Economics and the mid-life crisis have much in common: Both dwell on foregone opportunities

C'est la vie; c'est la guerre; c'est la pomme de terre . . . . . . . . . . . . . email: jpalmer at uwo dot ca

. . . . . . . . . . .Richard Posner should be awarded the next Nobel Prize in Economics . . . . . . . . . . . .

Wednesday, April 06, 2005

Does Creating a New Gubmnt Also Create Wealth?

Did the devolution of Scotland help save the country's economy from a recession? Yes, according this article.

What is surprising about the findings is that the setting up of the parliament not only helped the economy in the same way that citing a major corporate headquarters would, but that it brought enough economic firepower to alter the course of economic history.

The findings have been revealed by a team of three professors from the Fraser of Allander Institute and Strathclyde University who have studied the Scottish economy at the time of devolution in 1999 when the electronics industry hit a massive trough.

How did this work?
What were the scarce resources doing before the Parliament was set up?
Were there massive amounts of unemployed resources that were miraculously put to work when Scotland set up its own Parliament?
Did the Scottish Parliament implement changes that made all the productive activity in Scotland more efficient?
Or did the Parliament create make-work jobs that produced little or no additional wealth?

Professor Brian Ashcroft, along with Peter McGregor and Kim Swales, examined the information which has now become available about the Scottish economy before, during and after the establishment of the parliament.
Ashcroft and his colleagues concluded: "Scotland is doing better than would be expected on the basis of the past relationship - and this improved performance coincides with the establishment of the Scottish Parliament."

They add that the growth rate has been higher than they would have expected under devolution; there was "evidence consistent with a stimulus to private sector services"; and that this is "compatible with devolution being good for the Scottish economy to date".

Ashcroft told The Scotsman that using the parallel with a new company headquarters, the growth may have come from companies, public bodies and the voluntary sector hiring lobbyists and other staff whose job it is to interact with the new politicians and the civil service. The increased media presence around the parliament may also have contributed.

Again, I have to ask, "How would these scarce resources have been used if the Scottish Parliament had not been created?"
Was the aggregate supply curve horizontal?
Was the production possibilities curve being shifted outward, or was the economy just moving from an interior solution to a frontier solution?

As BrianF said when he sent me this link, "I feel a Bastiat moment coming on..."

Only at the end of the article, do we read
The Strathclyde team point out that their results do not establish that
devolution has caused higher growth.
Interestingly, when I Googled the three authors of the study referred to above, I found a list of Strathclyde discussion papers, but not this one. Elsewhere, however, I found this:

An Analysis of National and Devolved Economic Policies
Peter McGregor, Brian Ashcroft , Julia Darby, John Ireland, Chris Kotsogiannis, Kim Swales, Nicola Viegi

In Brief
This project will use econometric techniques and a computable model of the UK economy and its territorial components to examine the scope devolved institutions have to shape economic policy in their territories. It will also assess the potential benefits and dangers that interaction between UK-level and devolved institutions in economic policy-making may bring.

The Barnett squeeze has a real resource impact on the Scottish economy which could lead to a contraction of Scottish employment by 3.9% (over a relatively long time period)

Upward use of the tartan tax would have significant contractionary effects on GDP, employment and population.

Oops journalism at work again...
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