Newspaper article Pittsburgh Post-Gazette (Pittsburgh, PA)

Scots, Don't Do It Independence Would Be Fiscal Folly

Newspaper article Pittsburgh Post-Gazette (Pittsburgh, PA)

Scots, Don't Do It Independence Would Be Fiscal Folly

Article excerpt

Scotland will hold a referendum Thursday on whether to leave the United Kingdom. And polling suggests that support for independence has surged over the past few months as fears of economic risks subside. Well, I have a message for the Scots: Be afraid, be very afraid. The risks of going it alone are huge. You may think Scotland can become another Canada, but it's all too likely it would end up becoming Spain without the sunshine.

Canada, like Scotland, is a relatively small economy that trades mostly with a much larger neighbor. Also like Scotland, it is politically to the left of that giant neighbor. And Canada is prosperous, economically stable and has successfully pursued policies well to the left of those south of the border: single- payer health insurance, generous aid to the poor, higher taxation.

Does Canada pay a price for independence? Probably. Labor productivity is lower than it is in the United States, perhaps due in part to the small size of the Canadian market. Still, Canada seems to be doing OK.

But Canada has its own currency, which means its government can't run out of money, can bail out its banks if necessary and more. An independent Scotland wouldn't. And that makes a huge difference.

Could Scotland have its own currency? Maybe, but the question is moot: The independence movement intends to keep the pound as the national currency. And the combination of political independence with a shared currency is a recipe for disaster. Enter Spain.

If Spain and the other countries that gave up their own currencies to adopt the euro were part of a true federal system, with shared institutions of government, the recent economic history of Spain would have looked a lot like that of Florida.

Both economies experienced a huge housing boom between 2000 and 2007. Both saw that boom turn to bust. Both slumped, causing a plunge in tax receipts and a surge in spending on safety net programs. …

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