I am struggling with an article by Keith Brown MSP in The National this morning. In it he argues:
This week's GERS figures show that Scotland's finances are robust and improving — with onshore revenues growing by £3 billion in the last year and the notional deficit assigned to Scotland falling faster than UK as a whole.
What these figures also show is that it's absolutely possible to reduce the deficit at the same time as increasing public spending, and boosting our economy.
He adds, having clearly accepted the GERS figures as a statement of fact:
Following the Growth Commission model, Scotland's starting deficit would be reduced by a further 1.5% by reducing spending on reserved matters such as defence and debt. This year, the deficit fell by 1%.
So, on that trajectory, it would take less than three years to get Scotland to the Growth Commission target of 3% — something which was predicted to happen gradually over the course of 10 years.
I am afraid that Keith Brown makes a multitude of errors here. They are worth exploring.
First, he assumes that the GERS figures are correct. They are not. They are based on accounting and methodological flaws that mean that the data is wrong.
Second, as the GERS reports clearly note, this information provides no indication as to how Scotland might perform as an independent country.
Third, almost all the data in GERS assumes that Scotland is simply a region of the UK with many costs and revenues apportioned to it on the basis of population proportion. But that is not how Scotland will be after independence.
Fourth, this logic does not apply in the case of data based upon personal income distributions and, almost certainly, the extraordinary allocation of income of the financial services sector to the south-east of England. This reallocation will be massively reduced or just not happen if Scotland is independent: this income will have to be accounted for in Scotland.
Fifth, and most important though, Keith Brown assumes there is some merit to keeping a deficit to 3%. There is, quite literally, no proven case that this. It is at best a heuristic tool. At worst, it is a very bad one.
Let's just explore that last one in more depth.
What we now know is that debt is notional: any government can cancel it using QE, as the UK has done for more than 20% of its national debt. What, then, does debt mean in that case, and why does a 3% annual limit matter?
Then there is the fact that this limit was imposed to simply constrain the ability of government to spend to achieve its social objectives on behalf of the people it governed. I am not a proponent of reckless spending. But I do know that the logic behind this limit ignores the difference between investment revenue spending, both being treated in the same way by it. Yet a responsible government would in the current situation, when real interest rates are close to zero or even negative for them (which would continue to be the case for an independent Scotland, in my opinion), be borrowing to invest for the future benefit of society, most particularly through a Green New Deal, and yet Brown is arguing otherwise. He is saying that balancing the books to appease bankers is more important than investing in the needs of the people of Scotland.
And, what modern monetary theory tells us is that in any event what is described as government borrowing is in fact no such thing. All government spending is, if a government has its own currency in its own central bank (both of which are, therefore, vital to the future prosperity of Scotland) funded by credit created on the government's behalf by the central bank, with the resulting additional money injected into the economy being cancelled either by taxation or by the re-depositing of those funds created with the government in what looks like borrowing, but which is in fact simply a chosen savings mechanism for those with private wealth.
In this case, the idea to which Brown is enslaved, which is that governments are beholden to financial markets, is entirely wrong. The exact opposite is true. In fact, financial markets are entirely dependent upon the government to provide it with a secure means of deposit on which it is dependent in times of stress, and for security, which is what the government saving facility, which supposed borrowing represents, actually is.
If that sounds technical, I apologise. Let me summarise it like this. Keith Brown is the slave of defunct economic thinking that does not represent the way that any economy now works, or the way in which the Scottish economy should work. He wants to ensnare the future of Scotland to bankers, most of whom will be in London. The people of Scotland want an independent future where they are in charge of their own destiny, and their government works to achieve it. The SNP has to change its economic thinking to ensure that future is delivered. It really is time it woke up to the need to do so.
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Stands and applauds.
“The people of Scotland want an independent future where they are in charge of their own destiny, and their government works to achieve it”…do they, where is the evidence?
Shall we stop being silly? You know the answer to that
@Dave Vanian
Just out of badness, where are you based?
Also, while we’re on the subject I’m very much in favour of the north of England seceding from the south to join Scotland. I class the north as north of the Ribble-Humber.
Using this form of economics, is the SNP actually offering independence?
