The FT has some hysteria in its pages this morning, reporting that (and I quote extensively for good reason):I added the emphasis, and for good reason.
Scotland would need to make “substantial” tax rises or spending cuts if it won full control over taxation and spending, a respected think-tank has warned, undermining claims by the Scottish National party it would be able to bring austerity to an end.
The Institute for Fiscal Studies has estimated that a Scottish government could face a hole of up to £10bn if it were given responsibility to balance its books over the course of the next parliament. This is equivalent to nearly 5 per cent of Scottish gross domestic product.
“It would remain the case that full fiscal responsibility would likely entail substantial spending cuts or tax rises in Scotland,” said David Phillips, the author of the IFS study.
As far as I know Scotland has not asked for responsibility to balance its books. Nor is there anything, anywhere, that says that a country must balance its books. Indeed, as people will now be well aware, I argue that this is just an absurd idea: governments cannot balance their books almost by definition since they are the lender of last resort and whether or not their books balance depends entirely on whether consumers save or borrow, business invest or not, and on the balance of overseas trade. This is why governments also need their own currencies, but with or without that currency raising power the issue remains that this is a target beyond the control of any politician.
So why are the IFS making up this nonsense? Why are they assuming that Scotland wants independent fiscal responsibility to become a nation of paranoid book-keepers? And why are they assuming that Nicola Sturgeon, or whoever else might lead a Scottish government, would not want to run a deficit for the fiscal stimulus that such a deficit can provide, which is a wholly and completely valid economic policy to pursue? I stress, that is what they are assuming.
It's unbecoming for the IFS to be so naive, and shows them to be beholden to the austerity / deficit reduction paranoia of neoliberal politics. Or rather, it's either unbecoming or it shows that the IFS is not the independent and objective think tank it claims to be but is in fact part of the neoliberal establishment that seeks to deny choice to government whilst seeking to impose austerity by denying the options that democracy should make available.
You take the pick of the pick of the interpretations, but what is undoubtedly and emphatically true is that if they wished to reveal themselves to be of real independent mind they would say that the option of running a deficit is, of course, available to a Scottish government and that this is a perfectly reasonable economic choice to make, within reason. But they didn't. And so it's my point to make clear that they are wrong and that running a deficit is not only a valid economic choice, but can, quite emphatically be the right one.
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It’s actually in the SNP manifesto that they not only want to eliminate the deficit but wish to enshrine this goal in law. So it’s not really an assumption.
I agree wholeheartedly that the IFS are wrong, Richard, but perhaps they got this idea from the fact that balancing the budget is in the SNP’s manifesto is it not? You blogged on it the other day. So perhaps the IFS simply second guessed the SNP, on the assumption that like all other political parties they too would swallow this neoliberal nonsense about government’s having to “balance their books”.
Not only does this obsession with, and overwhelming belief in, government having the power to balance its books have a neoliberal bent but it’s also highly deterministic. That is, it’s built on the belief that its possible for humans to control (determine) every aspect of the world we live in, whether that be the economy, organisations, the environment or even our everyday lives. Many, many people love to believe this, for obvious reasons, which is why its such an attractive form of belief. And of course, to those in power, whether politicians or the senior management of large corporations, its an article of faith, because they have to construct and then maintain a facade that supposedly demonstrates they are in control, they are managing, they are steering the ship of state in the right direction, when in fact they are frequently passengers caught up in a series of event that they have only limited control over. But admitting that doesn’t warrant a salary in the £ millions or a job as prime minister or a government minister, does it.
Incidentally, nowhere is determinism as strong as in the realm of technology, where ‘technological determinism’ has a long and well documented history. As I wrote in 2004 for an OU course:
‘…to a great extent people want to believe that technology is an independent variable in their lives, simply a tool or machine, that carries out a function which is “liberating” – it makes life easier…However, let us not forget that at the other end of the technology/power spectrum technology can just as easily be considered an instrument of control, oppression and exploitation.’
In the case of governments’ balancing their books we are being conned into believing a deterministic myth.
Agree re SNP manifesto
But another blog to reconcile the issues is coming soon – for Holyrood magazine. Will be linked from here
Indeed, Ivan..in my view one of the most toxic of deterministic myths is that of the plague of ‘evolutionary psychology’ which offers a view of the human that just happens to fit well with the neo-lib mentality-an example of how dodgy science can support economic hegemony. I see evolutionary psychology supporting a feedback loop that goes on like this:
1) We are all survival machines looking for advantage
2) The neo-lib mindset is about individual advantage and power
3) Must be the underlying reality then.
This seems to be an intensification of the late 19th Century marginalist school that thought human action could be quantified mathematically-add game theory and evolutionary psychology and you’ve got a metaphysical underpinning for neoliberalism.
Do be careful Simon. You’re making neo-liberalism sound intelligent and rational!!
The SNP manifesto commits them to running a balanced current budget – indeed they intend to run a surplus to build up a fund that would later be available to an independent Scotland. Strikes me as a deeply stupid policy – and one which would continue austerity (or even accelerate it) – but it is nevertheless the SNP’s policy. Inaccurate and unfair of you to accuse the IFS of “making it up”.
I think anyone who talks about the deficit in the way that the IFS and even the SNP are is definitely making it up as there are better choices to be made about how to get a country out of austerity (printing money for example).
Deficit driven austerity is a big lie that now hsa become lazy received wisdom in this country and it is right that it is constantly challenged by those who are better informed.
As you state, it is almost impossible (unless you have your own oil or other valuable assets) for a government NOT to run a deficit.
Indeed, it is dangerous folly to think a zero deficit will lead to prosperity. If there is no corresponding growth or taxes to offset the lack of a government deficit, then the economy will go in a tailspin and eventually crash.
We have had austerity for over seven years and all it has done is produce untold misery in Europe and ever falling productivity.
We need the exact opposite of austerity.
Scotland and the SNP are not the same thing.
Whoever said they were?
I believe the Scotland Act 1998 requires the Scottish Parliament to produce a balanced budget every year. I’ve no idea how that squares with new promised powers – perhaps one of which is to allow the parliament to run a deficit? Currently it’s not allowed to, under law.
It’s not a government right now in that it does not have FFA
The discussion is about what happens if it has
Richard,
Could you be wrong on this?
Yes, the IFS seems to be manned by very smart people who (embarrassingly for them) give every impression of having never heard of macroeconomics. And so, like all similarly blind politicians, they seem not to know that ‘fixing the deficit’ is a meaningless concept for a sovereign issuer of the currency, such as the UK government.
For such an entity, whose spending power is literally unlimited, the very concept of a ‘deficit’ or a ‘surplus’ is absurd – simply because infinity minus (plus) a deficit (surplus) is still infinity!
However, the Scottish government isn’t so fortunate as it does NOT have a central bank and is NOT the sovereign issuer of the currency and so it could go bust.
Much as I detest the blinkered IFS, their microeconomic viewpoint actually will still apply to the Scottish government.
If you read what I wrote it very clearly allows for that
I refer to the need for SNP MPs to make demands of Westminster
Thanks Richard for clearing that up.
Personally, I think the offer of ‘full fiscal autonomy’ is a poisoned chalice for Scotland as a whole and possibly even the SNP itself.
If the SNP support it and it fails, then they will have shot themselves in the foot regarding their ultimate goal of gaining independence. Voters – unaware that such a half-way house was doomed to fail from the start due to the complete absence of the power to create money – will draw the wrong conclusion: namely that Scotland can’t ‘go it alone’.