I thought I’d give it a week after the launch of the ‘economic case for independence’ before drawing any conclusions about where we are now, just to see the reaction. I think we have a problem and I think it’s tricky to solve. I can only see one option at the moment.
But before we get to that, how did the launch land? To assess that you might be tempted to look at what has been written about it which is critical, and if you did you’d have plenty to work with. When it’s central proposals are described as “the worst possible option” by a sympathetic expert and that’s about the most gentle response so far, you too might conclude we have a problem.
Except that’s not where I’d look. This is modernity; you could cure cancer and someone would offer biting criticism. What I’ve been looking for (and I have been looking) is for positive responses from an independent source. I haven’t been able to find one. This isn’t a case of ‘some people like it, some people hate it’. This is a case of ‘no-one likes it’.
I suppose you could try and give some credit for writing a paper on independence which isn’t divisive, but that doesn’t make it any better. You can also pick out bits of the paper which sound good (and at least two sections actually do have genuinely good stuff in them). But because the central thrust of the plan is so wrong it entirely and completely undermines the few good bits.
So why is this so dangerous? Why am I and others so deeply concerned about what is going on? For an answer I’d look towards Liz Truss. Let me start here by saying I’m barely what you could call an orthodox market fundamentalist. I think that a lot of financial and economic orthodoxy needs to be revisited and that there is much beyond the boundaries of what is considered ‘orthodox’ that can and does work.
But that doesn’t turn me into Kwarteng. I recognise that some things are orthodox for a reason, that there is only so far you can depart from how things currently work before you start giving yourself increasing problems. Trussonomics failed not only because they strayed too far from orthodoxy but because they were moving in the opposite direction from where the orthodoxy is moving.
It was a series of stupid ideas implemented at the worst possible time for those ideas given the wider economic context. Unless you go North Korea and cut yourself off from how the world works in practice you need to keep within touching distance of what is recognisable to markets.
And here’s the thing; if Trussonomics veers too far from standard monetary, fiscal and economic orthodoxy, Sturgeonomics leaves them miles back in the rear view mirror. I’ve been trying to explain how wild this stuff is since the Growth Commission in 2018 but let me take one more shot at it.
And here’s the thing; if Trussonomics veers too far from standard monetary, fiscal and economic orthodoxy, Sturgeonomics leaves them miles back in the rear view mirror
Monetary orthodoxy; the base level assumption for a modern economy is that you need to control inflation in your economy. The orthodoxy is that you do that by using interest rates, but Sturgeonomics proposes Scotland becomes independent without any power over interest rates. It is that straightforward, there is no sophistry that gets you out of this.
Orthodoxy changes all the time and the finance crisis of 2007 changed it very substantially. Another contemporary orthodox assumption is that monetary supply is an essential tool in acute crises. This is just a way of saying ‘if the ball really is on the slates, Quantitatively Ease until that is doing more harm than the crisis you’re tackling’.
Without QE the global financial system would probably have collapse in 2007/8. It might have done so again over the succeeding decade without a lot more QE. No large western nation got through Covid without substantial QE. On three occasions in the last 15 years the developed world has relied on QE to protect the basics of our way of life.
That this tool must be in your toolkit for emergencies is now absolutely orthodox view, but Sturgeonomics says ‘pah, what do the experts know?’ and suggests that making some retail banks put a few million into a disaster fund (the proposed ‘central bank‘) is ‘basically the same thing, isn’t it?’. It’s not. The thing about QE isn’t just that it rapidly resolves national liquidity issues, it’s that jittery markets know it is unlimited.
In just one month early in the pandemic the UK created £100 billion in QE, an equivalent of about £10 billion for Scotland. Will the central bank be capitalised to £10 billion through bank levies? Nope. Even Scotland’s share of absolutely all Bank of England net assets (including all the gold reserves) is quite a bit lower than that. We’d have had to blow the lot in one go.
Fiscal orthodoxy; IMF orthodoxy is now that you can’t cut economic demand through austerity at times of economic stress. This orthodoxy has changed over the last decade in light of what happened during the austerity years and this as much as anything was the problem with Trussonomics, a combination of withdrawing economic demand, increasing borrowing and cutting taxes where they were least likely to lead to economic stimulus.
