If you start with the answer, the question is ‘Brigadoon’

The London School of Economics has produced a long-term economic forecast for Scottish Independence, which is here: Hanwei Huang, Thomas Sampson and Patrick Schneider, “Disunited Kingdom? Brexit, trade and Scottish independence” (LSE, Centre for Economic Performance, February 2021) and here.
It has already led the propagandists of the UK media to write articles telling anyone foolish enough to read them, that individually (per capita) the Scots will be worse off from independence, by £2,800. The LSE forecast, it must be made clear does not make that claim anywhere; because it is forecasting relative economic growth rates, which provides quite different information. The LSE does think independence will be more costly for Scotland than Brexit. This is a strange characterisation of the chosen problem, given the LSE is comparing two complex uncertainties now that are individually difficult to quantify, still less forecast, or forecast very far into the future; never mind, forecast them both together, acting as an interaction. It is therefore worth trying to understand what the LSE is actually doing in producing this paper, and producing it now. This is actually quite obscure. In order to decide on the utility of the LSE work we require first to examine the LSE’s assumptions.
Here is an excerpt from the LSE’s description of the assumptions it is using in its modelling:
“We estimate the impact of each scenario on real income per capita in Scotland and RUK. The estimates should be interpreted as long-run effects after all economic adjustment is complete, relative to a baseline where the UK remains in the EU and Scotland remains part of the UK.
“As with all economic forecasts, our estimates are subject to uncertainty and should be treated with caution. We do not know exactly how large an effect Scottish independence and Brexit will have on trade costs and, although we use the best available data and modelling techniques, our model is an imperfect representation of the global economy.”
“In particular, it is important to stress that our analysis is designed to isolate the economic effects of variation in trade costs holding production technologies constant. Both Brexit and Scottish independence are also likely to impact the economy through changes in technology, foreign direct investment, immigration and fiscal arrangements. Moreover, Scottish independence may affect which currency Scotland uses. We do not study these channels.” (p.14)
The estimates are “long-run effects”, so this appears to be an unusually long term forecast; and Keynes famously warned economic forecasters careless enough to undertake such self-indulgent penchants in a fast-changing world, that; ‘in the long run, we are all dead’. The world we are experiencing now is moving even faster technologically than before, perhaps ever before; changing more rapidly in the way we consume, how, and where we work; what we do; our energy sources, and with waves of geopolitical crisis in this interdependent trading world, for this is not some random accident; it all flows from the open, transactional global world which we have created: but for some reason, not in Scotland, not according to the LSE. Scotland is captured forever by the LSE in an immediate frozen past, ever to be repeated, over and over again: Scotland is Groundhog Day, whatever we do, it is always the same.
This is therefore a very strange LSE undertaking, because ‘long-term’ implies stable outcomes. We know that the economic environment is not stable, and will not be stable in any realistically forecastable period. We are fated to live through interesting times, but they are unlikely to see us returning to a pre-Covid world, as if nothing had happened. Except that is for Scotland, for reasons that remain a little obscure in the LSE’s explanations.
Indeed reading the assumptions, the forecasters seem already to have thrown in the towel, after they listed the nature of the improbabilities they would rather not face: “We do not study these channels”. Well no, that is understandable, because it is all just too difficult to do. It is all just so much easier if we conveniently assume that ‘nothing has changed’, as someone once observed. That will work. Simple assumptions. Easily calculated. Then we can forecast well into the future; the future of a fantasy world. Nevertheless the LSE forecasts seem to be done in order to forecast a world in which nothing at all in Scotland has really changed after Brexit, after Covid-19, and after independence; least of all the economy. At least they concede “our estimates are subject to uncertainty and should be treated with caution.”  That is a standard disclaimer, but these are scarcely standard forecasts, and these are scarcely standard times in which we live. Given the uncertainties attendant on the complexity and novelty of the multiple ‘facts’ the LSE are dealing with, what is the likely accuracy of their ‘forecasts’? The caution, I submit should be exceptional, because the circumstances and the environment they describe are exceptional, and do not easily lend themselves to the ready simplification offered by desk research, equations and modelling. This is a time for observation, for empirical research, for the deeper security of grounded, tested science over theory; and that takes time and a wider resource of evidence than we yet have here. Caution is indeed required, but given the difficulties I still cannot quite understand why they bothered, or what strange world they thought they were proposing might exist at some uncertain future date, that they could accurately forecast. Would they care to place a statistical fix, a quantum on the probabilities of their forecast accuracy?
Then we turn to the length of this ‘long term’ forecast. Just how long into the future are they attempting to peer? They seem a little coy about this in the narrative, and I have difficulty discerning a clear explanation. They are however not dealing in years, but eras:
“Changes in Scottish trade patterns following independence are likely to occur gradually, over a generation or more. Consequently, in the initial decades after independence, the rest of the UK will remain Scotland’s biggest trade partner.” (p.1).  In fact, and here perhaps I have missed this fact so far in my reading of the forecasts; but I have yet to establish the exact time-period covered by this forecast, although I acknowledge I may have missed it; nevertheless it is both a fairly basic and important fact. Perhaps this will become clear as more people review this paper.
According to the LSE, Scotland is going to change only glacially – whatever happens in the world, whatever the economic/technological revolutions that unfold. Scotland in this paper is less a nation than a fossil. We will go on, pickled in aspic, in a kind of eternal Brigadoon. The Data file the LSE Report uses provides a brief explanation of the ‘Calibration Data’, which it would take some time to deconstruct, (and requires more detail than is actually provided) but given its sources (see Data file, and here: October 2019 release, 6 December 2019 vintage, available from National Accounts here), it is very difficult to take this as a rigorous, accurate assessment of the immediate post-independence economic data for Scotland, when we know it is taken from UK source data that makes no pretension to represent Scotland as an independent economic entity, and takes no account of the structure of data for Scotland when it is independent; and when the elements of disentanglement which the UK data must include, have not been systematically resolved; which will be a necessary product only, of the independence process itself.
The difficulty is acknowledged in the text: “Unlike independent countries, Scotland does not collect detailed statistics on its external trade. Export Statistics Scotland provides useful data about onshore Scottish exports, but import data is relatively sparse. Measuring Scotland’s trade is further complicated by the convention that economic statistics are produced separately for the onshore Scottish economy and its offshore counterpart (i.e. oil and gas production). However, by merging data sources and combining statistics for the onshore and offshore economies, we can obtain an overview of Scottish trade.” (p.4).
The problem is only half acknowledged, but then dealt with in the analysis as if it did not much matter.
Note also that in referring to ‘external trade’ post-independence, what this encompasses itself radically changes what is ‘external trade’, and makes the method being used by the LSE even more precarious. This again is dependent on what I have termed ‘disentanglement’ during the independence process. Furthermore, in looking at costs of changing borders the LSE looks at the Czech Republic and Slovakia velvet divorce in 1993. The LSE wishes to focus solely on what it sees as the problem of the trading costs arising. It completely misses the economic point. It fails completely even to look at the substance of the economic divorce as it unfolded in real time; the economic growth actually achieved by both the Czech Republic and Slovakia over the following twenty years, which saw dynamic growth relative to the past, especially for Slovakia; notable from difficult origins, as both were ex-Soviet satellites until 1989, and did not achieve EU accession until 2004: but that, it seems is all irrelevant to the LSE analysis.
This is a very strange exercise. The LSE simply discounts all and every real or potential upside in economic activity from independence; they just don’t look. Instead they measure only that which they can conveniently measure; and measure now, a peculiarly circular activity that produces a less than surprising answer. The purpose of measurement depends first on what it is you select to measure. We are back to Brigadoon: in which there is a song with the unconsciously ironic title, ‘There but for You go I’.

