2007 - 2021

Won’t Scotland be just like Zimbabwe?

Last week on Bella I argued that Scotland should reject the Sterlingisation model and instead opt for its own currency (‘Why Scotland should reject the Sterlingisation option and instead create its own currency’). Most of the feedback was positive, but unsurprisingly there came a fair amount of criticism. Some of the critics included economist Richard Marsh from 4 Consulting, Sam Taylor from These Islands and even good old Blair McDougall. I welcome most of these comments, despite some of the more patronising remarks. So this response is not for hardcore unionists, but instead for those undecided who read their responses and take it as the truth.

1) Won’t Scotland just be like Zimbabwe?

No. There is a myth that the reason hyperinflation occurred in Zimbabwe was because the country started printing money. The printing of money alone does not cause inflation, it is when a government attempts to spend beyond the real economy (labour and resources) it becomes a problem. Any suggestion that money in isolation is inflationary is incorrect. Are we seriously lead to believe Zimbabwe was fine until one day it just decided to print money and everything went to hell?

In Zimbabwe hyperinflation preceded printing money. The reason hyperinflation occurred was due to over 70% of its farming productive capacity collapsing. When demand for food remains high but supply has collapsed the end result is, you guessed it, hyperinflation. If you wish to read more on the issues faced by Zimbabwe then you can read the work of economist Professor Bill Mitchell by clicking here. The Cato Institute have also done their own analysis on the causes of hyperinflation. They looked at every single case of hyperinflation in recorded history and found it mostly occurs from “under extreme conditions: war, political mismanagement, and the transition from a command to market-based economy.” You can read their full report by clicking here

2) Are you seriously saying Scotland could never go bankrupt? 

No, I never stated that in my original article. I stated that Scotland cannot go bankrupt “in regards to its own currency.” An independent Scotland could still go bankrupt if it borrowed in a foreign currency and built up too much foreign debt. That’s a risk all countries could face. But Scotland cannot go bankrupt with its own currency, because we essentially have an infinite amount to supply.

Many people are frightened by such an idea. Yet it is a simple fact. I am not saying we can simply spend an infinite amount of money without consequence. In my original article I stated we cannot spend beyond our labour and resources. But a monetary sovereign government can always make their payments, spending is not operationally constrained by revenues

3) You can’t use Japan as an example because they are unique and also have lots of problems. 

In my original article I used Japan as an example of a country that owns most of its debt, another benefit of being a monetary sovereign country. Criticism was raised by both Sam Taylor and Richard Marsh, but both lack a deeper understanding on how the Japanese economy works.

Richard Marsh argued “The debt is not a significant problem at the moment due to low interest rates. The government can gobble up its own debt as the risk of pushing up inflation isn’t as fierce (now) because of persistent deflation. Not the case with Scotland.” That makes no sense. What does he mean by “get away with” when Japan control their own interest rates? Because the Japanese government control interest rates in the short term they effectively control them in the long term. The government have kept interest rates low as a deliberate export strategy to suppress the currency and remain competitive. Does Richard honestly believe that one day Japan will wake up and suddenly inflation is magically going to be 50%? Of course not. The ability to control interest rates is another reason why it is important to be a monetary sovereign country.

Sam Taylor argued that Scotland should not be exactly like Japan because GDP has fallen and wages have stagnated. Which is true, but such a criticism is irrelevant. I’m not arguing Scotland should be exactly like Japan and the issues raised were not caused by Japan owning most of their debt. The reason Japan has suffered from falling GDP is due to brain drain, companies moving manufacturing overseas and an aging population. For example by 2020 Japan will be losing 600,000 a year. These are challenges faced by the Japanese economy, but ones not created by the point I raised.

Taylor went on to argue “The structure of Japan’s economy is radically different to Scotland. The same goes for demographics and culture.” This is actually a counter argument to his original point. For example the main reason Japanese wages are stagnating is due to unions refusing significant pay rises, not because the economy is doing poorly. Most workers prefer to negotiate more preferable working conditions like lower work hours and holidays rather than nominal raises. Japan is very much a collectivist culture that would seek prosperity for society over individualist thinking.Taylor should also not be so quick to dismiss Japan’s economy. Their investment spending is growing. There is growing contributions to growth. Consumer and business confidence is rising. Real wages are growing steadily. GDP per head is also growing. Japan’s billionaires only own 3% of the total wealth. The reality is, despite the many challenges they face, Japan is doing well. You can read more on Japanese data by clicking here.

