Monday, 14 March 2016

Financial black holes

London’s Mayor has done his best today to ‘warn off’ Obama from intervening in the EU referendum by expressing the clear preference of the US for the UK to remain a member.  I’m not sure how good an idea it is for Cameron to be orchestrating such support for his position from his friends abroad.  Personally, I suspect that it is likely to be counter-productive on the whole.
Whatever, as part of his comments, Johnson came out with this gem: "There is no country in the world that defends its own sovereignty with such hysterical vigilance as the United States of America.  This is a nation born from its glorious refusal to accept overseas control."
It’s a very poor comparison with the question of EU membership of course – the UK gets more of a say in the affairs of the EU than it ever wanted to allow the citizens of the US.  Political rhetoric only needs to sound good, though.
But it also reminded me of this piece on Wings Over Scotland last week, drawing attention to the arguments of those who opposed independence for the US, on the grounds that they couldn’t afford it.  However, the ‘refusal to accept overseas control’ proved stronger than that.  And for a poor and hopelessly dependent economy, things didn’t turn out so badly in the end.
On the other hand, if they’d had to wait until they could produce a budget showing that they really could be self-sufficient – the bar set by many for Wales and Scotland – they’d probably still be waiting.  And no doubt the opponents of American independence would now be pointing to the latest figures claiming that there was a $544 billion black hole in the plans of those demanding independence, just like they’re doing in the case of Scotland at present.
The point?  Simply that the willingness to accept responsibility is the important factor.  Our future is ultimately what we make it.


Anonymous said...

Agreed, in large part the future is what one chooses to make of it, individually or collectively.

However, I am rather amused by your marvelling at how well the the US economy has done since ridding itself of the shackles of British rule. Yes, notwithstanding recent financial troubles the country has prospered and the economy is well balanced. But is the life and lifestyle of the majority of citizens of that prosperous country something to hanker after. I think not, working life is very hard in the US, indeed it's hellish tough for a good many.

Weighing up an independent Scotland where the buoyancy of the economy remains paramount or remaining part and parcel of the United Kingdom where British values and social and civic fair play means something, I know which I'd choose every time.

Sorry, I just wasn't born that tough!

John Dixon said...

"the life and lifestyle of the majority of citizens of that prosperous country something to hanker after" Ah, the alternative argument against allowing people independence - that they are incapable of building a decent lifestyle without the help of the benevolent empire. If only they'd retained the "shackles of British rule" eh?

I didn't and won't defend the unfairness and inequality which are endemic in the USA, but that really has little or nothing to do with the point of the post, which was that a budget shortfall isn't a 'black hole' and doesn't make a country too poor to be independent.

Anonymous said...

The fiscal situation was the main driver for the American revolution- "no taxation without representation". They then had a revolutionary war. British rule was a tyranny.

A budget shortfall doesn't make a country too poor to be independent. Most countries have a shortfall and run a deficit. The key to your ability to borrow money to make up the deficit is its size compared to your GDP.

Winnining independence in a peacetime scenario is completely different to having a rebellion against a distant colonial power. So in the Scottish case the size of the deficit was a big topic of debate. The apparent size of the Welsh deficit isn't fully known yet, of course.

Anonymous said...

'....... doesn't make a country too poor to be independent.'

But is independence worth any cost? Is it really worth the price of entrenched and pervasive iniquity?

I think this is where you argument always falls down. You must focus on how and why things will get better rather than just independence for independence sake. But I think this has been the subject of your recent posts ....................

Yes, independence does come at a price, as with everything else. We just need to ascertain what price the majority is willing to pay. And then independence really could become a reality!

John Dixon said...

Anon 08:44,

"... in the Scottish case the size of the deficit was a big topic of debate" Indeed it was, and still is. It hasn't been resolved yet, and will not be resolved any time soon - or indeed, ever. The size of any deficit is dependent on assumptions, any or all of which could turn out to be wrong, and all of which are likely to be hotly contested. But even without positing independence, getting projections right is no easy task. Don't forget that Osborn went from an unexpected windfall of £27 billion to an unexpected deficit of £18 billion in just four months. Things always change.

Anon 09:58,

"But is independence worth any cost?" That looks like a reasonable and straightforward question, but... The problem is that the cost of independence is essentially unknowable. But so is the cost of not having independence. Assuming that everything will stay as it is if we don't have independence would be as silly as assuming that everything would be different if we did. Our view of both scenarios depends on the assumptions we make and on the prism of preconceptions through which we view the options - it isn't a simple objective question.

"Is it really worth the price of entrenched and pervasive iniquity?" And that's another question of the same ilk. Why would 'entrenched and pervasive iniquity' result from independence, and why wouldn't we oppose it and seek to overcome it in any scenario?

"You must focus on how and why things will get better rather than just independence for independence sake." I'm not sure why anything that I have said would lead you to suggest that I have ever argued for 'independence for independence sake'. Quite the opposite - I've said repeatedly that independence is no more than a first step, a set of tools that enable us to take responsibility for our own future. Can I guarantee that taking responsibility for ourselves will lead to a better future? No I can't - but then neither can you guarantee that it won't. I'll admit that I do have a degree of faith that doing things ourselves is likely to have a better outcome than expecting someone else to do them for us - but I know that to be unproveable opinion rather than objective fact. It would be good if those who argue that we cannot take responsibility for ourselves because the outcome would be disastrous could also acknowledge that their view is also unproveable opinion rather than objective fact. It would facilitate the exchange of ideas.

"... independence does come at a price, as with everything else" On that, I can agree. But you should, by the same token, acknowledge that lack of independence also comes at a price. Neither price is certain or provable.

