The Big Mac

By Alasdair Galloway

As has been well rehearsed in many places, yesterday (18th August) was GERS day, when the undead, sorry Unionists emerge to condemn not just independence but the futility of even seeking independence. Needless to say, and as pointed out elsewhere, the Herald was all over this. There was the usual one-eyed nonsense from Tom Gordon, but also a piece by the former Adam Smith Professor of Economics at the University of Glasgow (no less), the interestingly named Ronald MacDonald (now Research Professor).

As is well known, the Prof is a dyed in the wool Unionist who will condemn independence at the very mention of the word. His area of expertise is international finance – check out his cv, he’s done the lot – IMF (no fewer than 14 times), European Central Bank, World Bank, Deutsche Bundesbank, Royal Bank of Scotland (in the 1990s GU was careful to add), Credit Suisse First Boston, Gartmore and Deutsche Morgan Grenfell etc – he really is neo-liberalism’s man and they have repaid the debt by awarding him buckets of research cash which he transformed into journal articles, books etc, which in turn got him a Chair at Strathclyde before moving to the more sophisticated environment of Gilmourhill. Yes, I went to GU as well (and yes, we did refer to it as Strath Tech, but that’s for another day), and sometimes wonder how quickly Tom Wilson (Adam Smith Prof in my day) and Andy Skinner (subsequent Adam Smith Prof and one of my most influential lecturers) must be birling in their graves that that man occupied “their” Chair. Anyway, enough of character assassination ….

His contribution yesterday is headlined “GERS report: ‘Sheer folly’ of SNP’s independence plans highlighted”, so we can’t complain we couldn’t know what to expect. The thing is that as a piece of Economics writing it just isn’t very good (in the humble opinion of a retired Senior Lecturer at the UWS Business School at Paisley, albeit with a 2:1 in Political Economy and Sociology, as well as a GU PhD).

Let’s leave all the criticisms of GERS to one side, given where we were (according to GERS) last year, and adding Covid to the mix, how surprising is it that a “fiscal deficit figure of 22.4% of GDP” is all that much of a surprise? But MacDonald is all over it, as if it were a surprise. His problem is the absence of any benchmarks – comparators to give an estimate of scale. And the further the piece goes on the more glaring and serious this failure becomes. He bangs on at length about “the fiscal insurance provided as part of the UK” as if the UK somehow uniquely was able to do this. Once he starts on this, it becomes more evident why he doesn’t use benchmarks.

If he won’t give us benchmarks, let’s get a few of our own, starting with the “wee country” just across the North Sea – Denmark (just about the same population). The current UK deficit as a proportion of GDP is 13.43% (Countryeconomy.com), while in poor wee Denmark it is ….eh….gulp …. 0.6% (yes that does say zero point 6 of one percent). Aye right, you might think, but the Danes will not have provided the same largesse as the UK did to workers laid off. And you would be right. In some regards, they did it better.

The Danish government paid sick pay (normally funded by employers at a better rate than in the UK), they paid up to 75% of salaries and 90% for hourly paid workers (who of course will normally be less well paid and whom the loss would hit harder); they compensated the self-employed for up to 90% of lost revenue where the revenue decline is estimated to be at least 30% and there are 10 employees or less. Start-ups were compensated for up to 75% of lost salary.

Ah yes, but they were able to use the power of the Euro (stop laughing!). Leaving aside the way the Euro is mocked in the UK, it remains one of the world’s main currencies. Problem is that the Danes don’t use it – they still use their Kroner, though they are signed up to the Currency Stability Pact.

Therefore, Denmark isn’t a benchmark the Prof would use. So what about a few others? Remember the UK has a deficit of 13.43%.

France 9.2%; Czech Republic 6.2%; Australia 3.83%; New Zealand 5.79%

In fact if you go through an international league table of deficits, the only countries to rival the UK’s are Brazil 13.37%, Botswana 13.19%, India 12.26%, Trinidad and Tobago 11.79% and South Africa 12.25%.

But is there nowhere worse than Scotland, which Professor MacDonald takes great joy in telling us is 22.4%? Among those even worse are Kiribati 40.38%, Libya 24%, Timor-Leste 25.62%, Venezuela 22.99%. Now to be down there among those takes a bit of doing. Does the fault lie with us? Despite all the largesse of the UK, Scotland is just irredeemably hopeless? Or do we need to think about who it is that controls the till?

As you might expect, I go for the latter for reasons I will set out in the next part.

However, before we proceed to that, there is another void in the Prof’s argument. He writes “Even with an appropriate currency regime in place, a newly minted independent Scotland without the long history of credibility that the Bank of England and Treasury have, would have to pay a premium on its borrowing over UK rates due, for liquidity and credibility reasons, of up to 1.65%.”

There are two fairly simple points from this. First, is 1.65% not a remarkably precise number – not 1.6, not 1.5. Why not 1.00% to 2.00%? I find that a wee bit suspicious – either that or I want to know his lottery numbers!

