Following pro-independence assertions by economist Nobel Prize-winning economist Joseph Stiglitz, saying the debate around Scottish independence had been "fear mongering", and that currency was a "non-issue", last night Adam Posen, the former Monetary Policy Committee member who now heads up the Peterson Institute for International Economics, published an article criticising his view.
Cracking out the economist's equivalent the insult big guns, Posen called Stiglitz's views "a jumble of wishful economic theorising... social democrat idealism... and 60s hippiedom". Ouch.
The article also ignores or misrepresents some facts about the Scottish and European situation, presumably because those facts don’t fit the theory or ideals.
So what did Posen take particular issue with? To start with, Stiglitz's claim that "leaving the United Kingdom is alright for trade if Scotland stays in the European Union". The EU can't act as a replacement for the UK, points out Posen.
There are huge barriers to foreign imports between nations within the EU... barriers to credit flows are even worse. Right now, the whole of southern Europe is suffering a huge credit crunch because businesses are being judged on their basis of nationality rather than their merits.
Second, he says Stiglitz "mischaracterises" the idea that losing the pound is overblown, pointing out that Ireland and Spain arguably became casualties of the fact they had no political say over how monetary policy was set during the downturn.
If Scotland leaves the United Kingdom, but stays pegged to the pound, then it will go from its outlook having to be considered when the Bank of England sets monetary policy, to its situation having to be ignored whenever it diverges from the main UK trajectory. It’s like going from being the Fifth Federal Reserve District to being Ecuador with respect to the dollar and the Fed.
Posen's final bugbear is "the assertion that because a few small countries do well, Scotland will be fine". That's not the case, he argues: countries Scotland aspires to emulate, like Denmark, have "deep integration" with their larger neighbours.
And when it comes to economic turbulence, smaller countries are at more risk. "Citizens of a small economy are more subject to insecurity and so is their government than their larger peers.
His conclusion? Er - Stiglitz is wrong. Totally wrong.
Just about every independent serious economist—including many liberals who have long had public differences with the current UK government in Westminster, and many others who have no particular stake in Scotland or the United Kingdom—thinks independence is a bad idea on an economic basis.