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.