As to the second point, this isn’t something that ever happened to me (my parents had never learned to drive – I was the first with a licence, so the family car was always available), but I expect there are loads of people who when they passed their test and looked to get the family car were told “no, you don’t have enough experience”. Of course, until they get the chance to get out on the road they will never acquire that experience, and that is the problem with MacDonald’s point about credibility. He might be right that the markets will look hard at a new Scottish currency, but that is not to say – just as most kids don’t wrap the family car round the first lamppost (though the fact some do is a warning) – that the markets will not settle down, perhaps fairly quickly once they realise Scotland is facing up to its problems (not well described by GERS btw) in a realistic and effective way.

Of course until we are independent this uncertainty will always exist, and it is being used by Unionists like MacDonald in the same way as the bogey man behind the settee.

In conclusion, let’s be clear that MacDonald is a senior and leading economist. However, he is also stridently against independence. It is hard to see how he keeps these things apart – ie using his well-developed economics skills against independence for essentially reasons of personal opinion. I think his Herald article sums this up pretty well.

9 thoughts on “The Big Mac

  1. When I read and hear the anti-independence diatribes, I get a sense of deja-vu, in that all were trotted out, almost verbatim, in 2014. Despite the ‘significant’ change of Brexit and a continuing majority for pro-independence parties at Holyrood, we are still told “the broad shoulders of the union, via ‘pooling and sharing’ will continue to save Scotland from going down the plughole” and that there is “no settled will” of the population.

    Liked by 3 people

    1. You are dead right Alasdair. Just the other week one of the Herald’s regular tribe of Unionists trotted out the standard late 70s reasons why it wasnt Scotland’s oil. At one point I thought it was possible the letter had got lost in the post.
      But you know, we can mock as much as we want, but such as “broad shoulders”, “pooling and sharing” still cut through. What is desperately needed at this point is a simple narrative for independence.

      Liked by 3 people

  2. All lenders only have one concern when it cuts to the chase in agreeing a loan and its terms
    They ask one question of prime importance
    And that is
    How do I get my money back if the S**t hits the fan
    And with regards the Scottish situation at Independence
    It is a simply a matter of our Assets that are taken into major considerataion
    Is there sufficient assets to get the S**t off the fan
    Secondary but still important are
    Political stability
    Excellent financial stewardship and establishments
    What the loans are for
    Good Educational systems particularly higher
    Current balance of trade etc.
    Current areas of excellence economocally
    For all the above as a lender i can but only reply
    Are you sure that is all you need or want to borrow

    Liked by 1 person

    1. Prof MacDonald seems like a man on a mission to scupper Indy , armed only with a ragbag of neoliberal approximations and estimates and little by way of international comparisons . It’s very thin stuff but enough to serve the propaganda campaign being waged by the mainstream media .

      Liked by 6 people

  3. Great article. Thanks Alasdair.

    In the late ’60’s, early ’70’s, I went to Speakers Corner a few times.
    It wasn’t just speakers, it was like an open air circus, with more than a few deranged “acts” on the go.
    A good friend of mine had a cousin who spoke there on occasion, and he claimed all you need is a loud, assertive voice, and a simple message. You can be earnest or you can be funny. You can tell the truth or tell a story.
    In Scotland, the Unionists do have a loud, assertive voice (the media) to tell us, not the truth, but a story–a story embellished with monsters and unseen horrors.
    But—we are not children, and should not be afraid of the dark.

    Liked by 5 people

  4. The determined avoidance of ‘benchmarks’ and of ‘international comparators’ is indeed a feature of much if not all Unionist scares based on supposed ‘economic’ arguments.

    I find it notable how much variability in e.g fiscal regimes one finds amongst OECD countries (even among EU members) – in the level of overall tax taken relative to GDP; the range of taxes in play; and the balance between different taxes e.g. between personal, business and consumption.

    And of course one finds much variability on scale of expenditure on particular government activities: the most obvious example is expenditure on ‘defence’ as a proportion of GDP. The nature and scale of social protection is also highly variable.

    OECD nation states – many not so different on the face of it from what an independent Scotland could be like – establish and adapt over time revenue and expenditure (and fiscal and monetary) policies and practices to meet their perceived needs and opportunities. It’s all a simple consequence of – and the responsibility associated with – having agency!

    And these nation states (must) do all this within the inevitable, normal context of ongoing ‘uncertainty’. Parties of government seek democratic support/endorsement for judgements made/actions taken under uncertainty and eventual outcomes.

    Unionists seeking to scare the electorate away from self-determination using supposed economic arguments are saying effectively that Scotland – its economic assets, its institutions and its people – now and in the future are incapable of achieving what other successful countries do.

    It is a forlorn hope that Scotland’s mainstream economic and business journalists will challenge the likes of Professor MacDonald to explain in detail, in the face of extensive comparative evidence to the contrary, why this would be so.

    Liked by 3 people

  5. Regular bank crash. Working for all the banks that crashed the world economy. Took £Trns from taxpayers. Left the world economy destroyed. Lecturing others. They have no shame, Some people never learn. Charlatans, crooks and thieves. They cannot count read a balance sheet but are laughing all the way to the banks with their swag. Others people’s monies. Taxpayers monies bailing them out. Leaving people impoverished.

    Like

  6. Big Mac didn’t offer us the opportunity to ‘Supersize ‘ our deficit – but regardless ”I’M Lovin’ it” and can’t wait for the ‘Meal Deal’ when WE get to choose , as an Independent country , what the actual cost of GERS is !

    Like

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