I have sent this reply
Sir, with reference to today’s letter from Professor Andrew Hughes Hallet “Scottish Oil and the case of the missing 45%”, I’m afraid that the esteemed professor has failed to understand a rather fundamental point. North Sea oil revenues included in the Government Expenditure and Revenue Scotland (GERS) figures to which your editorial referred are generated by taxes on production profits, not revenue.
The only mystery is therefore not why they’ve declined so dramatically, but how a member of the SNP’s Fiscal Commission Working Group (FCWG) could be ignorant of this basic fact.
Kevin Hague
MD, M8 Group
*****
I kept it brief to increase chances of publication - with the freedom this blog affords me I'd add:
This is shocking not just because a member of the FCWG should be aware of this basic point, but that he chooses to leap to the erroneous conclusion that our national accounts must be flawed. It's almost as if he's trying to help the SNP by offering voters an excuse to ignore the hard economic facts.
Coming hard on the heels of fellow FCWG member Prof Joseph Stiglitz's admission that "Independent Scots currency union plan 'may have been a mistake', you have to hope that even Yes supporters are starting to realise that Sturgeon's "Council of Economic Advisors" might not be the infallible seers that she would have us believe.
****
** UPDATE **
A slightly edited version of my brief letter was published in the FT on 01/09/2016.
As an aside: the original FT piece he refers to mentioned factors which had “reduced Scotland’s notional share of British oil revenue from £9.6bn in 2011-12 to £60m in 2015-16”
A passing familiarity with these numbers would make it clear that these figures are government tax revenues, but one possible explanation for the Prof's confusion is he thought the decline reported related to value of output or GDP contribution.
A quick glance at GERS shows us that from 2013-14 to 2015-16, Scotland's oil generated GDP declined from £18.2bn to £9.7bn, a drop of 47%. This squares well with the prof's "price down 54% offset by modest production increases" logic - so no mystery there.
The only alternative explanation I can see is that - as I assume in my letter - he knew the figures were taxes but was unaware those taxes are raised on profits not gross output. An easy mistake to make perhaps, but certainly not grounds to assume that the UK's national accounts do not conform with the European System of National Accounts (which, see below, they of course do)
** UPDATE ENDS **
For confirmation that the UK national accounts do in fact conform with the European System of National Accounts see (for example) the ONS statement here
27 comments:
The fall in oil tax revenue (tax receipts raised from industry profits) is non-linear with the fall in the oil price as the North sea oil industry is heavily capital intensive with high fixed costs!
These fixed costs are (surprisingly enough) unavoidable, thus industry profitability falls at a greater rate than the fall in the oil price.
A good response and explanation from "reaction.life" on this link here
http://reaction.life/?p=798?ts
I was appalled at Stiglitz's comment yesterday; I'm a aghast this this tool's comment today. Thanks for bringing it to my attention.
Sadly, the new First Minister has the power to abuse the public purse by hiring idiots to provide window-dressing for her weak arguments just like the last one did.
Kevin: I rate your comments, I rate your analysis, I rate your authority on such matters, which is why I tend to follow you. What I don't rate is your tendency to be excessively dismissive, so much so that you are becoming very much like the cybernats that are so decried by popular press. Keep your message sobre and reasonable, otherwise you risk becoming the people you are all too ready to criticise no matter what - and thus a one trick pony.
last anon: I'm genuinely curious as to what element of this you consider not to be "sober and reasonable" or do consider to be "excessively dismissive". The case in point is not one where there is any room for considering subtle nuance of interpretation - he makes an explicit claim which is deomsontrable false "one thing is certain - these accounts do not conform to [..] European System of National Accounts" and he concludes that based on suggesting there's a "discrepancy" because a tax on profit hasn't declined in line with revenue.
I try to maintain a sober tone, but I have watched the debate long enough t know how am esteemed professor's words published in the FT will be used - he has a responsibility not to propagate such blatant falsehoods.
If I thought I had been overly harsh I am man enough to apologise - but I'm genuinely struggling to see how anything I've written here could be considered unjustified.
Kevin,
No need to call him 'esteemed'.
'
No need to feign surprise at such a mistake.
If he has indeed made a mistake (and yes, it would be interesting if he replied to explain himself), then he is just a fellow member of the human race.
I don't pretend to know if the Professor is a paid up lucky willing to trot out any pro-Indy line of argument, but my point is simply that I am yet to see anything from you (lately) that is 'pro-indy' or that could be construed as taking a more neutral and nuanced line. It may be that I have totally misunderstood your position on the Indy issue - may be no matter what you are there simply to take on every and any pro-Indy argument there is. If that is case, I retract my comment and will refrain from criticising. If it is not, then can I suggest that modesty should prevail - in particular if it appears that someone has simply made a mistake, albeit a big one. Your turn to make a mistake will come after all.
