Changing the narrative; from illusion to reality

moneytalk2By Kimberley Cadden

It’s a curious thing. The right wing unionist media are so entrenched in the tory narrative they sell every day that they seem to have forgotten that they’re salesmen. Well salesmen with a dash of the magician about them, misdirecting their audience so that they miss the act of deception itself and instead buy the illusion; only in this case it seems the magician has also fallen for the illusion, and to such a degree they’ve even forgotten it’s a trick.

The narrative I speak of is the one where we’re told everything in the country will be just fine as long as we go from fiscal deficit to surplus as quickly as possible, and do so mainly by cutting public spending.

This, along with the constant diversion of shifting blame for the state of the economy from incompetent bankers and politicians to benefits claimants and immigrants (and of course all whilst making no mention of the billions lost in tax noncompliance or indeed corporate welfare) constitutes both the misdirection and the illusion that the right wing establishment perpetuates.

And it is an illusion because the contention that we need to make cuts – especially to benefits – is a lie.

Indeed the idea that austerity economics is the only approach to economies either in, or recovering from, recession – and that therefore all debate should take place within this narrative – is entirely laughable; not least because the economic tale of the need for austerity has been largely rubbished and rejected by the world’s economists.

This has been elucidated particularly well by US economist and Nobel Laureate Paul Krugman, who remarked in April “since the global turn to austerity in 2010, every country that introduced significant austerity has seen its economy suffer”. He adds “all of the economic research that allegedly supported the austerity push has been discredited”; thus it has failed both in practice and in theory. Indeed his fellow economist and Nobel Laureate Joseph Stiglitz sums it up nicely: “austerity has been an utter and unmitigated disaster”.

Even still Krugman notes that the three main UK establishment parties and indeed most of the UK media “still believes it”, adding “by 2013, austerian doctrine was in ignominious retreat in most of the world – yet at that very moment much of the UK press was declaring that doctrine vindicated”.

Some might argue that the coalition (as well as the Labour Party) and most of the media took such a view as a result of the signs of economic growth by 2013. However this growth wasn’t a sign of the success of austerity, rather it was a sign of applying the brakes; Krugman comments “given the fact that the coalition essentially stopped imposing new austerity measures after its first two years, there’s nothing at all surprising about seeing a revival of economic growth in 2013”.

That economic growth in the UK jumped up again in 2014 further exemplifies Krugman’s point: “Britain did almost no fiscal tightening in 2014, and grew 2.9%. In other words, it performed pretty much exactly as you should have expected”, he then adds the crucial point “and the growth of recent years does nothing to change the fact that Britain paid a high price for the austerity of 2010-2012”.
In case there was any doubt that British economists largely agree with the conclusions of most others elsewhere, the 2015 survey by the Centre for Macroeconomics makes the reality clear: they concur in spades.

Indeed in its survey of leading UK economists CFM found that only 1 in 6 mildly agreed with the proposition that austerity had stimulated growth and employment (no-one strongly agreed).

It’s very clear at this point that with a Tory government planning a further round of deep cuts we can expect the same kind of stalling growth for no economic reason or gain.

Indeed Stiglitz has commented that continued austerity in the EU is leading to resurgent ‘stagnation’. Even leading economist at the IMF, Olivier Blanchard, as reported by Brad Plumer in the Washington Post, has admitted that “recent efforts among wealthy countries to shrink their deficits…have been causing far more economic damage than experts had assumed”.

So why is the UK government and most of our media perpetuating this illusion of the need for continued austerity when it’s clear that this has been, and will be, damaging to our economy?

Well I am sure for most of us the reason is already very obvious: the real aim behind austerity is shrinking the state; and indeed on this point we cannot purport that the intention has been hidden.

David Cameron has been very clear his party’s purpose has been to cut the size of government spending “not just now, but permanently”. The lie of course being that this is good for the economy as well as each and every British citizen, rather than the truth which is that this is ideological and the only people who benefit are the richest in society; who now not only have more power over the rest as a result of austerity, but who’ve also seen their wealth increase at astonishing rates, rivalled only by the rate of increase in food poverty and malnutrition in this ‘one nation’ Great Britain.

Of course the reasons for Labour’s adherence to the illusion are no less selfish.

They may not be as ideological when it comes to austerity as the Tories (although granted this is presently debatable) but their adherence to the Tory austerity mantra of the need for spending cuts meant that in the General Election people in the UK weren’t given the alternative of fiscal stimulus and sustainable growth (the economically credible course of action) from either of the two main parties. Of course this stimulus approach preferred by economists would not only have been better for the economy, but also the majority and certainly the most vulnerable; and yet the party that is supposed to be ‘for the working people’ embraced austerity instead.

So why did Labour do it?

Arguing within the Tory narrative was obviously the only way the Labour party thought it could win people’s votes; though one might have hoped they would have had more concern for the outcome. Krugman commented before the election: “both major parties are in effect promising a new round of austerity that might well hold back a recovery that has, so far, come nowhere near to making up the ground lost during the recession and the initial phase of austerity”.