Austerity is also known as ‘fiscal discipline’, ‘fiscal responsibility’ or ‘fiscal tightening’. The Growth Commission created a formula to impose that discipline which let people calculate the implications. And yes, it really would have been worse than George Osborne’s austerity.
This new paper may have refused to set out the formula that it will use but it makes clear there will be a formula to impose fiscal discipline. ‘To the right of the IMF’ is a funny place for the SNP to find itself, but that’s where it is. This really is ‘doing a Truss’, and it leads to the next problem.
Economic orthodoxy; this suggests that a period of economic transformation would presume one of two things are necessary. Either you’re ‘poking’ the economy you have to get it to do more or less of something it is doing or you structurally reform the economy. If I start by assuming no-one denies a newly-independent Scotland needs to transform its economy, what would that mean?
In our context you’d do one of two things. You’d go the Thatcher model of making major structural changes in the economy to set it off on a different path or you’d go the Keynesian path and give it a good shove along the direction on which it is already headed. No structural reform of the economy is proposed in the paper, but the ‘shove along’ it suggests it will give the economy (one per cent of GDP) is really derisory and will have next to no effect.
Orthodox economics would therefore suggest that by going through this big constitutional change but then neither restructuring nor stimulating the economy, you’d expect it to stagnate. That is the last thing an independent Scotland needs. Orthodox economics would say ‘choose to become either Singapore or Sweeden and do it immediately’. Sturgeonomics says ‘look over there!’.
Rather than aim for unity we must now have two options for a future Scotland on the table or we’re in big trouble
I write not in favour of financial orthodoxy but to explain that you must recognise its existence and then work with it, through it or around it. You can’t just wish it away, and that is exactly what Sturgeonomics does. The only countries in the world that use her preferred money system are Panama, Ecuador, Lichtenstein and Montenegro. She would have Scotland be the fifth, in an unprecedented and untried experiment.
And I’m only stopping at this point for reasons of length. The orthodoxy-shredding weaknesses in this paper go on and on. They will be exposed ruthlessly if there is ever a campaign and the Ghost of Truss will be hovering over us for as long as we’re tied to this.
The big risk that the movement faces is that people don’t understand the difference between ‘Sturgeonomics’ and ‘Yesonomics’. Hardly anyone in the independence movement supports what Sturgeon is proposing. None of this is being done with our consent.
From September 2014 until May 2018 I dedicated much of my life to a single mission. I believed that to get support for independence to the next level we needed to unite and coordinate. We needed to build a case collectively that could hold everyone together while giving us answers to questions and being understandable by the wider public.
I recognised that this would require compromise and good will on the part of all involved. That’s what I worked for and I have the scars as a memento. In 2017 it was made absolutely clear to me in person by the SNP leadership that a collective approach was going to be strenuously resisted. There wasn’t even to be a shared ‘Yes Scotland’ next time. The SNP didn’t care what others thought.
By the time the Growth Commission was published the following year I could see they definitely meant it. As the lukewarm reception the Growth Commission steadily turn into outright hostility, the pandemic exposed it’s lack of credibility and it became patently obvious that the Truss meltdown would have dragged a Sterlingised Scotland down with it, I held out just a little hope that some kind of reverse manoeuvre would be made with this latest paper. That was dashed a week ago.
If all this feels to you like Sturgeon appears to be sending the message that the leader won’t listen and won’t change, I think you’ve received the message accurately. There appears to be no remaining wriggle-room left. This is it, end of discussion.
I have only one solution, a solution the opposite to the one I spent so long trying to pursue. Rather than aim for unity we must now have two options for a future Scotland on the table or we’re in big trouble. People have to believe they can vote for independence without getting Sturgeonomics. ‘Bog standard national sovereignty’ and ‘madcap, orthodoxy-busting experimental economics’ can’t be a two-for-one deal.
It is most certainly not me who set out with the goal of splitting the independence movement, but that’s where we are and we need to face up to that reality. The Scottish Government is leading us off the end of a cliff. There has to be another path.