4) You can’t name other examples of countries that managed high deficits, and if you can it doesn’t count because it was under the Bretton Woods system.

I faced further criticism from Sam Taylor when I cited the UK and US as countries that successfully managed high deficits post-WW2 (for example the US ran deficits of up to 27% of GDP during the war). He argued “You’re just embarrassing yourself now. Post WW2 USA and UK were operating under the Bretton Woods system, which is the complete antithesis of MMT. To claim that period is an example of the successful application of MMT is laughable.”

Let’s help Sam out here. First, Bretton Woods was essentially a dollar standard. Gold constraint was not binding at the time. We suspended domestic conversion in 1933, which actually saw large gold inflows from other countries buying weapons and war machines from the US. So this was much less of an issue. Secondly, there is a difference between a fiscal constraint and a limiting factor at any given moment. On a gold standard, the government has to take steps to protect its gold supply. But if the gold supply is not currently in serious danger then the government has more flexibility than usual. Look at China today: they fix to the dollar but they have accumulated an enormous amount of dollars. Is anybody seriously thinking they are on the verge of running out? They can run larger deficits than they might otherwise be able to. Sam is wrong to view it like a light switch from fixed exchange rate to floating. It’s a spectrum. You can read more on the Bretton Woods system by clicking here.

5) What about the fiscal transfer? Doesn’t Scotland need to find the money to cover it if we become independent?

It’s an odd critique, because it would seem obvious why this isn’t a major issue with MMT. If we are using our own currency then why “find money”? You don’t need to raise taxes to raise revenue, tax can primarily be used to tackle inflation. In the case of an independent Scotland the question “Where would Scotland, that has monetary sovereign government, get the money from?” is a lazy one. What we should be asking ourselves is “Does Scotland have the labour and resources to maintain decent deficit spending?” If there are not enough workers, factories, cars, clothes, food, fuel and so on, then the money is junk. Yet if we do have those things, and they are not being used, then the money needed to put them to work can always be created.

I welcome the criticism that has come my way. It has allowed me to write more on my position as a Modern Monetary Theory and also have a better understanding of the worries people may have. Yet one can see why hardcore unionists hate the MMT argument. When you suddenly turn the deficit argument upside down it creates a positive case for independence.

Comments (33)

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  1. TheIndyGuy says:

    Thanks for the article and clarifying these important points.

    Your following quote highlights the core points of modern economics that almost never get made. Until these point are understood any conventional economic analysis is at best misleading. Unfortunately, because of the woeful way in which our media cover economic issues and the misleading way in which economics in taught in our schools and universities, most people who consider themselves well informed have no meaningful way to make sense of the economic propaganda that is seeded into the popular conciousness – as the saying goes: “it is hard to full a cup that is already full”!

    ‘You don’t need to raise taxes to raise revenue, tax can primarily be used to tackle inflation. In the case of an independent Scotland the question “Where would Scotland, that has monetary sovereign government, get the money from?” is a lazy one. What we should be asking ourselves is “Does Scotland have the labour and resources to maintain decent deficit spending?”’

  2. Donald McGregor says:

    My economically illiterate response to the growth commission proposal is just to think ‘wouldn’t we just run with two currencies – the existing sterling and the new Scots currency- operating in parallel until such time as the new overtakes the old as a desirable asset’
    Is that just an inoperably daft idea?

  3. mince'n'tatties says:

    Well I’m for one not criticising, you could well be right. That said, the Scotland Zimbabwe economic juxtaposition alone would be seen by almost any Scots salary slave as so bizarre, as to kill the Indie currency argument stone dead before it left its starting blocks.
    ‘Is that all you’ve got, you gotta’ have more’ as the great Muhammad Ali used to sneer at his ring opponents.
    Zimbabwe doesn’t cut it as a comparison model. Doesn’t instil essential confidence.
    A bad socio-economic model to hold up to an undecided electorate.
    If indeed that was the intention, the purpose could of course have been esoteric, in which case I’ve wasted valuable minutes of your time and mine.

  4. john mccall says:

    For a clear explanation of what “printing money” or Quantitative Easing in the context of Modern Monetary Theory means I find Richard Murphy’s Tax Justice blog very helpful.
    He is also sympathetic to Scotland going it alone.


  5. Willie says:

    All this high faluting discourse about currency and we let a fire destroy the world icon that was the Glasgow School of Art.

    A national disgrace. Making me feel really proud to be a Scot this morning.