Hope you get the chance to say some of this on https://indylive.radio/ this morning. Heading off now to tune in & make coffee 🙂
Let’s see, waiting for them to call
Good idea at the time – but I don’t seem to be able to listen on my desktop anymore. Will have to wait for podcast , my tablet is too old for app and don’t have a smart phone, feeling excluded 🙁
listening to you now – they sent me a link – personal service !!
Thank you for the link Hazel, glad I looked at the right time and managed to catch most of it.
Richard, I’ve decided you have one of those genius brains that can hold an incredible amount of detail and still link everything together to get the overall picture. Your comprehension of so many complex things to do with tax, law, economics then still be able to understand the social consequences is quite remarkable. Your learning curve on things Scottish over the last few years seems to have been a steep one, yet you seem to take it all in your stride. At the same time as doing a thousand other things every day – remarkable achievements to my mind!
Anyway, thank you for your clear explanations and input on GERS and your brief explanation of a Green New Deal, I am so glad you are using your genius brain, and open mind, for the benefit of society. In particular, I am very glad you are willing to use your knowledge and understanding to benefit my society, and am really grateful.
(I’m not totally sold on all your tax reform ideas mind you, but some of them are obviously good sense,,, but then I’m only just finding out about most of the tax reliefs that even exist ,,, learning, always learning!)
Thank you
But genius? No. I just do my best.
All true, but a bit harsh to criticise poor Keith when successive Chancellors and Shadow Chancellors of the UK Exchequer (and a few other folk) would agree with him, and are also slaves to the neoliberal bankster order.
I do wish we could get some Scottish politicians along to one of the many MMT and GND seminars that are multiplying in Edinburgh and Glasgow!
True
But those in public life have a duty to educate themselves
True Richard, but I suspect a large proportion of those in public life don’t even know they are uneducated on this topic. I had no idea this was important until I stumbled upon this blog, and those of the US MMT folk.
Hence we need to help the politicians, which is why I would prioritise getting them to attend the MMT seminars.
I agree with Chris Hanlin about getting SNP members and Conference Delegates, plus civil servants and others, along to such events. They can, and will, and probably even have, put pressure on politicians but direct education is surely better than exerting pressure.
As evidence, Tim Rideout has done a fantastic job of getting the grass root attendees at the last SNP conference (and others) to sit up and take notice, but it seemed clear to me that the politicians on the stage were not impressed. It would be useful to hear if Tim has had any positive contact with the higher echelons.
It’s more important to get SNP members and Conference Delegates along to such events.
MMT Scotland are holding one in Edinburgh on September 21st.
I might recommend Civil Servants and Third Sector lobbyists also attend…
I did rather despair when I read it! I think Keith Brown just doesn’t know much about Economics and of course behind all this is the so called Growth Commission report. That whole thing is an exercise in Chicago School Monetarism if ever there was one.
The 3% rule was, I gather a product of a haggling session between Francois Mitterand and Helmut Kohl back when the Euro was being planned. It was picked as having no practical effect on the France of the time while sounding suitably ‘tough’ to the Germans who were worried about having to subsidise the rest of Europe. In practice, of course, the Euro now means the rest of the zone subsidises Germany, though nobody has ever got around to explaining that to the Germans who still think they bailed out the Greeks rather than what actually happened which was a bailout of German, French and to some extent London bankers.
So 3%, or indeed any other number, has no economic theory behind it at all. What should be the case is that the deficit / surplus of the State should be whatever is appropriate for the economic circumstances of the time. So for example during the Blair / Brown boom there was a very good case for the UK government to run a surplus in order to cool the economy. Of course they did not and upped spending especially on wages and other consumption items, which just poured petrol on the flames. Post 2008 the state should have run a large deficit. It did for a while, however what you spend your money on matters. They should have had a National Investment Strategy and used the QE money to build council houses, infrastructure, education, etc. Of course they did the opposite and slashed all investment while having to pay out (e.g. benefits) for the consequences of austerity. As a result they crashed the economy and we still see the after effects.