Comments (20)

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  1. Chas Gallagher says:

    You know the old saying, ‘Ask 100 economists this question and you’ll get…………..’ What the London (homeland to the unionist establishment and English National[ist -deliberate] Party) SE. As we say in Ireland what a load of ‘Gobshite’.

    1. alasdair galloway says:

      Another insightful quote is by JK Galbraith who was John Kennedy’s Economic Advisor that “Economic forecasting was devised in order to make astrology seem respectable”.
      The problem with these “reports” is that they never allow the utter inadequacy of the data to get in the way of reaching some sort of conclusion, no matter how disconnected from reality it might be. Any old tat is pressed into service and then used in ways that were never foreseen when collected. Sometimes the data doesnt actually exist and “estimates” have to be used. GERS anyone?
      But how surprising is it? Economic forecasters are paid to make forecasts so no forecast no income.

      1. Foghorn Leghorn says:

        Yep, forecasting/extrapolation generally is a risky business, for just that reason. It involves what in logic’s called ‘the inductive fallacy’. How an independent Scotland would perform economically is necessarily uncertain.

        Mind you, exactly the same could be said for a Scotland that remained part of the UK. The prospect, in either case, we canna see but only guess an fear.

      2. James Mills says:

        ”An economist is an expert who will tell you tomorrow why the prediction he made yesterday didn’t happen today !”

        Or in layman’s terms : 2+2= the sum of the two numbers squared divided by the number you first thought of minus the number of Tuesdays in the month of your granny’s birth , unless it was a Leap Year , then use your great aunt Fanny’s birthday unless it happened on a month with an ‘R’ in it ! Simples !

  2. john burrows says:

    An excellent review.

    I have read several summaries of the LSE/Oxford paper. It is woeful nonsense. I suggest you listen to Mozart’s Requiem to put you in the right frame of mind for reviewing it.

