We saw the latter with his warts and all piece in City AM on the short term harmful impact of an fixed currency peg on Scotland. Whilst I disagree with the conclusions of this piece (they are not nearly scratching the surface of the pain a currency peg would cause) they were at least at attempt at being honest with supporters of independence. George made the mistake of telling nationalists that it wouldn't be a land of milk and honey.
The trouble is that the article was just too honest for the SNP, poor George was forced to publish a humiliating retraction on social media.
His recent article in the National then can been seen as part of his "rehab" into the SNP.
Rather than attempt to use his obvious intellect to present a deep analysis of GERS, its challenges, its methodology, its messages for an independent Scotland he has issued a blunt piece of propaganda.
I have very little doubt he would have winced as he signed off on this "article". I also have little doubt that it was first drafted for him by a lowly intern in the SNP office who has the job of issuing disinformation on social media and clearly doesn't know much about economics. .
I've added my own comments in red throughout the article.
HOORAY for public-sector deficits. Let’s get this straight in the current brouhaha over the latest Scottish Government Expenditure and Revenue figures, aka GERS.
At this time, with the global economy mired in semi-permanent deflation, the correct government response anywhere is not just to run a budget deficit but to increase it. In fact, many economists – including fervent defenders of neoliberal orthodoxy – are talking about the need for so-called “helicopter money”, by which the central bank simply prints cash and puts it directly into your bank account to spend, no strings attached.
OK we're not onto a good start here and we have the first "tell" that this probably wasn't first drafted by George Kerevan. The issue with GERS is not the deficit itself but the loss of the fiscal transfer.
So it defies logic that in the middle of this grave economic crisis the Unionist camp is busily using a putative Scottish budget deficit for last financial year (2015-16) as a reason to oppose independence.
The Unionists aren't using the deficit itself as a reason to oppose independence, they are using it to beg very difficult questions. The outright refusal to recognise that there is an issue (that this sort or piece is a great example of) just demonstrates the sort of shifty case that the SNP are now trying to put forward.
If Scotland were already independent – and leaving aside the fact that, like Norway, we would have run our economy very differently from the UK in the past decades
So it defies logic that in the middle of this grave economic crisis the Unionist camp is busily using a putative Scottish budget deficit for last financial year (2015-16) as a reason to oppose independence.
The Unionists aren't using the deficit itself as a reason to oppose independence, they are using it to beg very difficult questions. The outright refusal to recognise that there is an issue (that this sort or piece is a great example of) just demonstrates the sort of shifty case that the SNP are now trying to put forward.
If Scotland were already independent – and leaving aside the fact that, like Norway, we would have run our economy very differently from the UK in the past decades
Yes George that's the question we keep asking but nationalists aren't prepared to address. What would you do differently? Maybe if you actually bothered to answer that question rather than asserting things would be different and you would have some credibility?
– any Scottish Government would be being praised for boosting spending in order to haul Europe and the rest of the British Isles out of deflation.
Another "tell" that this hasn't been drafted by someone who understands economics. The idea that an independent Scottish Government boosting public spending on its own would have a huge effect on the economy is laughable. Given the integration of the Scottish and rUK economy that stimulus would rapidly leak down south and have very little impact on either economy. It would therefore end up being a huge waste of money, it is therefore unlikely then that....
Firms in England would be clamouring for their own government to follow suit.
According to GERS, Scotland’s notional budget deficit last year was 9.5 per cent of GDP. Let’s take that as correct for the moment, though I have always held that the GERS figures understate Scottish tax revenues – a lot of tax generated north of the Border is currently recorded as accruing in England.
According to GERS, Scotland’s notional budget deficit last year was 9.5 per cent of GDP. Let’s take that as correct for the moment, though I have always held that the GERS figures understate Scottish tax revenues – a lot of tax generated north of the Border is currently recorded as accruing in England.
