Tuesday 7 February 2012

Double-edged deficits

As well as reporting on the latest opinion poll, Friday’s Western Mail had a leader column on the subject of Welsh independence.  It included the following paragraph:
“There are strong economic arguments against independence.  No serious economist has yet published a convincing case on how a nation which spends more than it raises in tax could adapt to going it alone in a world heading towards more interdependence not less.”
I’ve rarely read such nonsense.  As far as I’m aware, no ‘serious economist’ has ever argued that a country which is ‘spending more than it raises in taxes’ is therefore unable to enjoy the same degree of independence as any other country.  It’s simply not true.  Indeed, if it were true, then the UK, the USA, and any number of other countries would have to be added to the list of failed states.
Lots of countries spend more than they raise in taxes, and some do so year after year after year.  Running a deficit per se does not make Wales unviable, any more than it makes the UK or the US unviable.
The issue for Wales isn’t the fact of a deficit; it’s the size and duration of that deficit.  But even then, there are no hard and fast rules.  The proportion of GDP which the national debt represents doesn’t have some magic number below which all is well and above which states fail.  Nor is there any set period beyond which a debt cannot continue.  These things are matters of judgement; judgement by the government setting tax and spending levels, and judgement by those lending the money as to the likelihood of them getting it back.
But more importantly, is the fact that Wales has a high current account deficit which is persistent over the long term an argument against independence, or is it an argument for?  At first sight, it’s very easy to see it as an argument against, but that’s a simplistic response.  The questions we should be asking are: “What is the means by which we bring tax and spending into balance, and what is the decision-making structure most likely to achieve that?”
In theory, the argument that the best way out is through membership of a larger union where the government actively follows redistributive policies, and ensures that GDP is more equal across the ‘regions’ is a powerful one.  It is, I think, the argument which supporters of the union are trying to make, albeit not very well.  The reason that they’re not very good at making the argument is obvious - in practice, it just hasn’t happened, and still isn’t happening.  The theory is at odds with the practice.
Without an effective redistributive economic policy, all Wales gains from the union in financial terms is a handout; and all we can ever do is ask for a bigger one.  That simply is not where I want to see Wales, and I don’t understand why anyone else would.  I’m convinced that the best way (even if not the only way) of getting Wales’ GDP to the level it needs to be to bring taxes and spending into line is by taking the decisions ourselves, here in Wales.
The much-vaunted deficit is a double-edged sword – for me, the fact that current structures and approaches are not reducing it is a reason to support change, not oppose it.  A government solely focused on Wales stands a better chance of taking the right decisions for Wales than one for which Wales is peripheral.  If supporters of the UK want to use economic arguments, they’ll need to do better than this.


maen_tramgwydd said...

Clearly and succinctly put.

Unknown said...

As mentioned in my new blog (blatant plug) the people of Wales want further powers for Wales. This is proven by last years referendum, the recent ITV poll and of course Carwyns constant moaning about the lack of powers he has.

The question is why people who appear to want more power in the Senedd elect a Labour party that also want more powers but also elect Labour MPs to Westminster that don't want to give us those powers.

In fact more English Tory MPs (4) voted yes in Jonathon Edwards' recent bill than Labour MPs in Wales (1).

Well done though to the PC, DUP, SNP and LD (yep that's right Lib Dem!) MPs that voted yes.

Wales needs a wake up call. Either people want more powers or they don't, you cant have both.

Unknown said...

John - Have you written a letter to the WM detailing your analysis? The deficit argument is often put by the small minded 'little englanders' who think, like thatcher, that a country is best managed like a corner shop. But as you say, the UK would not be viable as a state if that were true - mind the way the tories are wrecking the economy with policies born of just that sort of mindset, it won't be long before the balifs are called (in the form of the IMF.

And the truth is that nobody really knows the shape of Wales's balance sheet. Our natural resources are never evaluated. cross-border taxation is only guessed at - far too many unknowns to be dogmatic like the WM is keen to be.

By the way, big hurrah for Paul Flynn - he is in the wrong party!

Britnot said...

The fact is the Unionists have made hay by making us justify our views on Independence. In-so-doing they have avoided having to defend their abysmal record of running the Welsh economy into the ground.

A recent report from the New York Times showed Wales with a GDP lower than Greece. Terrible though that news is we should use it to highlight how inept/Corrupt Wasteminster is and why we need Independence.

The Unionists have used the accusation that Wales is "Subsidised" by England as a weapon against Welsh Nationalists, we should turn those rants against them.

Spirit of BME said...

The WM is deploying SOD – Slave Owner`s Defence.
Wilberforce was calling for freedom and their response was that it would be an economic disaster for the black people, as they are uneducated and ignorant on how to run their lives; furthermore, they provided shelter, lifetime employment and food to which they should be grateful.
I get the same kind of themes when talking to my English chums who state that we are “better together”. On asking them if the English need the Welsh to help them run things, they say No!!. If the question is reversed you get the answer “of course you do”, so there you have it, we are just plain stupid.

Unknown said...

John - I had this published as the lead letter in the WM this AM. Thanks for the inspiration.

"We’ve had enough of London’s crumbs

SIR – Your Leader column (Feb 3) suggests that “There are strong economic arguments against independence. No serious economist has yet published a convincing case on how a nation which spends more than it raises in tax could adapt to going it alone.”

In that case, perhaps you could explain how countries like, say, the UK, manage to go it alone? Or the USA, say? or any one of a number of OECD countries running a deficit?

The leader also says: “...in a world heading towards more interdependence not less.”

I must have missed the massive movement towards unification of independent countries that you refer to, reversing the opposite trend since the war, which has seen 50 member states of the UN grow to 200.

I think you mean a world moving to greater co-operation between independent nations rather than interdependence.

In fact the converse of independence is not interdependence, it is dependence, and while it is true that Wales is currently completely dependent on the crumbs it gets thrown from the London table, that is not a situation that I or an increasing number of my countrymen are comfortable with.

They used to say that the idea of an independent Malta was laughable – but now it is a viable modern state, despite lacking any of the natural resources that Wales possesses, and having a population one sixth of the size.



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Unknown said...

Stuart - to add a link to your blog, ue the a tag - the syntax iis described HERE