ONE of the major faults of macroeconomic discussion around GERS is the narrow focus on just one part of the economy, the government sector. Political and economic commentators often ignore, intentionally or mistakenly, two other vital sectors that must be included in any serious analysis of Scotland’s fiscal position – the private and foreign sector.

Ignoring these other sectors is the equivalent to describing a football match as “Celtic – 1” without any commentary on the other team. Voters deserve better than this.

So, let’s consider a more accurate framework when discussing the economics of Scottish independence. The best accounting framework to analyse these sectors is the Stock-Flow Consistent (SFC) model by British economist Wynne Godley. When considering all sectors of the economy, the SFC model presents an accurate and detailed account of all flows and stocks in the economy.

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Opponents of Scottish independence will argue that a Scottish Government deficit is bad news for the economy. As their argument goes, a deficit will only slow economic growth and create harmful levels of inflation. If an independent Scotland is to mitigate these challenges, it will be forced to raise taxes and interest rates. But even the smallest glance at the macroeconomic evidence, best presented by the Levy Economics Institute, shows that these beliefs are reversed.

A Scottish government deficit would not raise interest rates or taxes, nor would it necessarily be inflationary. Fiscal deficits provide several key benefits to a stable and inclusive economy.

When the government sector is in a deficit, this means the private sector is in a surplus. Both sectors effectively mirror one another. A private sector surplus is a result of increased net-financial assets in our pockets from government spending. With this income we go on to spend it in other areas of the private sector. Our spending becomes the income of businesses, who use these net-financial assets to expand projects and production. This in turn can generate more jobs and economic growth. If our resources are being utilised, then a private sector surplus creates a stable and functioning economy.

The argument that Scotland’s deficit must somehow shrink for arbitrary fiscal targets is not based on macroeconomic science. The more famous arbitrary target of 3% of GDP, widely supported by conservatives across Europe, was completely made up on the spot by a low-level employee at the French Ministry of Finance in 1981. The real macroeconomic evidence tells us that when governments attempt to “balance the books” for arbitrary fiscal targets this leads to increasing instability and economic recessions.

If the government wishes to run a small surplus, this will push the private sector into a deficit – reducing its size and suppressing economic activity. If a business or individual wants to spend beyond their income, they will either reduce their spending, sell their assets, or borrow from commercial banks. Reducing spending will result in declining revenue streams for many within the private sector, whilst borrowing from commercial banks will result in growing private debt that will need to be paid back with interest.

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Analysis from the House of Commons Library recently found that the UK has the lowest wealth per head of every country in north-west Europe for every year of the 21st century. IMF data shows that UK residents are £5062 poorer compared to their North-West European neighbours, and £15,739 less wealthy compared to independent countries that are similarly sized to Scotland. This is largely the result of the UK Government’s obsession with trying to reduce its own government deficit through austerity.

The focus of the GERS debate most often sees independence activists narrowly focusing on the methodology of the data – in particular the comparison between Scotland and the rest of the UK. As we know, this comparison is methodologically flawed as we are comparing an economic region with no monetary powers and limited fiscal levers to an entire unitary state that has full fiscal and monetary control. This accounting trick does not provide healthy analysis and nor should it be deployed by any serious economist or commentator.

The National: The annual GERS figures

However, when engaging with criticism with GERS methodology, independence activists unintentionally adopt language that attacks the concepts of a government deficit. This needs to change. Rather than argue that Scotland does not have a deficit, independence activists should instead flip the argument on its head – a government deficit is good because it reverses the UK Government’s austerity measures.

If Unionists cry “government deficit” we respond with “public surplus”.

The GERS debate, whilst healthy and engaging, is still largely stuck in an endless loop that is framed within orthodox and illiterate economic language. Discussing economics with one eye shut leaves voters misinformed, when they deserve a more honest and robust analysis of our economic systems.