Well this is new and quite a revelation. An SNP MP is criticising the methodology created by his own Scottish Government. I would love to know which revenues are understated in GERS seeing as Income Tax is by direct survey of the underlying data of residence and corporation tax is based on economic activity not on head office location.
Now 9.5 per cent of GDP is high for normal times, but not when the global economy is mired in deflation and major companies in the US and UK are sitting on piles of cash rather than investing, because they can’t find profitable outlets for their money. In these peculiar conditions, it is up to the public sector to spend.
Actually it's up to the public sector to get that money moving, either by taxes on idle balances or by reducing interest rates through through quantitative easing. If the state simply borrows to pick up the slack then it comes to a point that given the size of the deficit it runs out of credibility to do so. You therefore end up with a runaway deficit requiring painful tax rises and deep public service cuts. This happened in the UK in the late 1970s and in Greece in recent times.
Japan, for instance, has just raised its annual budget deficit to 7.1 per cent of GDP and received praise all round. For the record, Japan’s total national debt stands at 229.2 per cent of GDP and rising and the roof hasn’t fallen in. Result: Japan has some of the most splendid public roofs on the planet. In normal times, economists suggest running a budget deficit roughly in line with a country’s average trend rate of growth. That way you generate the wherewithal to fund your extra borrowing as you go along. But if the world is stuck in a deflationary spiral, the correct move is for governments to borrow heavily to kick-start demand – something facilitated by the fact that deflation results in the cost of public borrowing dropping to zero.
A reasonable statement of Keynesian. However any good Keynesian would tell you that to make this work you would need to manage leakages (which would be huge from the open Scottish economy) and you would need to have credibility with borrowers.
Given the size of the Scottish deficit international lenders would be demanding action from Scotland to get the deficit down not to push it upwards. The Japanese method of funding their deficit from domestic saving isn't an option as it would simply reduce demand in Scotland as people stopped buying to invest in Scottish Government bonds.
All of this is very, very basic economic theory and practice.
For some small European nations, the yield paid on bonds (which governments sell to raise money) is now negative. In other words, investors are willing to pay for the privilege of lending to Switzerland, Sweden and Denmark, bonkers as that might seem. Investors do so because they have to put their cash somewhere and it is better to keep it in a safe haven (like Swiss bonds) than risk losing the lot. So the Swiss government can now borrow cash for fifty years at a lower-than-zero rate of interest.
Earlier this year, the Danish Government actually cancelled a scheduled auction of its securities because too much foreign cash was desperate to flood into the country. From this evidence, the notion that an independent Scotland would be a fiscal basket case is risible.
What is risible is to try to pretend that an independent Scotland would have range of investors willing to bankroll a small open economy using cash to fund public spending that would rapidly leak away creating an even bigger deficit.
Furthermore as I show here the concept of Scotland running a deficit which is substantially higher than rUK is a ridiculous notion unless Scotland was comfortable seeing its new currency tumble on the markets.
For the record, I accept that a 9.5 per cent deficit is high. But it’s not an argument for being scared of independence. Quite the opposite.
Indeed a high deficit is itself not an argument for being scared of independence. The loss of a fiscal transfer of £9bn with no one prepared to give you a plan how you would pay for it a reason though.
This shifty sort of denial and deliberate confusion between the deficit and the fiscal transfer should make any rational individual question exactly what the author has to hide.
This shifty sort of denial and deliberate confusion between the deficit and the fiscal transfer should make any rational individual question exactly what the author has to hide.
The Unionists – particularly the uber sort in what’s left of Scottish Labour – argue that being part of the UK provides the “insurance” and “sharing” that funds the Scottish budget deficit. The truth is that the Union has worked systematically over the decades to Scotland’s economic disadvantage, resulting in deindustrialisation, mass outward migration and the wholesale transfer of commercial decision-making to London. That’s true for the North of England, Wales and Northern Ireland, by the way.