So for Scotland what should happen? It is blindingly obvious that a lot of spending will have to take place as all the new Ministries and other infrastructure required for Independence are set up. I don’t think £10 billion would be unrealistic. Of course 50% of that will come right back as extra tax, plus all the construction work, other contracts, jobs, etc should ensure a boom for the first few years. There is bound to be a large multiplier effect on the rest of the economy (most of this stuff isn’t things you can just import from China!).
What about the deficit, though! Well in the early years Scotland absolutely should run a sizeable deficit and it should issue quite a lot of bonds, but all only in the new Scottish Pound currency (see my talks programme or the Phantom Power film on YouTube). Firstly Scottish savers, such as pension funds, will want Scottish Government bonds in order to replace current UK gilt holdings (to avoid an exchange rate risk). At the moment there are no Scottish Government bonds they could buy. Secondly, if the Scottish Government does not spend the Scottish Pounds into existence then there won’t be any! Maybe S£40 billion may be used to buy our Sterling at the initial introduction of the S£ (January 28th/29th 2023!), but that will leave ‘reluctant exchangers’ still holding maybe £80-£100 billion of Sterling. They will find it increasingly inconvenient to not have the local currency (taxes will have to be paid in S£, cash machines will only issue S£, shops may stop accepting sterling), so they will gradually exchange that. There are only two ways that can happen: Either the Scottish Reserve Bank will have to steadily sell S£ into the FX market so that these folk can buy it with their sterling, or the Scottish Government should spend it into existence by running a deficit. The first isn’t clever as it will just see Foreign Exchange reserves pile up in the SRB. These are of no day to day use as they are in the wrong currency to be able to do anything with in Scotland. Much more sensible would be an annual deficit of maybe 8-10% for the first couple of years of Independence. That can include spending on not just what is needed for Independence but also the Green New Deal.
So a booming economy, and a currency that is far from plummeting but rather having to be kept from rising too much by a combination of Government and Central Bank trickle feeding new currency.
I become more and more despondent when I read the nonsense that Keith Brown and others in the SNP spout on economics, [especially], but also on other topics, where it is clear they haven’t a clue, haven’t educated themselves, haven’t discovered the new paradigms and haven’t understood that many of the old “truths” have been falsified.
It’s “we mustn’t frighten the horses…or the bankers or the voters, we mustn’t offend anyone with radical thinking” – a Party for all seasons, a Party of principles and if you don’t like them well we have others you may like (to paraphrase Groucho Marx).
How on earth do we get through to SNP politicians like Brown? Because, accepting the status quo is doing us no favours and provides an open goal for the opposition.
I wish I knew
I mentioned it on Independence Live this morning
As Richard has said before we can only hope that a lot of the civil servants doing ScotGov work post independence will be based outside of Edinburgh so that all that extra investment and activity does not all just even further inflate the Edinburgh housing bubble.
There will be enough of a boost from the heads of new ministries being in Edinburgh along with the consulates upgrading to Embassies and High Commissions (assuming we will stay in the Commonwealth) and everything about that. Employment elsewhere and civil servant spend locally will help places like here in Dundee.
We have to avoid the situation at Faslane where many of the civilian staff don’t even live in Scotland but are transported up. Ditto the offshore oil industry. We might be able to do something about that post independence via the tax system to penalise out of Scotland workers encouraging them to relocate. Also living in England with a harder border will bring it’s own discomforts every shift for them.
There will be quid pro quoes for Scots working in England but they will be moderated by continuing access to working in the EU and EEA instead. We should probably all improve our Norwegian after a Yes vote for eg.
The problem with pieces like this above is that they are a trip into the fantastic realms of make believe and conspiracy theory, and they do the cause of Scottish independence no good at all.
Pretending that GERS is all wrong, then say Scotland should run a massive deficit anyway. But besides that it doesn’t matter because we can print as much money as we like of a new Scottish currency without any risks at all and hand the economic management of our country to proponents of a flawed fringe economic theory.
This is fine when you are telling people in a receptive echo chamber like this blog, or people who are so fanatical about independence they will believe anything. Problem is, they are a small number of people and are already converted anyway.
Problem comes when this sort of nonsense gets exposure. And with exposure comes scrutiny – which most of this rubbish doesn’t stand up to in any way. The moderates and undecideds in the middle, the actual people we need to get to vote for independence take one look at this kind of thing, decide they don’t want people who spend their lives frothing at the mouth in charge and the vote nay to independence.