The sad thing now of course is that after losing so comprehensively Labour are adhering to the Tory narrative more than ever before. Absolutely hopeless.

And that takes us back to our unionist-media salesman with a penchant for the illusory (much like their political counterparts): in a Twitter conversation I had with a Times columnist recently he commented that a SNP MP had refused to debate the SNP policy of Full Fiscal Responsibility and instead responded when questioned that the SNP will do ‘better than the Tories’ when it comes to running the Scottish economy.

The journalist felt this was simply an effort to shut down debate, however my take was that more than likely it was simply a refusal to argue within the Tory narrative – i.e. that the issue surrounding FFR is simply a question of where the Scottish government would make cuts to fill its £7.6 billion ‘black hole’, or rather Scotland’s projected deficit for the year 2015-16 as a result of being part of the UK.

We must also remember to take the relevance of this projected deficit with a pinch of salt – not least because no-one knows the total tax revenue for Scotland due to the refusal of successive Westminster governments to detail this information. Not to mention the obvious fact (ignored by the IFS) that the whole point of FFR is to do things differently to how they are done now.

In my view any refusal to engage in the Tory narrative is thus a wise move by SNP MP’s; not only does the SNP have nothing to gain by debating on the false premise that you have to cut to deal with a deficit (and one which would be different anyway) but in refusing to do so, whether in parliament or elsewhere, they are also doing the British people a good turn.

Indeed all people and parties upholding the Tory narrative are continuing an illusion that serves only to damage the lives of the majority, and bring misery to the most vulnerable. Charities on the frontline of stemming the devastation of UK government policies make it clear there can be no doubt that austerity has come at great human cost.

Thus the SNP, by challenging this narrative and arguing real progressive politics, are slowly but surely opening up the terms of the debate and helping to break through the illusion so that we arrive at the simple reality: there is another way, and it’s far better.

The failure of many journalists to understand that this is even a possibility is quite astounding, as in the end all it is testament to is their ability to be taken in by their own illusion. As Krugman noted, somewhat stunned, they still believe it…

So if cuts aren’t the answer then what is?

Krugman asserts that ‘fiscal expansion’ is the initial means of creating economic growth for the UK, i.e. an increase in public spending through borrowing ; indeed Stiglitz has been arguing the same position and it is widely understood by economists that this is the path to take. Krugman adds that this is nothing new, contrary to what we may read in the UK papers or indeed hear on the BBC “mainstream, textbook economics not only justified the initial round of post-crisis stimulus, but said that this stimulus should continue until economies had recovered”. In other words the majority of economists have been telling us this from the start, it’s just more are doing so now than ever before.

This is also the SNP position and has been since before the election. The idea of course being that the need to borrow will gradually reduce as the economy grows stronger.

However the vision of a ‘recovered economy’ needs some attention here. George Osborne has argued that this government, as well as all its successors, needs to ensure there is a ‘permanent budget surplus’; the idea being that this is the way to run a healthy economy. However yet again the Tory storybook of economics has been rubbished by the world’s leading academic economists.

On Friday 77 of them, including Ha-Joon Chang, Thomas Picketty and David Blanchflower published a letter in the Guardian newspaper pleading with Osborne not to play politics with the economy, stating quite simply that his plans “have no basis in economics” and that his policy of enshrining surpluses into law “requires an urgent rethink”.

They go on to warn if Osborne enacts his policy of bringing a permanent end to government borrowing, it could have a knock-on effect to personal debt; “households, consumers and businesses may have to borrow more overall, and the risk of a personal debt crisis to rival 2008 could be very real indeed” they add further that Osborne risks a ‘liquidity crisis’ which could result in “banking problems, a fall in GDP, a crash, or all three”.

These experts thus make clear that of course governments need the option to borrow, and of course this is part of a healthy functioning economy and they are utterly incredulous at the idea that any government would think otherwise. They are at pains to point out that running surpluses shouldn’t be the main economic goal of responsible government, but rather the goal should be “(the ability) to respond appropriately to constantly evolving economic circumstances, good or bad” in order to “deliver a stable economy in which all can prosper”.

So recovered, healthy economies may still run deficits and this isn’t a bad thing. In fact it’s crystal clear that the main focus should be on creating sustainable economic growth, using the right kinds of levers including borrowing when needed, in order to effect the kind of ‘stable economy’ these economists have made clear is currently in a state of utter peril in the UK, whilst in the hands of the apparently economically illiterate Conservative government (and clearly Labour are no better).

Not so with the SNP; indeed this very recognition is clearly why in addition to John Swinney’s comments that the Scottish government will use its new borrowing powers sensibly for investment to stimulate growth, the SNP have put forward a proposal for the phasing in of FFR that begins with Scotland taking on the right set of powers in the right order to be able to grow our unique economy, in a stable, sustainable way.

