There has been much, appropriate, criticism of the commentary in the media on yesterday's GERS figures. The BBC represented them as if a fact i.e. this was Scotland's income and spend, when GERS shows nothing of the sort. And there was much, inevitable, discussion of how the figures were supposedly unsustainable.
Some of that nonsense was in the Guardian, but it's almost unfair to pick it out, it was so widespread. More interesting was Larry Elliott's comment on the figures. In that he said:
Ultimately, the only realistic way for Scotland to enjoy the levels of spending it currently enjoys is to raise the economy's growth rate. That would require supply-side changes to boost investment in physical and human capital. But it would also mean ditching the ideas of sticking with the pound or joining the euro and instead running an independent monetary policy. There seems little appetite, though, for such a radical option.
Larry hits the nail in the head. The real question in Scottish politics is why those who want independence do not have the courage to deliver the independence they want.
We know how modern economies work. We know MMT is not a theory at all; it is just a description of what happens. We know as a result that small economies must not, as a consequence, borrow in foreign currencies or be shackled to another state's central bank. But the SNP seem to be frightened to say so. It is, however, the only way Scotland can be the country it wants to be, and as Larry notes, could be. It is for others to say why the path to that outcome is not embraced by those who want it. I am simply bemused.
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How small can a territory be and have its own currency? When Senator Bailhache first reported back to Jersey after the initial BREXIT discussions he said that two reforms were needed – 1) to appoint the judiciary locally and 2) that Jersey needed “control of monetary regulation but not a Bank of Jersey” – nothing further has been said in public so far as I am aware.
Anybody know what he meant and why he might have said it?
Obviously it could be tied up with independence but even the 3 CDs working together would find such measures difficult to achieve or implement.
I presume Scotland could opt out but it is all way beyond my comprehension – can you delve deeper Richard or can any of your colleagues?
Iceland
Well, speaking of channel islands…
https://www.michaeljournal.org/articles/monetary-reform/item/guernsey-s-monetary-experiment
A kno9nw story and a little simply told here but worth repeating
But generally, I would agree Iceland is a good size for modern economies. Much smaller and the economy would have trouble with price stability because of an overreliance on imports of basic essentials. That doesn’t mean it couldn’t be done, like if the small country was a major exporter. E.g. See Bill Mitchell’s proposal for Timor-Leste (an oil exporter). http://bilbo.economicoutlook.net/blog/?p=39278
“How small …” I think the region has to be big enough for some degree of autarky. The key phrase would be “available for sale in the local currency.” With enough local goods of enough variety, then a local currency will give local control over distribution. Contrariwise, if everything were imported then local currency would be a joke.
I do not think it is sufficiently understood the extent to which it was Scotland that was most committed to the idea of “Britain”. The Scots did more to bring this binding ideological concept of “Britain” into being, to sustain it above everything, to sacrifice other calls for it; perhaps to a far deeper and greater extent than any other part of the UK.
Two world wars, secularism, the end of Empire, Thatcher and finally Brexit have exhausted what was left of this sustaining, but inexorably faltering Scottish ideological myth of a unifying, shared “Britain”. Perhaps only the Scots ever fully believed it. In any case old habits die hard, and expended ideologies are gallantly outlived by people who are bound within them by ties that are beyond the lessons of experience. The British political parties in Scotland are however yet defined by the undernourished myth, although the required, uniform, unchallenged public faith in the Scots myth of “Britain” no longer exercises its old authority; or even credibility.
While I’m certainly no apologist for England, wasn’t the Darien Scheme (Caledonia) bail-out instrumental in bringing about the 1707 AofU?
That particular bail-out was made to the landed gentry and rich merchants of Scotland. The Scottish Treasury had no involvement in the funding of the Darien adveture.
This answers the question “who sold Scotland?”
That was certainly a factor – but a rather larger one was the Alien Act of 1705, which basically embargoed many staples of Scotland’s export economy, and also threatened to dispossess Scottish folk of their property rights unless Scotland was willing to negotiate the union with Great Britain (that condition explicitly stated as part of the act.) Even then, popular sentiment in Scotland was against it, and Westminster had to hand-pick who got to actually vote on the matter. So yes – Darien, blackmail and gerrymandering.
