Ignorant professor is ignorant

The P³ is of course upset at an LSE report because the LSE report says that Scottish independence might not be the economic slam dunk the P³ tells folks it will be.

The report is here.

We estimate there is around six times more trade between Scotland and the rest of the UK
than predicted by a standard gravity trade model. Alternative methods imply there is from
2.6 to 7.8 times more Scotland-rest of UK trade than predicted. This excess trade is partly
the consequence of Scotland’s union with the rest of the UK.
• Independence would create a new international border between Scotland and the rest of the
UK, leading to higher trade costs. We use the CEP trade model to study the impact of these
new trade costs on Scotland’s economy. We do not consider other effects of independence,
such as changes in investment flows, fiscal arrangements or Scotland’s currency.
• Drawing upon research on the magnitude of border costs, we analyse an optimistic scenario
where trade costs between Scotland and the rest of the UK increase by 15% after
independence and a pessimistic scenario with a 30% increase.

All reasonable enough. Note that gravity model. If you use just and only geographic location then you get the expectation of less trade than we have. If you use economic distance – being in a customs union reduces economic distance from having two separate customs areas – then that nicely explains that.

So, The P³:

Third, the trade is abnormal because there is no border: if there was the flows would be different, as I note below.

The fact that geography also dictates that at present it is convenient to import and export through England just adds to the chance that this possibility is high.

But there are more issues (actually many more, but there are limits to the number that need be noted).

Take, for example, the claim that the cost of trade between Scotland and England will increase by 31%. Ludicrously, this is based on the estimated cost increase in trade between the UK and Ireland in 1922. As assumptions go, I cannot think of anything more ridiculous. The UK and Ireland were pretty much still at war. The UK controlled all the routes in and out of Ireland and could charge what it liked, and technology was utterly different. To pretend that this data is in any way relevant is absurd. Sheer common sense suggests that the comparison makes no sense.

There is a final absurdity to note. The authors seem to assume that there will be no behavioural changes despite these costs. But just look at what is happening in Ireland right now. Literally, almost overnight new freight routes that avoid costs have opened. And so would they from Scotland to avoid the claimed costs of going through England. This would be most especially the case if Scotland rejoined the EU, when import substitution from the UK might be very significant.

Ignorant damn twat. The behavioural changes resulting from the changes in costs are what they’re studying.

11 thoughts on “Ignorant professor is ignorant”

  1. The solution to Scottish independence is to negotiate the withdrawal agreement, financial separation and trade agreements before the independence referendum. Let people vote for what they are going to get instead of what a vociferous politician promises.

  2. Funny thing is that this is the same model which predicted a fall in GDP because of Brexit, which Murphy was more than fond of quoting.

    Wonder what has changed all of a sudden?

  3. The fact that geography also dictates that at present it is convenient to import and export through England just adds to the chance that this possibility is high.

    In what way would geography change based on the whims of Wee Krankie? I though Cnut (subs, check spelling) had conclusively disproved this one.

  4. Quite clearly the LSE are wrong to use estimates. I estimate this makes them 75% wrong.

    And twelvethly

  5. In economics, it seems the word “gravity” can mean anything you want it to mean. This, or course, means that this theory has absolutely zero predictive power because you can always pull out another factor that renders it true in a particular case. Why not just use a phrase that recognises that it is not countries that trade? It is firms that trade and firms that have a relationship tend to trade more than firms without relationships. You could call it something like the trade network theory of trade except that is self-evidently tautologous. The Bank Underground team did an excellent paper a few years ago demonstrating the enduring power of trade connections and trade routes. It sounded much more convincing than this “gravity” bull.

  6. Andy F while we are at it, we should cut the subsidy from England, leaving them with only the tax they raise themselves. The Barnett formula was originally intended to be temporary, to dwindle in value. Even Barnett thinks it no longer does what was intended.

  7. ‘cut the subsidy from England’

    Nautical Nick, the case which amuses me most is the independence of the Aden Protectorate. As I understand it, the Protectorate ran at a loss from the foundation of Aden in 1839. The Treasury finally succeeded in having the place dumped in 1967, and the heroes of the National Liberation Front swarmed into Aden to swim in the money bin of cash squeezed by the wicked Brits from the oppressed Adenese. But alas no money.

    There was a conference in Switzerland, but since the Treasury were the British reps, they gave the NLF the finger. They therefore went over to the commies, who urged them to liberate the poor, oppressed Dhofaris, and of course the oil, in neighboring Oman.

    This continued until the fall of the USSR, when the Peoples Republic of South Yemen united with North Yemen, which had had the good sense to side with the Yanks. Jimmy Carter had arranged with a Yank oil company to drill for oil in North Yemen, and this provided the income to keep it going.

    Of course he bitched that the wicked Brits should have been handling this instead of leaving it to the poor old Yanks. But had the Yanks not supported the Gyppos and prevented the British navy from blockading Hodeidah, the Egyptian invasion of the Imamate of Yemen would have been impossible and the NLF couldn’t have infiltrated across the Protectorate’s border in the first place.

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