmark it is ….eh….gulp …. 0.6% (yes that does say zero point 6 of one percent). Aye right, you might think, but the Danes will not have provided the same largesse as the UK did to workers laid off. And you would be right. In some regards, they did it better.

The Danish government paid sick pay (normally funded by employers at a better rate than in the UK), they paid up to 75% of salaries and 90% for hourly paid workers (who of course will normally be less well paid and whom the loss would hit harder); they compensated the self-employed for up to 90% of lost revenue where the revenue decline is estimated to be at least 30% and there are 10 employees or less. Start-ups were compensated for up to 75% of lost salary.

Ah yes, but they were able to use the power of the Euro (stop laughing!). Leaving aside the way the Euro is mocked in the UK, it remains one of the world’s main currencies. Problem is that the Danes don’t use it – they still use their Kroner, though they are signed up to the Currency Stability Pact.

Therefore, Denmark isn’t a benchmark the Prof would use. So what about a few others? Remember the UK has a deficit of 13.43%.

France 9.2%; Czech Republic 6.2%; Australia 3.83%; New Zealand 5.79%

In fact if you go through an international league table of deficits, the only countries to rival the UK’s are Brazil 13.37%, Botswana 13.19%, India 12.26%, Trinidad and Tobago 11.79% and South Africa 12.25%.

But is there nowhere worse than Scotland, which Professor MacDonald takes great joy in telling us is 22.4%? Among those even worse are Kiribati 40.38%, Libya 24%, Timor-Leste 25.62%, Venezuela 22.99%. Now to be down there among those takes a bit of doing. Does the fault lie with us? Despite all the largesse of the UK, Scotland is just irredeemably hopeless? Or do we need to think about who it is that controls the till?

As you might expect, I go for the latter for reasons I will set out in the next part.

However, before we proceed to that, there is another void in the Prof’s argument. He writes “Even with an appropriate currency regime in place, a newly minted independent Scotland without the long history of credibility that the Bank of England and Treasury have, would have to pay a premium on its borrowing over UK rates due, for liquidity and credibility reasons, of up to 1.65%.”

There are two fairly simple points from this. First, is 1.65% not a remarkably precise number – not 1.6, not 1.5. Why not 1.00% to 2.00%? I find that a wee bit suspicious – either that or I want to know his lottery numbers!

As to the second point, this isn’t something that ever happened to me (my parents had never learned to drive – I was the first with a licence, so the family car was always available), but I expect there are loads of people who when they passed their test and looked to get the family car were told “no, you don’t have enough experience”. Of course, until they get the chance to get out on the road they will never acquire that experience, and that is the problem with MacDonald’s point about credibility. He might be right that the markets will look hard at a new Scottish currency, but that is not to say – just as most kids don’t wrap the family car round the first lamppost (though the fact some do is a warning) – that the markets will not settle down, perhaps fairly quickly once they realise Scotland is facing up to its problems (not well described by GERS btw) in a realistic and effective way.

Of course until we are independent this uncertainty will always exist, and it is being used by Unionists like MacDonald in the same way as the bogey man behind the settee.

In conclusion, let’s be clear that MacDonald is a senior and leading economist. However, he is also stridently against independence. It is hard to see how he keeps these things apart – ie using his well-developed economics skills against independence for essentially reasons of personal opinion. I think his Herald article sums this up pretty well.

 

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