There was no “bail-out”. Scotland was severely hit by the Darien fiasco, but although there were heavy losses, the state of Scotland was not heavily indebted. Here is the irony. The payment made by England to Scotland at the Union (1707) was NOT to pay off the Scottish State’s debt, but rather was a payment to Scotland that was required under the negotiated Union Treaty, in order that Scotland accept a share of England’s debt.
The amount was calculated by the Scottish mathematician James Gregory, and was paid in specie; it was called the “Equivalent”. Some of the Equivalent was used to compensate for the losses of Darien to investors in the Company, as individuals; without whom, frankly there would have been no Union. Part of the Equivalent was also, effectively used as seed-captial for the formation of the Royal Bank of Scotland. The ironies are endless.
I agree with John’s point about Scotland historically taking the concept of UK and Britain more seriously. This went as far as commonplace dropping of “Scotland” from postal addresses and using “North Britain” instead. There’s still plenty of evidence of that about in names of old companies, buildings etc, but no evidence that there was ever any widespread use of the terms “South Britain” or “West Britain” elsewhere. My guess is that the prevailing English view was one of “job done” and Scotland now subsumed, like Wales, into England.
There was a North British Railway
I was almost entirely in Scotland, only getting as far south as Carlisle and Newcastle
I am not hesitant at all about having our own currency and indeed I have a 20 page paper on setting up the Scottish Pound. Done sensibly that also results in the existing Sterling that would be exchanged becoming the property of the new Scottish Reserve Bank. So those who go on about needing big reserves and can we afford it, etc are talking rubbish. We would end up with £50 billion or more of foreign reserves, so more than the BoE which has about $45 billion of net foreign reserves. And in fact at the point of creation the S£ would be the only currency in the World that was backed one for one by foreign reserves. That is because £1 has to be handed in for each S£1 given out. So exactly as MMT has it – the new currency is spent into existence in order to buy the old. We are just lucky that Sterling is still going to exist and thus the ‘old money’ does not cease to have a value. I am the Sec of both Dalkeith SNP branch and Midlothian North Constituency so I did give copies of my plan to both Nicola Sturgeon, Alex Salmond and Derek Mckay last September. Of course whether they read them or if they did read them then understood is another matter. I think the problem with Nicola is that she isn’t interested in Economics and does not understand it. A common problem as I think hardly any politicians have any understanding of Economics, and what they do know is usually wrong.
BTW, I am halfway through your Joy of Tax book – very good so far.
Thanks, on all fronts
Small hint at progress – Nicola Sturgeon seems to recognise that having a deficit is not daft.
I know, she actually said the aim was to get to the “international norm” of 3% deficit – but that’s miles better than saying we want to balance the books or aim for a surplus!
Perhaps the trickle down of MMT is working, if slowly.
If the SNP don’t want their own currency it means that they are not serious about Scottish independence. The way in which the independence debate is framed is IMO a complete fraud. Scotland is suffering from the same economic crisis as the rest of the UK. A crisis not engineered in Westminster (but certainly made worst) but bought about by a failed economic system. The SNP’s narrative is to blame London and proclaim, “if we were in charge and not those nasty English foreigners’ things would be a lot better”. This is the same blame game peddled by all the populist parties. It is just the same as people blaming immigrants for our economic woes — always somebody else’s fault. Don’t get me wrong I am all in favour of as much Scottish independence as the people of Scotland desire. But political independence on its own is a mirage. Without also economic independence the Scottish people will have nothing. Part of the economic independence as Richard states is having control over its own currency. It appears that some of us English people understand that political and economic democracy go hand in hand. You can’t have one without the other. The SNP hierarchy do not accept this position That is why I say the SNP independence project is a fraud.