That's true of any open capitalist system, the golden triangle of Europe has been a long known phenomena with capital drawn to a centre. This has only increased since the abolition of capital controls which means that the draw of capital to the centre tends to ignore national boundaries.
You'll note how George carefully says Northern Ireland, ignoring the fact that London draws people and capital from Eire as well.
The solution then is to use fiscal transfers from the centre out to those areas affected by increasing returns to rebalance the economy. That's an argument for the Union, it may even be an argument increasing the size of the fiscal transfer to Scotland.
You'll note how George carefully says Northern Ireland, ignoring the fact that London draws people and capital from Eire as well.
The solution then is to use fiscal transfers from the centre out to those areas affected by increasing returns to rebalance the economy. That's an argument for the Union, it may even be an argument increasing the size of the fiscal transfer to Scotland.
Independence however reduces the fiscal transfer to zero, like Eire, whilst the draw of capital to the golden triangle continues. This just simply makes the problem George outlines worse.
Champions of Britishness, like Scottish Labour’s Kevin Hague,
Kevin Hague isn't Scottish Labour, this is another "tell" that this has been ghosted by some immature SNP intern in charge of social media.
end up being apologists for a rotten capitalist system that has bled Scotland dry.
Fair enough if George (suddenly) thinks the capitalist system is rotten, but come on George tell us the alternative model.
The argument as it stands can ONLY make sense if George is now arguing for capital controls in an independent Scotland. But that wouldn't be possible in the EU and the practical introduction of them would make Greece look like a walk in the park.
The argument as it stands can ONLY make sense if George is now arguing for capital controls in an independent Scotland. But that wouldn't be possible in the EU and the practical introduction of them would make Greece look like a walk in the park.
Hague prattles on about the need for more “entrepreneurial spirit” being subverted and diverted by calls for independence. He worries that an indyref2 will hurt business confidence to invest. But UK firms are sitting on piles of spare cash here and now.
Good strawman here from George. Kevin Hague actually said that the entrepreneurial spirit is being subverted and diverted by people just blaming London for our problems rather than facing up to them and seeking solutions.
George's article is a textbook example of exactly the sort of thing Kevin Hague was warning about. The irony here is breathtaking.
George's article is a textbook example of exactly the sort of thing Kevin Hague was warning about. The irony here is breathtaking.
According to the Bank of England, over the last decade private non-financial companies in the UK have accumulated a higher proportion of cash on their balance sheets than before – more than £500 billion. As a share of GDP, corporate cash in the UK has risen from 20 per cent in 1987 to about 30 per cent today. This money is not being used for socially productive ends because it is not deemed “profitable” enough to invest. Yet we need houses, schools and hospitals galore. Hague fails to understand that capitalism is a power and class system.
This only makes sense, again, if George is now calling for an independent Scotland to increase business taxes (taxes he recently championed being cut in the White Paper on independence). Furthermore it was only 5 years ago that George was arguing that wealth taxes do not work. But perhaps we are at least getting a hint here about the SNP's policy towards the loss of the fiscal transfer, a sharp increases in business taxes and a wealth tax.
The question is whether these will actually bring in revenue for the Scottish Government, the evidence on this is not good. Indeed the evidence on the most successful approach to business tax points to the harmonisation of such taxes across national boundaries. Such as the arrangement we have with the Union.
The question is whether these will actually bring in revenue for the Scottish Government, the evidence on this is not good. Indeed the evidence on the most successful approach to business tax points to the harmonisation of such taxes across national boundaries. Such as the arrangement we have with the Union.
Without independence, Scotland lacks the ability to break the control over investment flows exerted by big firms and international banks.
Yes without independence Scotland does lack the ability to break control over investment flows. But being a member of the EU also means Scotland lacks this ability! Even if we did the capital outflows at the point of independence would be devastating.
It's quite remarkable, either George is advocating that the SNP abandon it's policy of remaining in the EU or he's just spouting what he knows to be empty rhetoric.