Anonymous said...

It's relatively easy to forecast the future if we remain an integral part of the UK, albeit an unwelcome part. Lifespan will improve, living standards will improve and we'll ultimately improve our civilisation, no matter how loud the protests. In other words, much of the same, much of what has gone before.

As for a future in an independent Wales some things are also pretty easy to predict. We will find 'Welsh ways' of doing things which initially look good but ultimately lead to declining standards and a drop in living standards. Think not subjecting schools and teachers to continual performance reviews resulting in declining education standards; think not enforcing seven day a week working upon the medical profession and a resulting decline in positive medical outcomes; think local councils and the effects of year upon year inflation busting rate increases; think rugby and the RWU and all those grands slams and triple crowns and the devastating effects this has had on our club rugby; indeed think anything we have tried to do alone and you'll see the outcome has always proven to be a spectacular failure.

I suspect many worry that Welsh independence just promises more of the same!

John Dixon said...

You are perfectly entitled to believe every word of that. But I think that you have a serious problem understanding the difference between opinion and fact.

Anonymous said...

Yes, of course. But I, like you, albeit on opposing sides of the political spectrum, want to see a truly independent Wales. I just can't see it ever becoming a reality, no-one, not one single person is able to forward a truly persuasive argument. A positive narrative if you will. Why not?

Contrast this with Alex Salmond, Nichola Sturgeon and a plethora of others up in Scotland. It matters not that they bend the actualité, what they say does have the ring of truth and respectability around it most of the time.

John Dixon said...

If you really "want to see a truly independent Wales", the obvious question is 'why?'. What is the driver which leads you to that position? And what do you mean by a "truly persuasive argument"?

It would really help if anonymous commentators were to choose a pseudonym and stick to it, because I can never be sure whether I'm responding to one individual or a number.

Judging on style alone - the only basis that I have - and putting various comments together, it seems to me that you are saying that unless there is a 'persuasive argument' based on the act of independence in itself leading to direct improvements in specific fields (such as health, education, or the economy for instance), then your support for the concept in principle will never become support for the proposition in fact.

But the point that I've been making repeatedly on this blog is that that is an unrealistic expectation; a bar which can never be crossed, because it isn't the act of independence itself which leads to those improvements, it's what an independent government then does with those powers. If we had a political party in Wales arguing for independence and putting forward a program for a post-independence government (sadly, we don't - and I entirely accept your point about that being a key difference with Scotland), that might go some way to meeting your requirement, but even then, there could be no guarantee either that such a party would win a post-independence election, nor that it would actually implement what it said it was going to do (political parties don't exactly have a good record in that respect).

Could those of us supporting independence do more to spell out at least the possibilities which independence would bring? Certainly we could and should. I doubt, though, that anyone will ever be able to achieve the degree of certainty that you seem to be seeking. And, to be honest, I wouldn't trust anyone who said that they could.

Pragmatic Nationalist said...

John- I am the person that constructively raised the fiscal problem with you.

I don't share the view above that an independent Wales would lead to a decline in standards. Neither do I feel that limited devolution has been the disaster some make it out to be. There is not a disaster in health or education. More of a damp squib.

There would be enormous benefits from
independence, particularly in international profile and for culture. We'd also have a complete set of powers and levers and I believe (but can't prove) that we would eventually get richer, as other small states have done.

My problem is that the fiscal gap being so large makes independence a hard sell. For now. Nothing is permanent or inevitable. We need some way of making Wales' public finances better inside the UK. We need this debated further.

John Dixon said...

Put that way, there is little there with which I would disagree. The only thing that I'd add in response to your final paragraph is that limiting debate on the 'fiscal gap' to a discussion about 'how to bridge it' is playing by other people's rules, because it starts by accepting that the gap is the problem which our opponents say it is.

Part of the point that I've been trying to make (in this and previous posts) is that we don't need to do that, and indeed that doing so is like tying our own hands behind our backs. The level of understanding of public finance is woefully poor, which is why the Tories are getting away with a risible comparison between the public finances and our own personal finances. Labour are no better; they've allowed themselves to get placed into a straitjacket which is actually the result of ideology rather than economics. In debating the fiscal position of a putative independent Wales, we need to get people to understand why they should reject the simplistic economics of the Labour-Tory party. Without doing that, we're simply aiding and abetting those who want to place an insurmountable barrier in our way.

I don't oppose debating the fiscal question, nor do I question the desirability of making Wales' public finances better; what I reject is the idea that the fiscal question is a problem which prevents independence, as opposed to a fact of life which independence will allow us to address for ourselves - and that includes deciding how big a gap we consider reasonable, rather than assuming that it has to be eliminated. We're starting from a position where the mere existence of a fiscal gap is perceived as a killer argument against independence for Wales and there is a lack of understanding that fiscal gaps are the norm for most countries. I challenge and reject that starting point.

I accept that a debate which sets out to say that a deficit is the norm, and that the question isn't whether there should be one or not, but how large it should be in relation to GDP and inflation isn't as easy as saying how it will be eliminated, but it's a more honest and realistic start point. Anyone who says that it can and should be eliminated before we can consider independence is, in my view, postponing independence for ever.

Pragmatic Nationalist said...

True enough John but the interrogation about the size of the deficit has to then be; what percentage (of deficit compared to GDP) would be acceptable to voters? I am not a fan of allowing business to dominate the agenda but people will also worry about their jobs and the opinion of business will have a bearing on this.

Media and voters, if there was a referendum campaign, would probably compare the % Welsh deficit to existing countries in Europe. I simply don't have those figures but I suspect we would shape up badly (inside the UK we don't have to face up to it).