    Its just feed stock for the ongoing narrative that Scot’s are singularly incapable of governing themselvses without the big broad shoulders of the United Kleptocracy.

    Their need to preserve Scotland in aspic, outside of time and space, is foundationally incoherent.

    Your aphorism is apt. From all the evidence I have seen and heard, it will be at least a hundred years before they concede having another referendum on independence. If ever.

    That being said, just remember, these are the same institutions that supply the UK with its current governance. They are not neutral on the subject of independence. They oppose the proposition.

    Still, it is remarkable to what lengths they will go to reinforce the message of their very own echo chamber.

    1. Blair says:

      Scotland is captured forever by the LSE in an immediate frozen past, ever to be repeated, over and over again: Scotland is Groundhog Day, whatever we do, it is always the same.”

      They believe what they are told, until everybody believes. Our education systems have been fixed to keep Scotland in a continuous loop the loop.
      As things are speeding up Scotland will be thrown from the loop like a car on a big dipper funfair ride. At that moment Scotland will be free, able to deploy her wings and soar: That’s one possible outcome,
      an other is that everthing breaks up like poppy head exploding and scattering its seeds in a gale force wind awaiting a random landing or maybe Scotland will remain just trapped forever. It’s Boris’s real fear, getting trapped, his Project Yellow Hammer, a Maccabbees moment, an escape. He seems to see the US as a safe bet but fails to see Scotland in Her true Heavenly Glory.

      RISI H Link Live.

  3. Craig P says:

    This bit from the report caught my eye:

    ‘there is around six times more trade between Scotland and the rest of the UK than would be predicted by a standard gravity trade model, which estimates trade flows based on the relative size of the trading partners and their proximity to each other’

    I am not sure that Scotland having six times more trade with rUK than you would expect indicates the strength of the Scottish economy under the union: rather the opposite.

    Take Ireland for example. Before independence, 80% of its trade was with the rest of the UK. It is now in the low teens, and falling.

    1. Kenneth S McNeil says:

      Latest estimate is now 9%.

      1. John S Warren says:

        Looking at the Czech Republic and Slovakia split historically Fizova and Zidek, of Masaryk University in a 2015 paper for ‘Economics & Sociology’, (Vol. 8, No 2, pp. 36-50), wrote this (I have extracted summarised statements for the sake of convenience and simplicity):

        “Splitting of Czechoslovakia at the beginning of 1993 had a limited negative impact on mutual trade (Soukup, 1995). At the same time, it increased trade of both of the countries in nominal expression because inner trade became international. Mutual trade was safeguarded by a tariff union that was preserved until the countries’ accession to the EU in 2004.”


        “Both economies progressively integrated into the world economy – the shares of exports (as well as the shares of imports) to GDP were continuously increasing – see figures below. At present, both economies are among the most open economies (measured as exports to GDP) in the world.”

        It has not always been easy, given the Warsaw Pact origins of post-war Czechoslovakia, and the 2008 Crash just for example, but both countries have made extraordinary strises forward, and to focus on the the trade costs of the divorce as the major issue arising from the split, is frankly absurd.

        1. FLORIAN ALBERT says:

          ‘to focus on the trade costs of the divorce as the major issue … is frankly absurd’

          However, the trade costs – and I include disruption and delay as costs, not just prices – may be a major issue, even if not the major one. It is certainly playing out that way in the Six Counties.

          More pertinent may be the difference in geography between Czechoslovakia and Great Britain. For Slovakia, which might be taken as the equivalent to Scotland in this comparison, there was an alternative economic market to Bohemia and Moravia. From Bratislava, it is 35 miles to Vienna, a rich and bigger city than Prague, over 200 miles away. And beyond Austria, Bavaria, the most dynamic part of Germany. There is no similar escape to prosperity for Scotland.

          1. John S Warren says:

            “From Bratislava, it is 35 miles to Vienna, a rich and bigger city than Prague, over 200 miles away. And beyond Austria, Bavaria, the most dynamic part of Germany. There is no similar escape to prosperity for Scotland.”

            Really? The velvet divorce was in 1993. Germany joined the EU in 1958; East Germany reunified with Germany in 1990. Austria joined the EU in 1995. Slovakia, however was not able to accede to EU membership until 2004. There were no quick solutions. I have already referred to the very unpropitious history of the Czech Republic and Slovakia from their years in the Warsaw Pact, which created enormous problems of adjustment to modern western European conditions and for which they were poorly prepared, an adjustment made in short order.

            Scotland is an advanced Western European economy with over 40 years knowledge and experience of the EU, and a good understanding of both rUK and world trade. It has extraordinary strengths in energy resources, science (including the biological sciences), high quality and sought after products (notably in food and drink) and in sophisticated service sectors (including finance), with a superb reputation in tertiary education. The comparison you make is eccentric. I think you may need to do a little more work before you attempt to rescue the LSE’s weak report, for whatever reason you consider such a forlorn activity may be worthwhile.