I would suspect that a majority of the 120,000 SNP members do want a Scottish currency. Quite a lot of the SNP MPs and MSPs do as well. However there are some that don’t, such as Andrew Wilson. He is very tied in to the City way of thinking as a former financier, and also very neo-liberal. So far as the leadership are concerned the hesitancy is about not wanting to scare the horses, and that especially goes for the over 50s. It was principally pensioners that voted No last time largely because they were worried about money. However I think to just grasp the nettle and get on with it. People will follow given good leadership even if it means some pain. In 2014 there was too much of an attempt to make out that nothing much would change, but if that was the case then why have independence? The point, surely, is that everything will change, so just say that and why.
John Adams says: ‘The SNP’s narrative is to blame London and proclaim, “if we were in charge and not those nasty English foreigners’ things would be a lot better.” ‘ I don’t think the SNP have ever said that, especially not the bit about the English. Many of us have extensive English connections, for eg in my case my mother, my wife, many of my friends and relations. We certainly blame the Act of Union and the Scottish nobility that Burns excoriated; the Westminster parliament chock full of unionists (from all parts) whose venality we noted the other day; the way that Westminster’s policies have created one of the most unequal advanced countries in Europe to the exclusive benefit of the SE of England and London (and to the detriment of all the other regions of the UK, not just Scotland) and the accompanying financialisation; and of course the whole fraud of devolution (power retained) and the fraud and trap of the post IndyRef settlement engineered by Cameron’s useful idiots, and the fact that all the important levers, fiscal, monetary and social are retained by Westminster.
But yes, without our own currency we might as well stay with the UK. I don’t know if the SNP hierarchy accepts this or not, because the Growth Commission is not SNP policy (yet) and there are many in the membership who will be arguing strongly against the fiscal and monetary recommendations in the GC.
If they do accept this straitjacket then many of us will face a dilemma: do we continue to support the SNP, as they are the only realistic vehicle for achieving independence, or do we switch, perhaps to the Greens? After Independence then it’s all to play for and those of us on the left will vote for the party with the most appealing left-wing policies, which is increasingly looking like the Greens.
I don’t think that the SNP project is a fraud, it may have it’s flaws, but there are still many in Scotland who are fearful of independence (and many of these are actually English), and that’s why the toxic unionist campaign was called “Project Fear”, and so the SNP have to tread warily, perhaps too warily – time will tell.
I would suggest that the SNP are not saying ““if we were in charge and not those nasty English foreigners’ things would be a lot better” but rather “if we were in charge we could make different choices and guide our country in a different direction”. The Independence movement has nothing to do with our feelings for the English. In fact I suspect many Scots like me feel great sympathy for those in England outwith the privileged classes who are bearing the full brunt of brutal and entirely planned neoliberal policies. In Scotland we have already made different choices in the limited spheres open to us. We have no bedroom tax (in practice), no fracking, the best performing (and non-privatised ) NHS in the UK, free tuition for our kids, free prescriptions, free personal care, baby boxes for every new Mum, interest on student loans charged at 1.5%, a stunning new bridge over the Forth – under budget. Life really is kinder here and those of us who support Independence are yearning for the opportunity to drive our country further in this direction. It is fundamentally a question of democracy – the fact that in my lifetime (and I am pushing 60) Scotland has never (yes never!) voted Tory yet we are forced to accept our lives being governed by their brutal policies. To say that Independence is about blaming others for our woes is just wrong.
John Adams is entirely correct here;
“If the SNP don’t want their own currency it means that they are not serious about Scottish independence. The way in which the independence debate is framed is IMO a complete fraud. Scotland is suffering from the same economic crisis as the rest of the UK. A crisis not engineered in Westminster (but certainly made worst) but bought about by a failed economic system. The SNP’s narrative is to blame London and proclaim, “if we were in charge and not those nasty English foreigners’ things would be a lot better”.
There seems to be a desperate effort at parsing or avoiding these unpalatable truths but the reality says otherwise, as JA states. Well done for your clarity.
People simply don’t understand the issues involved. If they did, the City would long have been a smoking ruin, which to mind mind explains why we’re taught nonsense about matters economic and seemingly always have been.