And of course if the Scottish government were able to implement FFR they would gradually be able to take further growth measures:

For example they could levy new progressive taxes, the kinds recommended by charities such as Oxfam to deal with the stain that is rising inequality; a financial transactions tax and a land value tax would be a good start. And of course with the Scottish Government’s tight tax avoidance laws they could recoup lost tax revenues currently uncollected due to (deliberately) lax UK tax laws and procedures. To put these into perspective the land value tax alone could add billions to the budget each year (we should also note that for this particular tax we don’t even need FFR). And indeed these are ongoing redistributive taxes which in addition to strengthening our economy would also help to create a more equal society.

They could also look at innovative finance options such as green infrastructure quantitative easing.

Economist Richard Murphy from Tax Research UK argued in Holyrood Magazine that the Scottish government could use such money creation to invest in “infrastructure, housing, new energy systems, transport and the other essential underpinnings of growth in Scotland”. And he is not alone; left wing economic think tanks such as the Common Weal Project and the New Economics Foundation have promoted the same idea.

Murphy has also made it clear that he rejects the growth forecasts of the ‘neoliberal’ IFS and that once the Scottish government was able to put its economic ideas into practice “Scotland could deliver exponential growth”.

We must also remember that the UK as a whole in the five years up to 2013-14 ran a cumulative deficit of £600 billion. This should give us some indication of the reality that having deficits, even substantial ones, doesn’t prevent a country from running her own finances. This should go without saying, however when the establishment parties and media are citing this as the reason why Scotland should not be fiscally autonomous, it becomes incumbent on those of us who still rely on principles and common sense to state the ridiculously (and woefully) obvious.

Therefore it’s not a question of whether or not we can become fiscally autonomous or indeed of which cuts we would make; as has been demonstrated here these questions are rooted solely in the illusion of neoliberal austerity politics (or indeed complete distortions of fact) and thus are undeserving of the dignity of a response; as a progressive I simply refuse to lend any validity to this socially oppressive narrative.

Instead I feel duty bound to both highlight and challenge this very narrative – the one we see reflected all around us – everywhere from the Telegraph to the Daily Record -and from David Cameron to Kezia Dugdale; by focusing on the deficit and portraying its significance in the way they do they show their hand and I say call them out on it, and indeed for the socially and economically destructive politics they are propping up even in their questions.

There is a valid narrative in which to debate the merits of FFR: how can the people of Scotland and our representatives build our country according to what we voted for and what we want to be, rooted in the economic reality that we not only can grow without cuts, but that we must; and to those unionists who refuse to acknowledge this final point and prefer their hall of mirrors, I say goodbye – because at least as far as this debate goes, it’s time to leave you behind.

And of course the most important question here has already been answered, and that is the question of who we trust with the job of growing our economy and to take the right decisions for all of our people, not just the privileged few; not only so that we have a fairer, more equal society, but so that we prosper too.

We answered this question on May 7th by returning an overwhelming majority of 56 SNP MP’s to Westminster, who won not only the majority of seats but the majority of votes as well, and who stood on a manifesto platform of negotiating FFR for the Scottish people; thus both their mandate and our response couldn’t be clearer: we trust ourselves.

However those in the commentariat who always anchor themselves in the real debate, such as Iain MacWhirter of the Herald, have argued for a long time that FFR will not happen as it’s too close to independence for the unionists. It should be very clear to us all by now that they aren’t wrong.

Indeed the Tories, cheered along by a gleeful Labour, are ignoring the mandate our MP’s have been given by the Scottish electorate and instead are overruling our demonstrated will and imposing theirs on us instead. We essentially voted for devo max last month and the UK government has told us tough – you’re not getting it – not even close to it (it might lead to ideas above the station we want you at).

The irony of course is that in an effort to retain the union they are committing yet another act that will condemn it. It seems the level of idiocy within these parties when it comes to the economy is matched only by the same in their approach to the union.

And indeed just as it is clear what to expect with the economy in (either of) their hands, it is now clear what to expect for Scotland as well: We will be at the mercy of governments we don’t vote for (this is now likely to be the case whether it’s Tories or Labour winning the UK ballot) and they will only respect what we do vote for insofar as it coincides with their own interests, no matter the detriment to us (and if there was ever any doubt as to whether this is in fact the case, their income tax trap decisively laid that doubt to rest).

This is the unionist idea of democracy.

And it’s in this contempt for the values underpinning ours that the UK government refuses to implement FFR, or indeed to hold to the unionist party promises of devo max/home rule made before the referendum (or indeed it seems even to Smith); and this will leave us with a watered down Scotland Bill that provides very little room for economic manoeuvre. This does, however, precipitate the helpful clarity that the constitutional choice before the Scottish public is now both apparent and incontrovertible: if we want the powers we vote for, or indeed any more substantial powers at all, the only option left is independence.