I suppose this is why the senior people in the SNP don’t want anything to do with you, Richard. You are very keen to push yourself into the center of things and promote yourself but the reality is that you and people like you are an electoral liability.
If you honestly want Scottish independence, please do us a favour and stop talking about it – you are not converting anybody to the cause and are actively pushing many away.
It’s interesting that you make such comments behind a wall of anonymity. Why not own up to what you think?
Why not also say why modern monetary theory is nonsense rather than just assert it?
Why also lie about what I say when I have never said what you claim about running a massive deficit etc?
Is it because you really know you are talking complete nonsense?
Very simple really. Firstly, the last thing I want to do is create even more infighting within the SNP. It’s bad enough already. Secondly, I’ve heard you are a vindictive individual who is more than happy to personally go after people who cross you to their employers. No thanks.
A lot of MMT is nonsense. There is nothing revolutionary about it at all. It takes some well known facts then contorts them into an economic doctrine that as found favour with those who think that there is no risk to printing money. In short, the snorting conspiracy brigade. There – I said it. Happy now?
“Why also lie about what I say when I have never said what you claim about running a massive deficit etc? Why also lie about what I say when I have never said what you claim about running a massive deficit etc?”
You say so above, in your blog post. You argue that Scotland shouldn’t be constrained by a 3% deficit limit – the implicit being that you would be happy for it to be higher. Then your chum Tim Rideout says it should be much higher still. QED.
Ultimately, people like you are trying to peddle the fantasy that we can be independent with no hard choices or risk at all. We can be immediately loads richer and all we have to do is print lots and lots of new money and run huge budget deficits.
Problem is, this goes down like a cup of cold sick on the doorstep of the people we actually have to convince to vote for independence. The middle ground waverers. They care about their own financial wellbeing and public services. Both being tied to the general economic situation of the country. And untried, untested fantasy economics doesn’t scan well. It is just not realistic to promise everything you are doing (via the money printing press) and to ignore all the risks involved. Most people see through it straight away.
Try telling someone that Scotland (which already has large budget and current account deficits) should simply run an even bigger budget deficit. His reaction? How much extra tax am I going to have to pay? Or how big with the cuts have to be in the long run?
Or that Scotland will have a new currency. And that it will print lots and lots more of it to fund government. Her reaction? Won’t that mean the currency will weaken, inflation will go higher and things become more expensive for me?
Do all of us a favour. If you want to keep bleating on about this stuff, feel free. But understand this. People like you – with no skin in the game other than to stroke their own egos – are doing the independence cause no favours at all. You are preaching to the converted. Meanwhile every time you try and force yourself into the middle of the debate you end up turning more people away from the cause. And should you be put under the spotlight, with serious questions to be answered we end up with things like you flannelling around in a total mess like you did at Holyrood in 2017. Which is a gift to those on the other side.
If the SNP, who despite all our faults are an election winning machine, think you and your fellow travellers really had something that would win us independence don’t you think that you would be front and center? As it is you are kept as far away from it as possible, on the fringes. Doesn’t that tell you anything?
MM
I note what you say.
First, on MMT you clearly have not the slightest idea what you are talking about.
And second, what I actually know is that you are a right wing troll. Why? Because you bring out this standard trope:
I’ve heard you are a vindictive individual who is more than happy to personally go after people who cross you to their employers. No thanks.
This is what happened here. https://www.taxresearch.org.uk/Blog/2016/12/15/why-is-the-acca-employing-someone-as-head-of-audit-and-assurance-who-has-just-been-fined-for-professional-misconduct-by-the-icaew/
First, I did not report a person maliciously. I fulfilled my professional and ethical duty to do so.
Second, I had suffered abuse from that person.
Third, his institute fined him, in my opinion wholly appropriately. But I offered no evidence. Nor was I asked to do so. They brought the action.
He’d trolled, like you.
Please don’t call again.
MM says:
Well, all sorts of blunderbuss accusations, more scatter ahnaim.
An ‘interesting’ contribution though.
Right wing troll, says Richard. But that rather begs the question of whether this is a unionist agent provocateur chucking muck about or as he pretends to be someone close enough to the SNP to have some idea of what is actually going on in there and care about Scottish independence.