    1. bibbit says:

      After Grenfell, I am just relieved no-one was entombed then burned alive, last night.

      Perhaps it should be renamed,

      The Phoenix School of Art.

      Too soon?

      1. willie says:

        Yes Bibbit thankfully no one was killed unlike the fire at the Cameron House only some six months ago where two folk died.

        The politicos can express all the heartbreak they want about the loss of this absolutely iconic world class building, but at the end of it, there is something wrong with the safety standards in this country.

        Yes the Cameron House was an old building refurbished to five star standards and yes the Glasgow School of Art is to an old building too. But after the fire of 2014 and the £25 million or so spent to date refurbishing e previous fire damage, how could this happen again.

        Yes we are all heartbroken, but heartbroken isn’t good enough.

        1. willie says:

          Yes and while I am at it, it was only a few weeks ago that Glasgow had its other big city centre fire. Again another old building.

          But what of the new but not so sparkling riverside flats in Partick built on the now redeveloped site of the old Granary Building. Graced with cladding similar to Grenfell they are now having to patrol the flats with fire wardens as the developer, builder, and flat owners slug it out who is going to pay.

          Or what of the recently clad social housing under the Scottish Quality Standards 2015 scheme where a local authority had to seek a governmental standards derogation to allow below standard cladding to remain rather than be ripped out because it wasn’t fully compliant with fire safety standards.

          So yes, another fire, and luckily no deaths. But not a cheep from our politicos about what they are going to do.

  6. Jamsie says:

    18 years of austerity?
    The IFS have told us!
    We would probably be worse off than Zimbabwe.

    1. Me-Bungo-Pony says:

      It’s ridiculous comments like that, that gives Unionists a bad name.

      1. Jamsie says:

        I take it you have not read the IFS report?
        Obviously not.
        The truth is out there!
        Seek and ye shall find!

    2. Kenny Smith says:

      You always manage to cheer me up. You are a total can’t.

      1. Kenny Smith says:

        Jamsie obviously no mbp

        1. Jamsie says:

          I am so glad you are cheered up!
          It must be depressing bring and Indy supporter knowing that the dream is dead in the water.
          I am more of a definitely not than a can’t.
          I know we could but at what cost therefore we shouldn’t and fortunately the majority agree.
          And wee Nicola knows that Brexit will keep her from calling another referendum as when the next Holyrood elections come about she will lose more seats and therefore the ability to even attempt one.

          1. Me-Bungo-Pony says:

            You may have a belief in the complete infallibility of the IFS predictions of the future but many other experts disagree. The IFS is a right wing, pro-market organisation that has a depressing tendency to champion policies that benefit the wealthiest in society to the detriment of the rest of us.

            I suggest your blind faith in their “gospel” of doom and gloom is simply because it reinforces your own fervent belief that Scotland is intrinsically incapable of governing itself well and prospering as all our small, independent neighbours do. That mediocrity, poverty and managed decline under the Union is the best we Scots can expect. That’s a pity but is your right. I have chosen to believe that Scotland is just as capable of prospering as Denmark, Austria, Switzerland, etc, etc do. That there is a brighter future for Scotland with independence that stands in opposition to the grey, dismal future the Union promises. It’s a shame you can’t see that.

          2. Jamsie says:

            Andrew Wilson is a member of the IFS.
            And your assertion that the IFS is somehow right wing is entirely wrong.
            If anything their views are based on social improvement.
            But it is not just me who thinks that independence would be a financial disaster.
            The GCR predicts the same possibility but tries to say it is a price worth paying.
            Indeed this seems to be the new mantra from wee Nicola.
            Do you really think the electorate will buy into that?
            She doesn’t.
            The IFS have only confirmed what the GCR already told us which is that the effect on standards of living in Scotland if independence were to come now would catastrophic.
            Poverty would zoom.
            It was released even with this message being the most relevant part of it.
            Why go you think it was released in tuis form?
            To start a debate?
            Think about it if you wanted to promote debate you would offer something if tangible benefit.
            This report effectively provided cover for wee Nicola against what they knew would be the inevitable criticism from the left of the Indy movement who want it now.
            She can say “we cannot have a referendum as the circumstances are not in our favour”.
            She has manufactured the walk out at Westminster to try to convince people they are still serious about holding one but the body language and the messages coming out are slowly starting to bring out the reality.
            She knows she will not win and she is too feart to risk having one as it will kill her and her party for generations.
            It’s a pity you do not see this.