Comments (32)

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  1. bringiton says:

    It should be clear to everyone in Scotland that when it comes to Westminster,we don’t count other than to provide resources required by England’s government.
    They will never to to agree to anything which fundamentally changes the relationship between London and Scotland and I fear what the outcome of this intransigence might lead to when our young people realise this fact.
    Devolution has now been shown up for what British Labour always intended it to be,a means to head off Scottish self determination (in any form) and leaving London firmly in charge of our affairs.
    Democracy and the British state are oxymorons.

  2. Connor McEwen says:

    Following S.N.P. economic policy would mean admitting that Dick Dastardly Cameron and Muttley Osborne are wrong. It is not going to happen, State must be shrunk at all cost, line the B [W] ankers pockets at all cost.

    Have a look; http://captiongenerator.com/45585/Mundells-Quandry

  3. douglas clark says:

    Just a question. Would FFR include or exclude oil revenues? It’s a point I have never been clear on, given the invention of ex-regio status for it.

    1. Ian MacDonald says:

      Good point. A lot of the rhetoric that spews forth from the majority of the media seems, in the current market climate, to assume that it would, but without anything to substantiate that. So they claim falling oil prices are/would be to Scotland’s detriment, but not the UK’s.

      In fact, though all of us inevitably suffer from lost revenue at times of low oil prices, it is really the UK overall that has to bear the effects of falls.

      It is quite hard to see how transfer of profit from oil from the UK to Scotland could happen, under Smith at least, given the no detriment clause. It could be up for negotiation under all-out FFR. There would, in reality be give and take. Scotland might in the final deal want to cede some of the profit to the rest of the UK in exchange for shouldering less of the risk of volatility.

      And, increasingly, it is now becoming concievable that renewable energy will be a more important resource for Scotland’s economy than oil by the time any of these negotiations actually bear fruit.

  4. john young says:

    Iceland seems to have turned things around somewhat,anyone paying any attention to what the so called experts say needs their heads examined,where were they at the “crash” did any of them predict it not that I know of,we should follow Iceland and get rid of all the charlatan bankers and set up a financial system that will benefit all of the population.They the usurers/bankers have failed in the past and will continue to fail because greed/selfishness are at it,s heart

    1. dunderheid says:

      Iceland Budget deficit in 2009 = 7.9% GDP
      Iceland Budget deficit in 20013 = 0.9% GDP

      Looks like austerity to me

      Also they put in place capital controls (only recently removed) and massively devalued their currency causing anything imported to rocket in price…still sound as attractive?

  5. barakabe says:

    Shrinking public spending, low taxation ( in the form of embarrassing political gimmicks like passing laws on tax rises & public spending) in order to contract the State are genetic hallmarks of conservative right-wing policy- ‘austerity’ & so-called ‘balancing the books’ are media terms for that timeless ideological strategy. It’s really as simple as that.

  6. Jim Monaghan says:

    The SNP and Labour’s arguments against the tory version of cuts was almost identical, almost to the letter and to the penny.

  7. Anton says:

    By way of evidencing Paul Krugman’s arguments against austerity “when it’s clear that this has been, and will be, damaging to our economy”, Kimberley Cadden notes that “in case there was any doubt that British economists largely agree with the conclusions of most others elsewhere, the 2015 survey by the Centre for Macroeconomics makes the reality clear: they concur in spades. Indeed in its survey of leading UK economists CFM found that only 1 in 6 mildly agreed with the proposition that austerity had stimulated growth and employment (no-one strongly agreed)”.

    The Centre for Macroeconomics has also found that the majority of UK economists overwhelmingly disagree with the proposition that in economic terms Scotland would be better off as an independent country.

    Kimberley Cadden believes that the “right wing establishment” is guilty of “misdirection” on economic policy, given the consensus of UK economists provided by the CFM. By the same token, it follows that the Independence movement is also guilty of misdirection in claiming that Scotland would be economically better off as an independent country, given UK economists’ consensus to the contrary, as evidenced by the same authority which Kimberley Cadden so approvingly quotes.

    A plague on all their houses, say I.

    1. platinum says:

      The Centre for Macroeconomics is funded by the Economic and Social Research Council (ESRC), which is in turn funded by the Department for Business, Innovation and Skills, a dept of the UK gov.

      In other words, follow the money, in regards of the restoration of Scotland’s independence they’re about as impartial as the civil service is.

      Regarding their survey about Scottish independence last year, the question was only answered by 28 people, some of whom gave their reasons against support as the sort of stuff that has been easily demolised several times over, such as how long it would take to renegotiate entry to the EU, how much set up costs would be, how-do-we-know-that-things-won’t-end-up-even-worse fears of the unknown, basing future projections on following the same ruinous path as the current UK gov, and OMG oil is running out !!111!!11! aging population aaaaaaaaaaarggghhhhh.

      One really does begin to wonder why they were so keen to keep hold of us.

