Krugman to Scotland: Be very afraid.

[RandySF]

Next week Scotland will hold a referendum on whether to leave the United Kingdom. And polling suggests that support for independence has surged over the past few months, largely because pro-independence campaigners have managed to reduce the “fear factor” — that is, concern about the economic risks of going it alone. At this point the outcome looks like a tossup.

Well, I have a message for the Scots: Be afraid, be very afraid. The risks of going it alone are huge. You may think that Scotland can become another Canada, but it’s all too likely that it would end up becoming Spain without the sunshine.

Comparing Scotland with Canada seems, at first, pretty reasonable. After all, Canada, like Scotland, is a relatively small economy that does most of its trade with a much larger neighbor. Also like Scotland, it is politically to the left of that giant neighbor. And what the Canadian example shows is that this can work. Canada is prosperous, economically stable (although I worry about high household debt and what looks like a major housing bubble) and has successfully pursued policies well to the left of those south of the border: single-payer health insurance, more generous aid to the poor, higher overall taxation.

Does Canada pay any price for independence? Probably. Labor productivity is only about three-quarters as high as it is in the United States, and some of the gap may reflect the small size of the Canadian market (yes, we have a free-trade agreement, but a lot of evidence shows that borders discourage trade all the same). Still, you can argue that Canada is doing O.K.

But Canada has its own currency, which means that its government can’t run out of money, that it can bail out its own banks if necessary, and more. An independent Scotland wouldn’t. And that makes a huge difference.


http://www.nytimes.com/2014/09/08/opinion/paul-krugman-scots-what-the-heck.html?_r=0

[LuvNewcastle]

1. Doesn't Scotland already have a lot of flexibility to make

its own laws? I thought I read that they do. It seems like they could work out a compromise if they want to have more home rule. They have been tied to Great Britain for about 400 years, and it seems to me that it would be hard to separate now. I know that they're generally more liberal than England, Wales, and N. Ireland, and I'm sure it's frustrating at times to deal with the conservatives. But it seems like total independence would cost a lot more than it would benefit the Scots.

[RandySF]

2. This is what kept Quebec in Canada.

The Canadian government made it clear to the province that, under no circumstance, would they be allowed to take the Dollar with them.

[muriel_volestrangler]

3. Not as much flexibility as a US state has

They have autonomy in some areas (which has, for instance, allowed them to have free tuition in Scottish universities (also free for students from other EU countries, but not for English students, due to a weird way EU rules work), and they have the ability to vary the basic income tax rate from the 20% UK rate up or down by up to 3% - but they've never used that ability. But, for instance, when the 'bedroom tax' charge on people in public housing with unused bedrooms came in, it was across the UK.

When the referendum was first proposed, one option was to give voters 3 choices - "status quo", full independence, or "devo max" - maximum devolution. The Scottish nationalists and the UK government negotiated a question of just "independence or not", which has the advantage of meaning one answer will get a majority, which the 3 questions almost certainly wouldn't have done. But some feel that 'middle way' would have been satisfying to many people. The late surge by the 'yes' campaign has brought further concessions, which is making 'no' look more like 'devo max' anyway - see http://www.theguardian.com/politics/2014/sep/08/scottish-independence-gordon-brown-tax-welfare-powers-timetable-labour and http://news.sky.com/story/1332188/scotland-devo-max-deal-a-win-win-for-salmond

[LuvNewcastle]

5. If I were a Scot, I think I'd want the 'devo-max' solution.

Of course, that would never have been an option if so many weren't supporting independence. Either way it goes, it looks like Scotland is about to have a lot more power over their own affairs, which I think is a good thing for any people. I hope things work out well for them. I have some Scottish ancestry and I have an affinity for the people there. I hope they enjoy their newly found freedom and make a better country for themselves.

[sibelian]

6. The main thing

Is that you're dealing with a country that's elected 1 Tory MP being governed by the Tories.

It's not so much that we're generally more liberal as that we have NO right wing at ALL and yet are constantly being ruled by people that don't represent us.

[joshcryer]

4. Take the Crown Estates in Scotland.

Either wholesale or by upping the land rent.

http://www.caledonia.org.uk/land/communit.htm

[TexasMommaWithAHat]

7. Spot on

Krugman is spot on.

And anyone who mentions that the rest of Britain should allow Scotland to continue to use the pound is just nuts. The British taxpayers would take all the risk for no benefits.

[IDemo]

8. Have no fear, Jack

The IMF and World Bank will be thrilled to step in. Certain restrictions apply.

[muriel_volestrangler]

9. Currency union with independent Scotland unworkable, says Bank chief

The governor of the Bank of England, Mark Carney, has said a currency union between an independent Scotland and the remainder of the United Kingdom would be incompatible with sovereignty, dealing a blow to Scottish nationalists ahead of next week's referendum on independence.

Speaking in Liverpool to the Trades Union Congress, Carney said a successful currency union would require a Scottish government to go further than countries in the eurozone have so far managed to make the joint venture work.
...
Carney spelled out how cross-border ties on tax and spending as well as on banking rules would be needed as a prerequisite for any deal.

Without water-tight agreements to limit public spending deficits alongside rescue plans for banks and savers in the event of a crash, he said a currency union would be unworkable.

http://www.theguardian.com/business/2014/sep/09/currency-union-independent-scotland-unworkable-bank-governor