In a few words, they must!
The problem for a lot of SNP members (like me) is that MME is such a hard sell, inside the movement as well as outside. Most of us know how difficult it is to wean the “good” folk (forget the greedy exploiters) from ingrained economic ideas — for example, trying to explain fiat currency or shift them away from the “balance the books” household analogy and the idea that governments have to tax before they can spend. No surprise that it is an uphill task. We are asking people to realise that the economic “king” that they, their parents and grandparents believed in for years hasn’t any clothes and never did have any. Trying to convince voters and “high heid yins” in political parties in the current UK setup is hard enough. How do you fancy doing it at the same time as trying to convince the Scots to resuscitate the full government they had prior to 1707? It’s quite a tightrope to walk.
Jack, we need to just keep chipping away at the ignorance and spreading the word about MMT. It’s not easy opposing many decades of propaganda about the economy and where money comes from, but the only certainty is that if you don’t try, then nothing will change. There is a lot more general knowledge about MMT in the media than there was even a few years ago.
G Hewitt & BabsP my remarks concerning the Scottish view of the English were not to be taken literally but were a caricature. But the common thread in the debate is “Scotland never voted Tory but, we have to endure Tory policies”. A lot of us in England never voted Tory either. We are both in the same boat. Having control over your own currency will be essential if Scotland is to forge ahead with independence, but on its own it is not enough. The key as BabsP says is democracy, but BabsP that means economic democracy. You state that Scotland is pursuing a very progressive programme. That is great news. Remember our recent history though, Capitalism can do “nice to poor people” till the cows come home. That is until the next economic crisis. Then all the gains previously conceded are reversed. That’s austerity. No good then looking to SNP for salvation they will be a large part of the problem. They will be the Tories.
Thanks for the clarification, but unfortunately the “caricature” is in fact repeated rather too often online and in the media, so it seemed for real. I’m afraid I don’t follow your point about the SNP becoming the Tories after Independence. No one knows what will happen or even if the SNP will be the dominant force, or if they will split up, or if they will become more radical and left wing or anything else. But at least what we get will be our own choice.
For information, Scotland has, in fact, voted Tory several times in the past, most recently in 1955. https://en.wikipedia.org/wiki/Unionist_Party_%28Scotland%29#Electoral_record_and_the_1955_election
But they only got in by claiming they were Liberals, and I’m not sure that really counts.
Because the independent Scottish Government would start out life with billions in debt that has to be serviced in sterling. This consists of the debt it accepts in the negotiations, as well as the debt that Holyrood is amassing right now under its new powers. And because over 1 million Scottish households have a major debt denominated in sterling, in the form of a mortgage or a car loan.
The concern is that the new currency would have to float, because there is no credible plan for establishing and defending a peg to sterling. Unless there is a major increase in oil production in the run-up to independence day, the only way for the exchange rate to go is down, given that Scotland has no track record, a high deficit, and poor productivity vis a vis the rUK.
But the revenue that the state receives, or the money it prints for itself, is in the new currency; and the citizens are now paid in the new currency. That makes these sterling-denominated debts more of a burden, and the burden grows every day that the exchange rate falls.
Why on earth would any of the debts belong to the Scottish government or be serviced in sterling
The debts will belong to the remaining UK government and Scotland could agree to contribute but only in Scottish pounds or the rest of the UK could lump it
And all Scottish accounts and liabilities would be redenominated as happened when euros were introduced
You really have not through this through
Because they pre-date independence and are denominated in sterling.
“The debts will belong to the remaining UK government and Scotland could agree to contribute but only in Scottish pounds or the rest of the UK could lump it”
Independent Scotland can only come into being with the agreement of Westminster, via a bill that passes successfully through both houses. So, no, the negotiating team for the would-be-independent-Scottish-government cannot unilaterally decide to change the currency of these debts.