      1. Anton says:

        Platinum – The point I was trying to make is that Kimberley Cadden’s post seems to place great weight on the Centre for MacroEconomics’ views on austerity, while disregarding their views on Scottish Independence (or so I assume). But KC can’t have it both ways – either the CFM’s views are to be respected or they’re not. We can’t pick and choose.

        I share your suspicions about the CFM (though on different grounds). That’s why I object to the original post – as I said, a plague on all their houses.

        1. Kimberley Cadden says:

          You make a false equivalence there; the point is the majority of UK economists agree with the majority of leading world economists with regards to austerity, so the establishment parties and media can’t even lay claim to the UK being some kind of ‘special case’ as a dramatically different mainstream economic, pro-austerity view might have indicated. I will add though that the CFM, and the three lines in which I mention them, were not a basis at all for my central economic argument (the other 79 economists and the realities they gave voice to were), rather CFM were a basis for making the point I mentioned above – that things aren’t different here.

          However this clearly has no bearing whatsoever when it comes to the majority view surveyed by CFM on independence. Your logic is that if they are right once they must be right all the time so you have to either accept all of what they say all of the time, or none of what they say any of the time- and this clearly is completely flawed logic; not only for what I hope are obvious reasons but also for reasons of context; as the other commenter made clear there are reasons for bias in some circumstances which may be completely missing in others – and clearly this is applicable here at least in theory…

          1. FlimFlamMan says:

            Indeed. Mainstream economists refuse to admit or even recognise most of their errors but the overwhelming weight of evidence has forced most of them to admit that austerity doesn’t work, that expansionary fiscal contraction is a sham. Pointing out that one admission doesn’t imply agreement with the areas where they remain wrong. Excellent piece by the way; people have bought in to the austerity narrative on a depressing scale so pieces like this are vital.

          2. florian albert says:

            Instead of analyzing what academic economists believe, it might be better to look at why so many economically successful countries have pursued austerity politics – usually for a limited time – in the fairly recent past ?
            Canada, France, Republic of Ireland and Sweden come to mind. Only last month, Finland – not for the first time – committed itself to such a course.
            The point about academic economists is that they do not have to live with the consequences of their actions in the way that politicians do.

    2. FlimFlamMan says:

      florian albert

      How are you measuring economic success? For example, all five of the countries you list have worse unemployment than the UK. Austerity – expansionary fiscal contraction as it’s proponents dub it – doesn’t work.

      1. florian albert says:

        How am I measuring economic success ?
        By looking at GDP, the level of social support through the welfare state and analyses of wellbeing by bodies such as the UN.
        By any universal or historical standard these are successful economies.

        Do you see them as failing economies ?

        The question remains; why have these successful economies chosen – in Finland’s case, only three weeks ago – to pursue a policy you believe is bound to fail ?

        1. FlimFlamMan says:

          Failing? Failing to reach their potential at least, and failing to provide evidence for any claimed benefit of austerity. Which is true of the UK as well.

          The UK has been more unequal than most countries in Europe – much more so than the Scandinavians – for a long time, long before the 2008 crash and the widespread application of austerity policies.

          When even the IMF admits that austerity doesn’t work nobody should be supporting it.

          1. florian albert says:

            I prefer to look at achievements rather than potential. The countries I mentioned have created successful economies and societies.

            ‘even the IMF admits that austerity does not work.’
            You should let Mr Tsipras in Athens know. He will be surprized and delighted.

    3. FlimFlamMan says:

      Again, and I’m sure I’m wasting my time, that famous Scandinavian social support was in place decades before austerity was implemented. The situation in the other countries you list is similar to that in the UK, unemployment is worse than the UK in all of them, and inequality in Sweden is now growing.

      What about the things austerity actually has achieved?

      When the ConLib coalition came to power in 2010 they inherited a growing economy; they applied austerity and pushed the economy back into recession. In 2012 they stopped cutting the deficit and the economy improved, somewhat.

      Europe, which has seen far harsher austerity in many countries, is still mired in widespread stagnation, and outright depression in Greece. Achievements? Not positive ones.

      Unfortunately for Mr Tsipras the IMF aren’t driving the ‘negotiations’ over Greek debt – the ECB, the Eurogroup, the EC, and the German government are. Most economists have recognised the failure of austerity, but the same is not true for politicians, especially in Europe. Even at the IMF, the politically driven leadership often ignore the findings of their own economists.

      1. florian albert says:

        It is up to you to decide if you are wasting your time; you are not convincing me.

        You write as though austerity started in 2008. It was practised throughout the 20th century. Democratic, left of centre governments often concluded it was the least worst way to deal with economic crises; think Attlee, Wilson, Callaghan, Carter, Mitterand and Schroeder.
        Often, governments tried to ‘grow the economy’ as an alternative before conceding defeat; think Wilson, Heath and Callaghan.

        People do not take academic economists entirely seriously because, unlike politicians, they do not have to take responsibility for what happens in the real world; think David/Danny Blanchflower.

  8. Shen Stone says:

    independence or Slavery ?

