The debate about the prospects for the public finances in an independent Scotland is intensifying. I sympathise with the views of Simon Schama, Martin Wolf and Tyler Cowan that the debate about Scottish independence should be dealing in higher things. As Wolf puts it
The debate over the future of the union should not be reduced to huckstering over short-term gains or to debating implausible promises. If the story is to end in separation, let us at least try to have a debate worthy of our extraordinary shared history.
The trouble is that the ‘hucksters’ and ‘implausible promisers’ thrive even more in a world without data and evidence. Numbers, often in the form of forecasts, but more usefully sensitivity analyses, are actually crucial to informing the debate. So, for example, it is valuable to the debate to have some sense of the implications of different oil prices and production volumes for oil revenues and hence, other things equal, the fiscal balance in an independent Scotland. Otherwise ‘implausible promises’ may appear much more plausible in the minds of many.
This is why the issue of the set-up costs required to create an independent Scottish state is so crucial.
The truth is that in discussions about the set-up or transition costs of Scottish independence are frequently ignored or even dismissed. The debate about independence then often turns on what economists call a comparison of equilibrium states. For example, will productivity growth/job creation/GDP growth/GDP per head be faster or slower, higher or lower, in an independent Scotland compared to Scotland as part of the UK union? So, in seeking to answer these questions commentators and proponents of ‘Yes’ and ‘No’ will often resort to comparisons between existing independent small states such as Norway, Sweden, Finland, Denmark, Ireland, on the one hand, with the Scotland’s performance as part of the UK, or even with the UK itself.
Such steady state comparisons fail to take into account the costs of the process or transition between them. In other words, they are not comparing like with like.
So for example, I might prefer the prospect of a well-paid job in sunny southern California to a lower paid job in rainy west of Scotland. However, I might decide not to go there because of the costs of getting and setting up there: selling my house in Glasgow, parting with the cat, being separated – for a time - from my partner, financing the move, purchasing a new property and so on.
In other words the transition costs of getting to a new situation might rationally outweigh the benefits of change even if the new situation was preferred once you had got there.
Then if in the new situation there is the risk that costs might be higher than anticipated and the benefits less, for example, the higher cost of living in southern California and the possibility that that well-paid job might not materialize, that would be a further reason for not making the change.
But against this background we do need to know the set-up and transition costs of Scottish independence. The UK Treasury may have misrepresented an academic’s work but they are right to try and put a number on at least one key aspect of the set-up costs.
What we are still waiting to hear is the Scottish Government’s documented estimate of that cost.