Wednesday 12 January 2011

Never mind the facts, what about the theory?

The SNP has made much of the claim that financial independence would lead to additional economic growth. I blogged about this back in October.

Now there's been a bit of a row about this claim:

During a bad-tempered clash, the academics distanced themselves from SNP claims that their report provided a case for fiscal autonomy.
And looking back a wee bit:
First Minister Alex Salmond referred to the report during his speech at last year's autumn SNP conference, when he said: "We know, thanks to the work of Andrew Hughes Hallett and Drew Scott, that with economic powers we could grow the Scottish economy by an extra 1 per cent a year."
In Holyrood yesterday:
Prof Hughes Hallett, of St Andrews University, said the claims about increasing GDP were "referenced in the papers" he and his colleague had written, but was unable to say what the evidence was or where it came from. He said: "Increased powers could be expected to increase the level of GDP by between 0.6 per cent and 1.3 per cent."
I'm afraid that the professor's reply was a bit weak in the circumstances. You have to be fully prepared when entering the lion's den of politics. Not having the evidence at hand does your case no good whatsoever. Does that mean that I disagree with Hughes Hallett's case? Not at all, and for reasons that may not be obvious at first.

Consider this quote:

The Austrian school is different from other schools of economics because it does not rely on complex mathematical models to prove its point. The economists of the Austrian school derive their understanding by using what is called a priori thinking—something which appeals to our logic on its own without any support of a mathematical model.
Here is a fine book that explains the differences between the a priori approach of the Austrians and the empiricism of the Chicago School of free market economics.

In my last post I showed that there is a strong positive correlation between economic freedom and national prosperity. And smaller government expenditure is positively correlated with economic growth. That's useful information, but it doesn't necessarily prove that A causes B. The a priorism of the Austrians enables us to see why freedom and low government expenditures lead to better outcomes and that's exactly why I've just placed another book order with the Mises Institute.

Here's a little a priori thought experiment:

Imagine you have a teenage child.

Scenario A: You give the teenager pocket money, say a modest £30 billion per year, no matter what he spends it on.

Scenario B: You tell the teenager that he must go out and get a job if he wants any spending money.

Will A or B produce a more economically successful child?

It really is as simple as that. And that's what economists should be telling Holyrood.

1 comment:

David Farrer said...

Comments made on previous template:

Colin Finlay
If an independent Scotland was willing to look to some fellow EU members for models of taxation, we could prosper with Ireland's rate of corporate taxation (12.5%) and its zero Inheritance Tax plus Bulgaria's 10% flat rate Income Tax.  
 
 Of course, Government would shrink and that would be unthinkable for the Scorrish - Irish Marxoid Left whose reliance upon economic superstition is as strong as a Zulu's belief in witch doctors but not as well - founded.

26 January 2011, 06:21:23 GMT
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Andrew Duffin
"Increased powers could be expected to increase the level of GDP by between 0.6 per cent and 1.3 per cent."  
 
Eh?  
 
Doesn't it rather depend on what they do with those powers?  
 
Since, as far as I can tell, they would use the powers to increase taxation, meddle (even) more in everyone else's business, and dish out free everything for everybody, I think we can probably say that higher economic growth is not the probable outcome.  
 
otoh I could be wrong: maybe they plan to reduce taxation, abolish piles of pointless regulations, withdraw from the EU, free the schools...  
 
Bwa ha ha ha

18 January 2011, 13:00:13 GMT
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james higham
Already there is the prospect of financial collapse across the UK and they are hell bent on this?

15 January 2011, 04:25:28 GMT
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David Farrer
test

14 January 2011, 10:21:12 GMT
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David Farrer
Subrosa,  
 
I shouldn't believe everything I read in the Scotsman. The  letter from the two professors published yesterday puts things in a different light from the original article:  
 
http://thescotsman.scotsman.com/letters/Letter-Evidence-was-ignored-not.6688543.jp  
 
Stephen Maxwell's letter is interesting too.

14 January 2011, 10:14:19 GMT
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Subrosa
I think you're a wee bit unkind about the two professors.  I've watched the whole session today on HolyroodTV and they said the questions asked were not appropriate to the committee's brief which was the Scotland Bill.  They were there purely to discuss the Calman issues and nothing else.  Wendy Alexander has spun this to this degree.  In fact her discourtesy to the two men was bordering on offensive and that's when one said they would have to leave.

13 January 2011, 23:45:23 GMT
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james higham
In my last post I showed that there is a strong positive correlation between economic freedom and national prosperity. And smaller government expenditure is positively correlated with economic growth.  
 
Hence it must be prevented at all costs because with that freedom and prosperity, control is lost.

12 January 2011, 19:04:19 GMT