I hear what you say anonymous (why always anonymous?)
imho it's not "just a mistake" - he's written to the FT and made a clear assertion ("one thing is certain") which ius demonstrably untrue and based on a basic misunderstanding. As a professor of economics (the capacity in which he signed the letter) and as someone who sits on the SNP's council of economic advisors, he has a responsibility not to be cavalier with facts.
There's making the mistake, then there's making the mistake, leaping to an extraordinary conclusion (which would be a good hint that he's made a mistake) and writing to the FT to publicise it.
There are already tweets with hundreds of RTs citing his letter as proof that our national accounts are flawed. As someone who spends a lot of time trying to debunk these myths it's incredibly infuriating to see someone so esteemed (he is esteemed, its a fair use of the term) fuel misguided grievance.
I'm sure I will have and will continue to make mistakes - if I make a howler as big as this one and write to the FT to share it, you can be assured I would receive far more vicious opprobrium than this rather mildly worded blog
The FT have published, slightly edited, your letter:
https://www.ft.com/content/84dcec84-6ecc-11e6-9ac1-1055824ca907
As someone who has followed this blog for some time, and who endorses Kevin Hague on factual matters, I regard it is not possible to be both rational economically and pro-Indy in any shape or form. The suggestion that there can be a pro-Indy (even occasionally) economic rationalism is oxymoronic. The only way in which the term "esteemed" might be regarded as sarcastic is if Hallett were not well regarded. On the evidence of his letter, there is reason to think that Hallett is pretty ignorant about the economics of oil and taxation, but maybe his economic expertise lies in other areas. I await his clarification with interest.
As for Stiglitz, his new book on the Euro makes some interesting points, none new. I am not sure whether he actually supports Scottish independence or is simply a hired gun. His point about an independent Scotland being able to retain its independent currency on joining the EU (i.e. not being forced to join the Euro) as a deal breaker for joining is important. If an independent Scotland's application to join the EU were contingent on adopting the Euro, then it might, on Stiglitz's advice, end up with a currency shared with neither of its major trading partners.
Stiglitz's views on the desirability of breaking up the UK union for currency reasons are, as far as I know, unknown, but he certainly has ample scope in the US. Texas, for example, the only state with the legal right to leave the United States, is an obvious target for secessionism and an independent currency. So is Quebec, in Canada. If it is truly better for a UK region of 5 million to have its own currency, then, pro rata, we should introduce another 15 currencies for the UK as a whole. Each region could then find its own level against all the others. Unfortunately, time and space prevent a discussion of whether an independent Scottish currency represents a currency optimisation, but I doubt it.
That's fair. Anonymity gone by the way.
My overall impression of your tweets is that they are loaded in one direction only (SNP/Indy bad).
If that is your cause celebre, tell me and I will not expect impartiality. But I would very much like to see (from you and everyone frankly) is less of the ya-boo type of criticism and a balance...In other words, load the guns in other direction now and again. You are an expert in your area. We need to hear form experts. But I would like to know that that expert has no particular grudge or bias.
PS No-one is esteemed without the use of that word being deliberately loaded...
Peter
You are of course right about use of the term "esteemed" - you have me there
I claim objectivity not impartiality. If you are influenced by objective analysis you will almost inevitably end up favouring one side or the other, thereby becoming partial. As an aside: this is a huge problem for regulated broadcasters - in practical terms you cannot be both objective and impartial.
As a result of my focus on objective facts and the SNP's flagrant disregard of and/or abuse of them for their political means, I accept I do now bear a grudge against the SNP.
My blog and twitter feed stand as documents of record as to how that grudge has been formed - you will also see me criticising other political parties, but certainly not to the same degree. Living in Scotland where the SNP are the party of power, dominate the debate and continually misrepresent objective economic facts to further their single-minded drive to independence at any cost, this is hardly surprising.
Fair dos. I entirely understand where you are coming from.
That said, in the grand scheme of things, it looks like matters are boiling down to a straight fight between Scottish Independence and British Independence. Both need to be objectively considered and it would be interesting to hear from you on Brexit's implications when and if they start to take shape.
Peter, Twitter is hardly the place to go looking for balance or nuance, this blog is better if that's what you're looking for. Kevin is - to a great extent - fighting a lone battle against a continuous tide of deliberate misinformation put about by the SNP, its supporters and other proponents of independence. His tweets are often reactive and, yes, usually aimed at countering the latest lump of pro-indie bullshit to emerge, so indeed partial. But if someone ever did (so far no-one has) put forward a properly considered assessment of how an independent Scotland could make an economic fist of it, then I suspect Kevin would happily give it the credit it deserved.