  9. Grumble Mcgrumble says:

    Would that be the same Paul Krugman who said it was economic madness to consider Independence?

    http://www.nytimes.com/2014/09/08/opinion/paul-krugman-scots-what-the-heck.html?_r=0

  10. Grumble Mcgrumble says:

    There are so many inconsistencies in this piece it’s hard to know where to start…but hey ho, just a few..

    1) ‘is entirely laughable; not least because the economic tale of the need for austerity has been largely rubbished and rejected by the world’s economists..’

    er no it hasn’t, some economists have offered a valid Keynesian critique (but there is no consensus).

    2)’We must also remember to take the relevance of this projected deficit with a pinch of salt – not least because no-one knows the total tax revenue for Scotland due to the refusal of successive Westminster governments to detail this information…’

    A salt mountain more like! What EXACTLY can be added to the tax take in an Independent Scotland that isn’t included in GERS, IFS, and the OBR??? Please do tell where these pots or gold are, and what they are? Earmarked levy on Haggis production?

    3) ‘Krugman asserts that ‘fiscal expansion’ is the initial means of creating economic growth for the UK, i.e. an increase in public spending through borrowing ..’

    And whose currency is FFA Scotland going to borrow in?? Oh aye, Sterling, costs/ interest underwritten by the Bank of England and the wider UK tax take. Good luck with that and getting around the strict growth and stability pact (3% deficit of GDP for the Euro) that would be imposed. Scotland would have a 8.6% deficit.

    4) ‘So recovered, healthy economies may still run deficits and this isn’t a bad thing. ‘

    No, but the extent to the deficit is. Given that Scotland would have 8.6% deficit it would have to be China/ east Asian style growth that Europe hasn’t seen for decades.

    5)’Murphy has also made it clear that he rejects the growth forecasts of the ‘neoliberal’ IFS and that once the Scottish government was able to put its economic ideas into practice “Scotland could deliver exponential growth”..’

    Er right, so Scottish neoliberalism good, UK neoliberalism bad????? You do know that ‘exponential groowth’ if it was at all possible, would require the aggressive creation of mutliple new markets? You do know what ‘neoliberalism’ is?????

    6) ‘We must also remember that the UK as a whole in the five years up to 2013-14 ran a cumulative deficit of £600 billion. This should give us some indication of the reality that having deficits, even substantial ones, doesn’t prevent a country from running her own finances.’

    Do you know what percentages are? You do know Scotland’s econ is 10 times smaller than the UK? And Eurostat (not the IFS) also puts Scotland’s post FFA deficit at 8%, more than 2% higher than any other forecast in the EU, including Greece and Portugal. And that when UK comes out of deficit, Scotland will still be cutting/ ahem borrowing/ magicing massive new revenue streams to keep up.

    Also, if Scotland is simply going to borrow and grow their way out of the Deficit then who cares? Why even mention it. To do so suggests it’s maybe not so clear that ‘borrowing’ and magicing new tax streams and industries out of thin air will work?

    7) What about England and Wales?….I’m pretty certain they’ll soon say fine FFA on ye go…but no safety of a fiscal transfer and no borrowing in the UK currency (as it effects borrowing costs elsewhere). You want Autonomy, then you’ve got it.

    1. Broadbield says:

      You may well be right, but equally you may well be wrong. Forecasts have been known to be incorrect and a few year’s figures may be outliers. Either way, I still want Independence. It’s not just the economy, stupid! (to coin a phrase)

      1. Mr T says:

        Your post indicates why different people can survey the landscape and come to different conclusions. To some it is just about the economy and to further complicate matters some folk are thinking over much longer timescales than others.

        Unfortunately there is no manual that tells you what the basis of your decision should be!

        1. Grumble Mcgrumble says:

          ‘In the long term we are all dead’

          Keynes.

      2. Grumble Mcgrumble says:

        Well it’s one way of looking at it, but I’d like to see you say that in a developing country or say Greece. Not sure they’d agree?

    2. FlimFlamMan says:

      Grumble Mcgrumble

      “…some economists have offered a valid Keynesian critique (but there is no consensus).”

      Depends what you mean by consensus, the author references a survey of mainstream economists that shows a rejection of austerity.

      Even that bastion of neoliberalism the IMF has admitted that it was wrong, that spending multipliers are both positive and in excess of unity. They claim a typical figure of 1.3 – 1.4, but others have shown values around 1.7. This means that every pound cut from government spending results in a loss of 1.3 to 1.7 pounds from the economy.

      “What EXACTLY can be added to the tax take in an Independent Scotland that isn’t included in GERS, IFS, and the OBR???”

      It’s not about adding extra tax, it’s about the unreliability of mainstream economic predictions, and the ability to implement different policies.

      “And whose currency is FFA Scotland going to borrow in?? Oh aye, Sterling, costs/ interest underwritten by the Bank of England and the wider UK tax take. Good luck with that and getting around the strict growth and stability pact (3% deficit of GDP for the Euro) that would be imposed. Scotland would have a 8.6% deficit.”