“And all Scottish accounts and liabilities would be redenominated as happened when euros were introduced”
When euros were introduced the various currencies they replaced ceased to exist. That is not the case here. There is no known principle of Scots law that would empower the new government to rewrite the terms of EXISTING private contracts for debt. In the area of mortgages, if they attempted to do so, they would find themselves in a battle where their legal team is out-numbered 100-1.
That the debt will be that of the rest o the UK is international law
That balances will be redenominated is also recognised in international law
I suggest you accept it – all the precedents exist
“Independent Scotland can only come into being with the agreement of Westminster”
America would like to disagree with that.
So might Ireland, and we’d rather not go down that path
Two points. The principal asset of a sovereign currency is the right to issue it. The debts should follow the asset. England, (as the ‘continuing’ state – rUK; and currency is the reason it is the continuing state: as an ‘incorporating union’ the British state would otherwise constitutionally, and logically require to be ‘abolished’, save for the currency considerations). In 2014 the British Government made clear that it would take full responsibility for the British debt if Scotland was independent, and Scotland should be happy to leave rUK with the asset and debts. The British Government in 2014 wanted full control of the asset; they knew rUK had therefore to take full responsibility for the debts. Scotland must take nothing to do with sterling; and certainly not the debts (and there is no prospect of Scotland having any control over the asset). Everything else can be negotiated.
Lex monatae
https://en.wikipedia.org/wiki/Lex_monetae
“That the debt will be that of the rest o the UK is international law”
What is this other than the insistence that indy Scotland could just walk away? It cannot, because there is no way for it to come into being without the approval of Westminster, which will not be given unless there is an agreement about the debt.
“That balances will be redenominated is also recognised in international law…all the precedents exist”
Firstly, this is simply untrue. An issue such as this is virtually unprecedented.
More importantly: there is no international court the Scottish government could turn to. They’ll be in Scottish courts, arguing on the basis of Scots Law. They’ll be up against the entire financial industry of England AND Scotland, and they’ll be “out-lawyered” 100 to 1. And the Scottish judiciary is probably the most conservative enclave in the entire country.
I think you are ignoring international law….
And I explained a precedent
This is a mutual political negotiation. Ultimately it will not be decided by lawyers (I am a lttle surprised I need to point this out). There are many big issues affecting both rUK and Scotland that will require a mutually agreed settlement. The idea that total control of the sterling asset is simply allocated to rUK ‘free gratis’, while a substantial part of the debts are simply transferred to Scotland, is unsustainable. Respectfully, I think you need to think this through.
“It cannot, because there is no way for it to come into being without the approval of Westminster, which will not be given unless there is an agreement about the debt.”
Who gave approval for the USA to become an independent nation? Croatia? Bangladesh?
There is a recognised path for redenomination of debts via ‘lex monitae’.
Precisely
“But the SNP seem to be frightened to say so.”
Or they just don’t understand.
Simon, I do wonder if the growth commission is an attempt to appease the banks in light of brexit. Giving them a ‘safe haven’ post brexit in return for their backing of independence to push it across the finishing line.
(I’m certainly no supporter of the growth commission proposal)
People tend to be afraid of what they don’t understand, but as already mentioned “the pensioner” is supposedly a demographic that can be easily swayed by currency fears, sounds patronising I know but this is the nonsense holding back progress on these issues.
I assume that allocation of public debt and assets between Scotland and England will be negotiated between the two governments.
But what about private debt? On independence day. presumably all private debt will be denominated in sterling, but have to be repaid from earnings in Scottish pounds. Is this type of mismatch not responsible for a lot of currency disasters?
Could an answer come from Richard’s view on cryptocurrencies?
One of the secondary roles of tax is to pay for law, and to provide a framework for enforcement of contracts. The Scottish government might not feel obliged to enforce repayment of loans that were not monetised directly or indirectly in Scottish pounds. Or it might only enforce repayment with 1 to 1 conversion. Going forward, it might set the conversion rate for next 12 months at the start of each tax year
This is not true
All such debt owing by those resident in Scotland can be redenominated in Scottish pounds, as were such debts redenominated in euro areas when that transition took place.
Your last point is not something that seems relevant or at all likely