  7. Paddy Glynn says:

    The Brits said the same about Ireland in 1922, it would go bankrupt and the Irish were not fit to govern themselves and ended up linking Sterling to the Irish Pound till 1976 as it suited the UK as regards imports /Exports.

    1. Willie says:

      Paddy, I fully appreciate that the Brits gave Ireland dominion status with the utmost bad grace.

      Indeed given half a chance they’d fore the ROI back into the Empire’s clutches again.

      So why did the Ireland peg the Punt as as it was called to Sterling.

  8. Julia Gibb says:

    Bella writers still doing what they do best – providing the unionist with “evidence” of conflict.

    Nothing is possible,absolutely nothing, without the powers that derive from Independence.

    Every arguement I now read in Bella is “how it should be”. Why not let the people of Scotland decide that? You obtain the authority for Scots to shape the nation THEN political parties present their vision and people vote.

    The currency debate is a great example of the waffle now produced in this magazine. Ireland send Sterling for several decades without any issue until they adopted the Euro. The gained Independence FIRST then started the nation building.

    It is unfortunate we have so many focused on detail that will never see the light of day unless we gain Independence.

    Is it because so many in the Bella camp demand their vision of the nation be adopted rather than put it to the people.

    I have news for you – no one can predict the journey. Why not trust the next generation.

    1. willie says:

      Bang on Julia. once you secure independence you can choose the way forward.

      Too much of the debate on this forum disregards that.

      That is why visitor numbers are slipping.

      1. Visitor numbers are slipping? Are they? Good to know ‘willie’. I love the idea of a visionless victory in a political void. Won’t happen. We’re very pleased to publish Cameron on Bella, an intelligent young voice bringing sharp economic analysis to the debate.

        1. Willie says:

          Ah don’t take the small jab to actutely Mike. I’m absolutely sure Bella is well read, and we’re all on the same side. And yes, we all have a vision for independence. We wouldn’t be reading Bella if we didn’t.

          How we cultivate that vision in a majority of the electorate so that they will vote to deliver independence is the big challenge. It is the number one challenge.

          Achieve independence and we will be free, or relatively free, as a country to choose whatever currency we think best suited to our needs. As a movement we need to keep focussed on that, because unless we achieve that, we achieve nothing.

          That was my point, and only point, as the argument rages about currency proposals.

          1. TranscendingToOuterSpace says:

            Hi Willie,

            I disagree with you. There are many ways independence could play out – the Growth Commission demonstrates well how the banking interests are already trying to put in place their version – an insurance policy, so that, retain or dissolve the union, they win.

            To keep the people’s independence movement on track towards something meaningfully positive requires forward planning and a strong inspiring vision to keep minds focused.

            In many ways being independent would make us much more vulnerable to global financial and corporate forces. A strong vision, good communication and strategic planning is our only protection from being derailed.

            In solidarity…

    2. mince'n'tatties says:

      Julia, Ireland did not move from independence to nation building in one smooth fell swoop. There was an inconvenient, hateful, violent, nasty Civil War to contend with first, before the two events were linked.
      A very good reason why the electorate should have a very clear idea of what the future is likely to hold before casting their binary vote.

    3. TranscendingToOuterSpace says:

      Hi Julia, your following comment sounds logical but completely misses the point: “You obtain the authority for Scots to shape the nation THEN political parties present their vision and people vote.”

      Yes, a certain number of people will always wish for independence but the people who need to be convinced are the vast majority of people who don’t have a strong view, in favour of, or against independence.

      As far as I understand it from all the polling etc, most people are interested in what kind of future the two options (retain or dissolve the union) are likely to lead to and then try to decide which is best for themselves, their families and communities.

      The historical momentum is with maintaining the union. To change course requires creating an inspiring and pragmatic vision of an alternative course, that enough undecided people are able to see the benefit of and feel comfortable choosing.

      Struggling for independence and then fleshing it out once you have it sounds good, but it completely ignores the way human psychology works. You will never get a significant number of people to leap into the dark just on your say so. People need the guiding light of a inspiring vision to allow them to feel comfortable enough to take a chance.

      In solidarity…

      1. Willie says:

        Struggling for Independence and then fleshing it out later.

        Quite honestly, what kind of mumbo jumbo is this. Are you really saying that unless the currency issue is nailed, and nailed now, the push for Independence now somehow ignores how psychology works.

        Secure independence and we can have all the psychology we want plus the abikity to choose whatever currency arrangement we think fit.

