Last week saw the view surfacing that Scotland had nothing to fear from not
having a lender of last resort because monetary systems don’t need one
anyway. It might take a few banking collapses and major bank runs to
establish this, so the theory goes, but eventually Scottish banks would
learn to be more prudent and in the long run that would be good for
Scotland. Well, after you! From what we heard last week, large numbers of
financial businesses and their customers have decided that they would not
want to take part in this testing of Austrian monetary theory and have
voted, or are planning to vote, with their feet.

Alex Salmond used to make frequent reference to the Irish experience. He
claimed that Scotland could be at the centre of an “arc of prosperity”
stretching across Ireland and Iceland. After the financial collapse that
engulfed these countries we don’t hear much about that now.

But the Irish experience is interesting in several ways. After independence in
1922, it took decades for Ireland to become successful, substantially helped
by membership of the EU, not just in terms of access to markets but also
through huge net subsidies. By contrast, it is far from certain that
Scotland would be granted EU membership. But, if it was, it would be a net
contributor to EU funds as it has a much higher income level than Ireland
had.

Moreover, faced with severe challenges in the 1980s, Ireland turned itself
into a low spending and low tax economy. The reaction to the financial
crisis has been to impose fiscal stringency on a scale that makes the
British equivalent look like a kids’ tea party.

If Alex Salmond were to follow the Irish example on fiscal policy, how could
he square this with the vision of Eldorado that he has been dangling before
Scottish voters, including big increases in NHS funding? In all likelihood,
an independent Scotland would be forced into swingeing cuts in public
spending.

Furthermore, for the first five decades of its independence, Ireland underwent
substantial net emigration. If Scotland did relatively badly, then it could
expect to experience the same thing. With poor demographics, this would be a
heavy blow to the economy and would substantially worsen the long-term
fiscal position.

You will have noticed that I am not entering the debate about how much oil
there is, how much it is worth and to whom it properly belongs. Nor am I
going to debate the extent of the UK’s fiscal subsidy to Scotland. Actually,
I do not believe that the fate of nations, and certainly not the fate of
great political unions like ours, should be decided on such matters.

What really counts is togetherness. Why don’t the arguments against British
membership of the EU also count against Scottish membership of the UK? The
answer is that to some extent they do. But everything depends upon the
specifics of the Union, the nature of its institutions, how well it works
and the depth of fellow feeling between its members. It is about who we
think of as “us” and who we think of as “them”.

The nations of the United Kingdom have fought, suffered and triumphed together
in three major wars and umpteen smaller ones, and we have a shared history,
shared values and a common language. How many barrels of oil is this worth?
It is priceless.

But it does have a knock-on effect into economics. Economically, the UK has
worked pretty well because of the high quality of its institutions, backed
up by the fellow feeling between its citizens. During the financial crisis
you hardly heard any English voice complaining that they, as UK taxpayers,
were being obliged to bail out two large Scottish banks.

If the Scots decide that their fellow feeling with other citizens of the UK
has faded, or is not worth that much, then so be it. There is nothing that
economists can say against that. But it really would be tragic if Scots made
this momentous choice not realising the costs and dangers, and believing in
the idea that, as a result of independence, riches will descend on them like
manna from heaven. Arc of Prosperity? More like a Vortex of Chaos.

Roger Bootle is managing director of Capital Economics. His latest book,
“The Trouble with Europe”, has just been published by Nicholas Brealey
Publishing.

roger.bootle@capitaleconomics.com