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09 / 09 / 14

Krugman forgets that there’s more than one currency model in the world for Scotland to follow. Ecuador, for example

On his blog this morning, Paul Krugman shouts of the dangers Scotland would expose by becoming independent and keeping the Pound Sterling (GBP) as its currency. It would, according to Krugman, put itself at the mercy of the “Bank of….errr…England” (quote unquote) with all the systemic risk that would imply after Krugman pointed at the Eurozone and said bad bad isn’t it awfully bad about it all. So two points to make:

1) In the event of an Indy Yes result England (using the name to generalize) would let Scotland use the pound because it suits England, not because of benevolence towards Scotland. Without the Scots, England’s currency would be sorely weakened and that’s bad for the printing country. The events of the last few days in the forex market make it abundantly clear, quantifiably clear, that it suits England to have Scotland inside its currency zone (just the way it suited England to have the entire geographical island of Ireland inside the pound sterling zone for a full 300 years). 

2) Seen Ecuador’s economic performance recently, Krugger? High GDP growth, low inflation, constantly improving balance sheet, and all by using the US Dollar. The change there hasn’t been in the currency, it’s been in the stronger attitude to leadership. Scotland may have a problem in Alex Salmond in the medium-term, but adopting the Pound is not the base issue.

Once again, the good economist that is Krugman gets it horribly wrong when he starts to layer his suspect politics over the numbers. Though that doesn’t make him an exception, it’s fair to say that of most economists I’ve come across, left right or centre.

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