        1. TranscendingToOuterSpace says:

          Hi Willie, I’m not sure why you feel the need to use such an aggressive tone, this is a forum for debate, not somewhere to vent your anger at life!

          In reply to your comment, many people believe that lack of clarity around the currancy issue played a large role in loosing undecided voters in the 2014 referendum. Therefore, experience suggests that it is not totally unreasonable to think that clarity, or lack thereof, around this issue could play a significant role in a future independence decision.

          To dismiss the psychological dimension, in what is essentially a psychological battle over whether to retaining or desolving the union, is naive. But this naivety does go some way to explaining, what sounds like, your aye-or-die approach.

          With your just-get-across-the-line approach, what is the strategy to get the all important weak NOs and undecideds to support independence – I’m thinking here especially of the thousands of people who work in key areas and would need to be persuaded to put there effort into building a independent state post independence?

  9. Jamsie says:

    Independence will only ever be secured if a majority of the electorate vote for it.
    That does not look like happening any time soon.
    The problem with thinking in terms of the next generation is that people in this generation lose out.
    As esch generation reaches the age where their interests are likely to be rode over roughshod then they will change their views and voting patterns.
    The flawed perspective that Indy will change Scotland for the better is ideological nonsense.

    1. Kenny Smith says:

      Funny how you never paid any attention to the IFS when they said Brexit would be a disaster but you still voted leave anyway for matter of sovereignty. I will never understand why you would vote to leave a union but stay committed to far more domineering and restrictive one. If there was a referendum what would you fight it with? What lies are left?

      1. Jamsie says:

        Nobody knows what the final effect of Brexit will be when the agreement actually arrives.
        There are several opinions which differ and I don’t have a crystal ball either.
        The difference between leaving the EU and leaving the U.K. is not comparable economically but I am sure you already know that.
        I and many others believe that Scotland does better as part of the U.K. than it would as part of the EU even if they allowed Scotland to join which is highly unlikely.
        In a democracy it is normal to accept the majority view as demonstrated at the polls.
        Now I know you will be depressed about this but that is how a civilised country operates.

        1. Kenny Smith says:

          The government’s own analysis shows it will hurt the economy and the beloved IFS said so too but you voted for it anyway. If you are so sure they will get a good deal with the EU and Scotland is still aligned to the EU in whatever form then what’s the argument there? You believe we do better as part of the UK well we don’t. The elephant in the room is Ireland. You can’t promise frictionless trade and a common travel area with them and then insist that a barbed wire border fence will go up at Carlisle, making you declare your iron brew. Leaving the EU blows your economic argument out the water. The status quo no longer exists change is coming but we,l decide what that change is. Oh and by the way the EU can see no reason not to join but that is our decision to make that’s the point. Put it this way if Scotland’s votes kept England in the EU do you think farage n Johnson would have accepted that they would be screaming for the union to be dissolved. We are pulling in different directions the tears are getting wider and you know it. When people like Murray Foote turns you know your in bother

  10. Nick Kempe says:

    It is a mistake to see the purpose of tax as being primarily about controlling inflation. Tax has a vital role in making money circulate through the economy and reducing inequality and can, in certain circumstances, alter behaviours and address specific issues, so:

    – money in our capitalist system ends up in the hands of the 1%; tax is an important means of redistributing this back again to the people who produced it in the first place
    – taxes on unearned income should be key part of this
    – while there is a neoliberal myth of homo economicus – that the main factor influencing people’s choices is money – tax can alter behaviours (from smoking to purchase of diesel vehicles)
    – tax can be used to address specific issues relating to inequality, eg a tax on second/empty homes would help prevent property speculation (as much a problem in Scotland as in England) and bring properties back onto the market

  11. Crubag says:

    This is something that I would like to wrap my head around – the current reality of governments/central banks literally (or virtually) printing money without people losing confidence seems counterintuitive, or an example of faith in action.

    But in relation to the Zimbabwe example, the Cato Report doesn’t actually unpack what happened. It does provide a definition of hyperinflation, then go on to catalogue a large number of examples, of which Zimbabwe is one. If Zimbabwe’s own productive capacity had been degraded, why couldn’t it simply buy food and goods from abroad using its own currency – or do importers have to have faith in the currency too?

    More interesting in that report is that most of the recent examples of hyperinflation are in the countries that left the Soviet Union/Russia – many of which were using the Russian ruble at the time. So there is something worth unpacking there – even if the currency of the larger unit is retained, what are the transitional risks and how are these best managed?

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