      The stability and growth pact applies to the Euro, but Scotland within the UK will continue to use sterling, as you say. SGP doesn’t apply, unless you think the UK is going to join the Euro?.

      “No, but the extent to the deficit is. Given that Scotland would have 8.6% deficit it would have to be China/ east Asian style growth that Europe hasn’t seen for decades.”

      The extent of the UK government deficit is determined by the non-government’s desire to net save in sterling. The situation is complicated because Scotland has its own government and associated spending, and also local net saving desire, but as part of the UK it is also subject to the wider desire to net save in sterling.

      If Scotland were independent and had its own currency that saving desire might be different, higher or lower, but like all currency sovereigns an independent Scotland with its own currency would be able to sustain whatever level of net saving the non-government desired. Independence makes things simpler.

      “Er right, so Scottish neoliberalism good, UK neoliberalism bad????? You do know that ‘exponential groowth’ if it was at all possible, would require the aggressive creation of mutliple new markets? You do know what ‘neoliberalism’ is?????”

      Markets are very useful tools, but like all tools they have their place. Neoliberalism is at heart about the fetishisation of markets above all else, often in the pursuit of entrenched inequality. Growth is needed in the short and probably medium term, and can be sustainable over those time scales depending on what exactly it is that’s growing. Growth doesn’t imply neoliberalism.

      “And that when UK comes out of deficit…”

      When the UK comes out of deficit? If the UK comes out of deficit it will wreck the economy unless the UK has suddenly become a net exporter. Government surpluses have to be funded somehow, either by net exports or rising private sector debt. The former hasn’t happened for decades, and the latter resulted in the 2008 crash.

      1. Grumble Mcgrumble says:

        I wasn’t arguing that cutting deficits (in general) rather than ‘growth’ models were wrong. I was arguing in context of Scotland with FFA, and the specific circumstances of the Scottish economy given it’s over reliance on oil and exports to the UK (natural trading partners cannot be chosen, they just are!)

        And you’re simply wrong. Even if we re generous and attribute a lower deficit, the SNP line still requires different borrowing patterns to others in the same currency area. But the Bank of England will place strict fiscal controls on Scotland. This is not opinion this is simple fact, why wouldn’t they? why let one part of the currency area borrow much more than the rest, and then be expected pick up the tab? Every single currency union in the world have borrowing limits controls – and when they aren’t kept to you end up with the Euro crisis! Essentially without own currency then fiscal autonomy is vastly limited (see the Eurozone).

        Oh and good luck with floating a new nonpriced currency! You do realise that the deficit and national debt will still be in the currency borrowed. Sterling, one of the strongest currencies in the word! So if this brave new currency has a lower value, then the debt and deficit goes through the roof? Like borrowing ten quid then paying it back in Colombian pesoes (ten quid becomes fifty etc). And good luck paying for vital imports to service most industries like erm…..cars…or…erm….energy….erm…steel…erm…computers. (or is the pan to drop the duty?)

        But what really irks me is that there is no consistency in Nationalist approach. At least with the Tories you know where you are (they’re state shrinking ideologues) But what are the SNP?

        This article sums up the muddled thinking.

        1) We’re anti austerity, and want to maintain high public spending and welfare…but…we’re still going to reduce the deficit.. and not place the burden on the lower mid and middles classes with high income tax increases.

        2) So we’re going to do this through ‘expontial growth’ based on low tax, low reg, policies (the only feasible method possible with FFA)

        So what is the plan? It is logically ridiculous.

        And if the forecast (the trend is actually is verified by 15 years of ‘snapshots’ and long term Oil projections dating back to the 80’s) deficit is nonsense why don’t SNP come up with other figures? instead of just bluster and denial.

        Like Jerry Maguire said ‘show me the money’ show me where the mistakes are in IFS/ GERS/ OBR/ Eurostat? and where the new revenue streams will come from precisely! rather than nonsense about ‘alternate energy’ etc – which Alternate energy? for whose market? UK’s (fat chance)? Scotland’s? Where will the subsidies come from? Which alternate energy? (onshore? Offshore? Tidal ? Wind?) Who will pay for the interconnectors? etc etc etc/ Details, details, details!

        But only silence and defection!

        1. FlimFlamMan says:

          Most of your comment was directed at austerity in general, neoliberalism, and a very helpful explanation of what percentages are. You made two mentions of FFA, one of which included the bizarre notion that Scotland would be subject to the eurozone’s stability and growth pact.

          You didn’t respond to my pointing out of that problem, or most of my specific points, but I’ll try another comment anyway. I actually agree with some of what you say.

          “And you’re simply wrong. Even if we re generous and attribute a lower deficit, the SNP line still requires different borrowing patterns to others in the same currency area. But the Bank of England will place strict fiscal controls on Scotland.”