If the former the thinly veiled ad hominem approach is a bit tired and unimaginative and the pretence of being pro Indy is less than convincing.
If the latter then the need to think about how we will construct a progressive opposition party in Scotland after independence comes sharply into focus (The existing opposition parties are a laughing stock) This is Tory-shite and if it has percolated into the SNP by virtue of the SNP being the seat of political power for long enough now to have attracted the pragmatic would-be Establishment gold diggers there may be trouble ahead.
I’m not happy with the line that we can’t talk about this that or the other on the doorstep because it will confuse the little darling voters. This is in my view patronising and deceitful. We had enough of that surrounding Brexit.
Let’s approach independence with our eyes open to the reality of the undertaking. MM says “If the SNP, who despite all our faults are an election winning machine….”
Come now. It’s bloody nigh a one horse race. The only opposition comes from a malign media. The SNP won’t or shouldn’t be leading Scotland into independence on the sort of economic model we’ve had from the Growth Commission. And if MM cannot see that (assuming he’s not being entirely disingenuous about his allegiance) then the SNP is not fit for purpose and the independence will not hold water. If I have to work for bankers I’d like to be paid like a banker not reduced to poverty by them.
Interesting and worth saying Andy
exposure? revisions to income tax four months ago are not smallfry- 20 years of devolution of income tax. why has it taken so long to properly record these tax receipts? what is the state of the system HMRC are using?
what kind of exposure do you really want MM? i don’t even know your argument is- we can record a fiscal position for scotladn, wales, the midlands, Yorkshire accurately and the transition to independence is a matter of tweaking some taxes and spending here and there for a few years? that is an argument for independence for every region in the uk
no Scottish government should start independence negotiations by claiming gers in any way represents its current fiscal position or what its liabilities are. from everything i have seen from errors in devolved taxes to the way the uk treasury is treated is that it is very hard to guess what the budgetary position will look like. it could be off by billions (either way)
the second point is that the HMRC have fundamental errors in their systems and these have been routinely ignored. improvements are not being made because of gers and in Scotland’s case are being forced through with pressure from the independence movement. the issue for independence supporters is not a deficit or a fiscal position but having institutions in place ready and this means tax collection services. setting up institutions quickly and efficiently is more important than any short-term budgetary position
You are perfectly correct, and a break with England means NO royal family or heriditory descendants in perpetuity. No shared defence with England
Tom McKinlay says:
“….. a break with England means NO royal family or heriditory descendants in perpetuity. No shared defence with England….”
Shush, Tom. That’s a can of worms (bucket of vipers?) better left well alone for now.
I’m very worried about what I consider to be the ‘received wisdom’ of Mr Brown.
In keeping with the spirit of his name, he is talking utter shite.
Why we do we put up with numpties like this? Why? Can someone tell me why?!!!
Honestly.
If things don’t improve we’ll have to abandon this blog and go into politics ourselves folks – I’m telling ya’.
I have to say that as an SNP member I fully agree with your comments. My heart sinks every time I read an article from a supposedly senior SNP official on anything related to economics when I realise that yet another one doesnt have a clue. Many members have spent the last few years educating themselves on MMT & related subjects. Shame that the high ups cant do the same. That was why we felt able to argue with the SNP line & oppose it at conference.
Our own currency & central bank is essential to us & our independence. Watching Sterling being devalued on a regular basis is enough to show that neoliberalism hasn’t worked, isn’t working & has no place in a newly independent country trying to escape the clutches of a malignant colonial government which will do anything to stop our independence. I despair when senior SNP members demonstrate their ignorance from on high but am thankful for the likes of Tim Rideout at al. We need their sanity in this debate.
Thanks Lyn
It always surprises me that Scottish Government ministers always appear to credit GERS with some validity before criticising aspects of the methodology or findings. GERS is GIGO, “Garbage In, Garbage Out”. Its purpose is not financial, as its creator, Ian Lang former tory Scottish SoS, explicitly stated, but political – to undermine the parties supporting devolution in the 1980s. When, oh when, will these minsters state up front that the whole exercise is farcical and completely meaningless in practice?