The next week is going to be fascinating. I have no idea how Scotland will vote, for or against independence. I have no idea how I would vote were I there. Economically, there is probably a somewhat stronger argument for NO than YES, if you believe the politicians promises. But national self determination is not about economics alone. Ireland has seen a massive crash, from its overblown banking system. How bankers and other vested interests responded to that is very instructive for the scottish debate
The most recent intervention is from Deutsche Bank, which has predicted an economic apocalypse if scotland votes for independence. They evoke memories of the Great Depression, and this morning their Chief Economist “didnt get it”. His tone is one that many bankers and economists all too often adopt when faced with the great unwashed – perplexity and irritated confusion that they cannot see that which to them is as plain as a pikestaff.
We had all this. Throughout the irish crisis the rhetoric was that unless we did exactly what we were told, exactly how we were told, by ‘the markets’ we would be lucky if we had a ditch in which to die starving. Our politicians buckled, and our elites stayed sthum for the most part. It is easy to scare. It is less easy to constructively comment.
Economics is about choices. Some are less easy than others. Some are harder in practice than theory to undertake. It probably would be an economically sensible place to be if we were outside the Euro, but the practicalities are such that we cannot. Al throughout the irish crisis every single bank spokesperson was on message as to their status as The Special Sector, holders of a unique wisdom. Worse, wholly ludicrious threats were made on debt. Ireland for quite some time had a peculiar debt in relation to Anglo Irish Bank, a form of promissory note which the then opposition now government argued was probably illegal. Senior now-ministers argued in public and private for this to be abrogated. This 30b (of the 170b national debt) was in effect owed to the Eurosystem as it was providing liquidity. Private sector bankers were at the forefront in arguing that restructuring or reneging on this would be the same as a default on the national debt and a rain of leprous flesh eating frogs would follow, stat. A glance at the Irisheconomy.ie website during the crisis shows a parade of thinly disguised bond dealers engaging in furious and personalised attacks on figures daring to question economic orthodoxy a la financier. In the runup to the crisis we had years of bank economists stating that everything was tickety boo. And so on
The bottom line is this. Exceptionally able as most of the bank economists, financial sector analysts and FX traders may be, they are not in the truthiness business. They are paid to help their companies sell product. They are not paid to ahve a moral, ethical, or social perspective except in so far as that aids in sales. That doesnt make them bad persons, just employees of large impersonal organisations focused on profit the same was a starving dog focuses on a sausage. We dont really believe estate agents guff about houses, because most of us know a little bit about living in a ‘deceptively spacious’ house with ‘great potential for a new occupier to stamp their personality on’ – a small rundown kip needing major redecoration. We do however feel that when people talk on things that we dont really understand we must take their views as gospel truth. It is an inverted argument from authority – I will accept that well groomed man with a confident voice talking about GNDI and fiscal projections because they are complicated things and he works in a bank. Messrs Python had things to say about bankers….
They wont outright lie, mostly, but the nature of economics is that there are always a range of outcomes from any analysis. A smart bank economist or analyst quickly learns that shading it to the corporate best interests while seeming to be and probably actually being intellectually fairly honest, that does no harm to ones career. This cuts both ways. It is no surprise to me that a ratings agency, Standard and Poors, had what is probably as overoptimistic a view of Scottish independence than DB has a negative. A new pool of bonds to rate…surely that would have no impact even subliminally on the analysis?
When a banker or financial services professional speaks, they are not being paid to be truthful. They dont have to lie. They mostly wont. They simply have to give an opinion. And we know what opinions are likened unto by Dirty Harry