  4. Duncan Strachan says:

    Its good to know there are intelligent and knowledgable people prepared to debunk such rubbish used to create the propaganda of a failing regime.
    It will be needed more and more unfortunately.

    Would that the SG come out with similar criticism and in depth rebuttal. At least it would help to quell the nervous concern growing in the populous that the lights are actually on and someones at home. Eh Keith Broon?

    Thank you.

  5. Russell Andrew says:

    Imperfect economic or scientific hypotheses often occur when the researcher begins with the desired conclusion then interprets/manipulates the data to arrive at their predicted conclusion.

    1. Russell Andrew says:

      Have to say it’s an excellent article. Thanks

  6. Wul says:

    Thank you Mr Warren (and thank you Bella) for providing an informed rebuttal to the LSE’s nonsense .

    Will the SNP’s media department issue a scathing counter argument to this attack on reason? I doubt it.

    I have to say, there has been some great writing in Bella these last few weeks. I am very grateful for BC’s existence as a place of rational argument and good journalism.

  7. John S Warren says:

    Thank you to commenters for kind comments. I respond here only to point out that Richard Murphy has also written a Blog on the LSE Report on Tax Research UK, here: https://www.taxresearch.org.uk/Blog/2021/02/04/the-lse-report-on-the-increased-costs-in-trade-for-an-independent-scotland-is-based-on-unsubstantiated-data-and-absurd-assumptions/

    The comments are also worth reading. One examines the unacknowledged problems potentially created by the use of the ‘gravity’ trade model (log-transformations) in the data analysis, which I did not discuss; another exposing the fallacies of the way the Czech Republic/Slovakia trade costs were used in the report (similar to the broad point in my article, but more detailed and forensic).

  8. Wul says:

    “…it is taken from UK source data that makes no pretension to represent Scotland as an independent economic entity…”

    WHIT !!?

    So, using the LSE’s model of forecast, when my son eventually leaves home, he will become a homeless person?

    Headline: “Young Scots Doomed to Homelessness Upon Seeking Independence”


    John S Warren Feb 5th 9.29 pm

    I made one particular point, concerning the reason why Slovakia might be relaxed about separation from the Czech lands and, in consequence, be an inappropriate comparison for a putative split between Scotland and England. Nothing you have written addresses that. If you hope to convince Scots that divorce from England would be liberating, it would be better to pick an example that a significant number of Scots have some knowledge of.

    ‘Scotland is an advanced Western European economy’. In some respects that is true. In others, it is far from true. Much of Scotland is a low wage, low skill and low productivity economy. Visit any post-industrial town in the country; start with Airdrie, Dumbarton and Kirkcaldy – though I could name another 20 – and you will see little sign of an advanced economy.
    Similarly, its ‘superb’ tertiary education is a mixture of world class universities and a lot which is fairly mediocre.

    The ‘left behind’ economy is, of course, one of the reasons many Scots see independence as a better alternative. Personally, I see little sign that independence – as proposed in 2014 and since – would improve matters much.

    1. John S Warren says:

      “If you hope to convince Scots that divorce from England would be liberating, it would be better to pick an example that a significant number of Scots have some knowledge of.”

      Here is how it works. The LSE produced a report. I wrote and article about the LSE report. The LSE report decided to refer to Slovakia, as a significant comparison for Scotland. I challenged their conclusions. It was a bad comparison in a poorly conceived and drafted report.

      You comments on Slovakia were merely sloppy and ill-founded. For the avoidance of doubt, I am not here to respond to whatever thoughts, irrelevant to the actual LSE report and its argument, that happen to cross your mind. It is nothing to do with the article. Not only is it beside the point, it is of no interet to me. Either you didn’t read the LSE report attentively, or you didn’t understand it, or perhaps you are only interested in your own opinion. In any case, I have no idea why you are commenting here on this subject, nor frankly do I see the point of it. You seem to wish to defend the LSE, without actually mounting a defence, while failing even to see what the LSE decided was relevant.

      I suggest that if you wish to consider other matters, write an article about it, submit for publication to the editor, here or elsewhere. I have given you more than reasonable consideration here, only to discover you have nothing germane to say about the LES report. You are now wasting my time, and I will not give your comments here further consideration..

  10. Foghorn Leghorn says:

    Bottom line is that the CEP’s Brexit Analysis assumes that trade costs will increase across the new international border. However, this is not a given and will depend on what trade arrangements are negotiated between the two governments as part of their withdrawal agreement. Who’s to say that these arrangements won’t allow for regulatory alignment and the free movement of goods and services across the British Isles, as we have at present, while, over the longer term, Scotland negotiates its future (and, hopefully, free) trade arrangements with its other European neighbours?

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