As for the argument that, in current circumstances, Scotland is being bailed out by rUK, consider this. Norway has roughly the same population as Scotland and is also having to contend with the impact of falling oil revenues. So what size of budget deficit is Norway running? Answer: none. For Norway is able to use the cushion of its Sovereign Wealth Fund, the world’s biggest, built up over the decades by saving and re-investing in equities some of the proceeds of its oil wealth. In other words, Norway used its oil bonanza to save for a rainy day. But Scotland, inside the UK, has been robbed of that opportunity.
George forgets to mention that Norway takes in 43.6% of its GDP in taxes, the UK takes in 39%. Take the difference between the two and you have the makings of a sovereign wealth fund right there. However that's just a substantial increase in tax, maybe that's how George plans paying for the fiscal transfer? The effect would be devastating on growth in an independent Scotland, so surely not? But going by what follows it seems like that it is the case.
Instead, the oil revenues were squandered by successive UK Governments on short-term tax cuts. If just 10 per cent of UK tax receipts from the North Sea had been put into an oil fund starting in 1980 and continuing until 2008, and if the nominal return had been three per cent, the value of the fund would be £24bn per annum. That’s more than enough to cover any deficit in Scotland’s budget, even allowing for any recent fall in share prices and company dividend payments. (I’m quoting figures from the respected academic Jim Gallagher, an advisor to the Better Together campaign.)
This is a beyond bizarre argument, and again I think it's a "tell" to the real author.
"George" is basically arguing that if he had a time machine this is how the world would pan out. Fair enough but we can all do that, in fact I would just go back a few years and win the lottery along with the Wiers. However the point being made here is ridiculous, if you went back in time then George would cut spending in Scotland and direct it to an oil fund. OK but where would those substantial cuts in public spending have fallen? What would have been the loss of economic output as a result of those savings? That's the problem with trying to rewrite history, only in the most simplistic mind does it actually get you anywhere.
The argument that Scotland needs to cling to the Union because those nice folk in the Tory Treasury are always there to bail out we feckless Scots is palpable historical nonsense. From the discovery of North Sea oil onwards, the SNP argued vociferously for a Sovereign Oil Fund to be created, to save a proportion of the windfall tax revenues in perpetuity.
Let's also recall that even if you take the ridiculous notion that the world started in 1980 then the oil fund such that we would have built up in Scotland would be all gone, Just when we need it the most.
The analysis below is based on rolling up the accumulated net debt for Scotland if it were independent in 1980 (and took a population share of UK debt at that point). The debt or surplus is then rolled at UK gilt rates. It shows our actual debt today would be greater than our current population share of UK debt.
Any independent Scottish Government would have pursued this strategy.
I see we have now moved from "should" to "would" again a ridiculous statement with no foundation and not even backed up by the analysis.
Today’s Scottish budget deficit would not exist if Scotland had been independent over the past 50 years. If anything, our alleged 9.5 per cent budget deficit was caused by the Union and the short-termism of genuinely feckless Tory and Labour governments at Westminster.
No our fiscal transfer is caused mainly by our sparse population, this is something George doesn't want to confront so he just blames Westminster - utterly vindicating Kevin Hague's criticism.
Arguing that we need to continue with this Unionist ball and chain is a recipe for national economic suicide for Scotland. That is the real lesson of GERS.
George, I think that the real lessons of this article:
1. It's highly unlikely that you wrote the first draft of this.
2. You clearly know that much of what is being said in your name is nothing but complete nonsense.
3. You are obviously still serving a penance for your outbreak of honesty in City AM.
4. You are an intelligent man, George. You are better than this. Why allow your good reputation to be sullied in this way by putting your name to this? Hopefully one day they will let you out of rehab.
5. The real lesson of GERS is that the SNP just don't have an answer for it, other than policies which they don't apparently espouse (tax increases) or fly in the face of their own policy of remaining in the EU.
No comments:
Post a Comment