          Wrong about what? I didn’t claim that Scottish government borrowing would operate under the same conditions as UK gov borrowing, of course it wouldn’t. That makes it vital that any borrowing actually improves the productive capacity of the economy to the point that it pays for itself, as with borrowing by companies.

          “Essentially without own currency then fiscal autonomy is vastly limited (see the Eurozone).”

          Yes; if you look at some of my previous comments, here and on Wings, you’ll see I was arguing from early 2014 that a currency union was a non-starter and that Scotland would need its own currency.

          “Oh and good luck with floating a new nonpriced currency! You do realise that the deficit and national debt will still be in the currency borrowed. Sterling, one of the strongest currencies in the word!”

          Have you been granted access to ‘Edinburgh Agreement 2’? There is no indyref2 in the offing and at this point we have no idea what the agreement defining one might entail, but we do know that last year the Westminster government said it would take on all existing UK debt. Any payments for Scotland’s share would have been subject to negotiation.

          So the debt share – if any existed; divvying up of assets might eliminate it – can be in the new currency. The indySG’s deficit would clearly be in the new currency, unless you think an independent Scottish government would issue a new currency, but then conduct its spending and borrowing in sterling instead of the new currency.

          FFA isn’t going to happen, so I’m not going to get bogged down in theoretical details, but many of the forms it could have taken would be damaging and I’d disagree with them. I disagreed strongly with the SNP’s position on a currency union.

          I appreciate the article we’re both commenting on because its general thrust is right; the failure of austerity, the fact that even mainstream economists are recognising that failure, and the difficulties Scotland faces in the short to medium term given that the UK government is intent on applying austerity again despite all the evidence.

  11. Broadbield says:

    McGrumble, your argument seems to be that Scotland can’t go it alone – deficit too big, no realistic possibility of growth, unstable currency, too big debt, no future in alternative energy, etc etc – and that we can only be saved by being part of the UK. That seems to me an absurd proposition and is a reprise of the BT campaign of Project Fear. The UK is in a fiscal and social justice dark place. The UK government since 2008 has first handed shovel fulls of taxpayers’ money to banks without any strings and has then embarked on transfers of wealth from the poor, who tend to spend any money they have, to the rich who hoard it. That is one of the main reasons austerity (using the term loosely to describe Osborne’s fiscal policies) is a disaster. Spending contracts.

    Greece, according to Prof. Weeks wasn’t the basket case everyone assumes prior to the crash, but their situation has been made far worse by the fiscal hawks who demand full implementation of neoliberal policies of state shrinking, selling of public assets, eliminating public spending. And with a currency tied to Germany’s dominance and fiscal surpluses what chance have they got? This doesn’t apply to Scotland.

    You come at Independence or FFA from the UK government’s perspective, but issues of debt we didn’t create, defence commitments as if we were a world power, taxation for the benefit of the rich and so on would alter the calculations.

    There are loads of articles on Business for Scotland, Wings and elsewhere making the case and tackling the issues you raise.

  12. Haddington says:

    FlimFlamMan (against Grumble McGrumble) “was arguing from early 2014 that a currency union was a non-starter and that Scotland would need its own currency”. I strongly agree with him, for the borrowing is from banks who don’t actually lend resources but charge interest (privatised taxes) on IOU’s, created so freely “out of nothing” that they caused the present mess by pushing up house and business share prices to unsustainable levels: increased total yields from percentage interest and profits leading to bankruptcy sell-offs and business mergers – financed largely with more IOU’s! The Union came about when Scotland tried this trick to colonised Panama, found it didn’t have the real resources needed and in exchange for Union was baled out by the English banking establishment.

    The theory of all this (and the reason it fails when prices fall) is described as Reserve Banking, wherein banks only need to hold around 1/20th of the money for which they hold securities (mortgage deeds and share entitlements). Push up prices and they can lend more! But when the book value of these falls, so does the ability of banks to cover their payments out of income streams. Hence the post-1694 cycles of bubble-blowing and carrion-picking, boom and bust, banker-induced austerity relieved by more borrowing just before election time.

    Seemingly not only Kimberley’s unionist media but also politicians of all parties including the SNP “are so entrenched in the tory narrative they sell every day that they seem to have forgotten that they’re salesmen. Well, salesmen with a dash of the magician about them, misdirecting their audience so that they miss the act of deception itself and instead buy the illusion; only in this case it seems the magician has also fallen for the illusion, and to such a degree they’ve even forgotten it’s a trick”.

    Thank goodness the history of this is now being exposed, though with most of us preoccupied with our own lives, the chances of it being acted on depend on discussing it with the young people moving into media and politics. The alternative is quite simple: a credit card economy. We are already buying what already exists with IOU’s; we pay off our debts by earning our keep, i.e. regenerating what we consume. To service the accounting we (including bank, media and political staff) need only local public banks setting credit limits; we actually borrow only what we need and this is written off when we have earned it, i.e. done what was required of us.

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