PS Kevin, to your "where the SNP.." list, I suggest you add "directly influence the national media".
rocoham
Mr. Seller.(@ 02:16) You are entirely correct in your observation of "the grand scheme of things". K. Hague is a dyed in the wool BritNat and all his blog content and graphs have no meaning to those "aye ready" for Scottish Independence.
Mr. Hague is firmly entrenched with the MSM in Scotland, and the BBC, who have lost all sense of objectivity in the matter.
Peter, kailyard rules conveniently proves my point.
rocoham
kailyard, Scottish Independence is, objectively speaking, a terrible idea.
I initially thought that kailyard was being ironic (or more properly sarcastic I suppose) with the statement. Having scanned back through his or her other contributions then I guess it was meant seriously, unless it's a long time spoof account. Ah well.
What I do know is that the professors letter will, as Kevin worries, be repeated indefinitely in other contexts as proof that GERS and any other inconvenient facts related to the economy can safely be ignored. You just have to dip BTL in any Guardian story that even peripherally refers to Scotland to see misinformation repeated endlessly - never mind in the various Scottish papers. It is irritating as it does seem to mean that "the conversation" never moves on substantially. It will be interesting to see if anything changes with this new "push for independence MK 2" with a focus on coming up with answers to hard questions that even look like they are taking the questions seriously.
I personally doubt it thought. It will probably be the same old nonsense and avoidance strategies that will get trotted out (mainly, to be fair, because there are no simple and "cheap" real answers to the questions in hand - without having the proverbial time machine to hand...)
Chris
Prof Hughes-Hallett (Economics) confuses government tax revenue with company revenues (net income)?
Utterly astonishing!
Well, as of today we're officially up and running aren't we? Sturgeon's announcement of a new push for independence, together with the usual shabby dollop of "Westminster expects us to know our place" grievance to get the saltires waving again, surely means that a cast-iron economic case cannot be far away. Or when she says "our activists will be hitting the doorsteps" does she really mean "we know where you No voters live and we'll be round with a dod of two-by-four to persuade you differently"?
rocoham
It's all very well disparaging Joe Stiglitz but can we ignore the economic indepritude of successive UK governments since the early 80s?
The most surprising thing for me is the idea that the poeple still believe that govt finances are still akin to a household. This fallacious belief along with a lack of understanding about endogenous money lead to the financial crisis in 2008.
It's funny those parties who think govt surpluses are a good idea never seem to achieve them and they don't understand why. The desperate attempts to do so have created massive private debt bubbles and still the UK govt ploughs on tightening its belt and 'balancing' it's books and creating an even bigger private debt bubble (£1.5 trillion). Que the head scratching when the private sector deleverages and the automatic stabilisers kick in and the deficit increases.
Definition of insanity - doing the same thing over and over and expecting different results.
Maybe no one will notice that its central bank owns one quarter of the UK's debt.
I remember the SNP being slammed (by the sound finance brigade) during the GE for suggesting a modest increase in govt spending to stimulate the economy, yet this is exactly what was required.
Yes a currency union was the wrong choice (I strongly disagreed with it at the time). Yes Scotland with its own floating currency should run deficts as required to stimulate growth in its economy, not spend two thirds of its national debt furnishing a corrupt banking industry. Applauding the lower deficits associated with London and the south East is a bit like praising a lottery winner for being self made.
Our one-time bonus of finding oil would have put us in the unusual situation of running a number of continuous govt surpluses. Any hint of a deficit appears and the heads of a political union which has run deficts since the post war period tells us we would be broke.
Kailyard. The only people who appear to have 'lost all objectivity' appear to be a large number of nationalists who despite losing a democratic vote to leave the UK and then losing a UK vote to remain in the EU remain obsessed with overturning those results rather than encouraging their representatives to use the powers they do have to help Scotland move on. You are certainly correct that Mr Hague's blog content and graphs have no meaning to those "aye ready" for Scottish Independence, given that in the last week or so two of their former economic advisers seem fairly uncertain about what is best for Scotland or how aspects of the economy actually work, one holds out little hope for the rest of them understanding some basic economic analysis.
Out of interest, has the professor ever publicly responded in any way to clarify whether this was a misinterpretation or error by him, and if the latter to amend his comments relating to the standard of Scotland's public accounts, and also perhaps apologise to the officials responsible for compiling them? Just curious.
rocoham
An interesting read as always Kevin. Thought I'd post a link to an article about the dreaded 'MSM'. This is about the current bonfire that is the Labour Party, but is resonates with much of the political discourse in Scotland over the last while.
https://medium.com/@ryanjthomas83/we-need-to-stfu-about-the-msm-929627948adc#.1isa8eiep
Another embarrassingly egotistical post.
If this blog started out with the intention of providing a thorough and (probably) accurate analysis of Scotland’s finances it's probably achieved that, but Hague is an increasingly laughable figure. There's something tragic with the cybernats and "Rev Stu" in that many of them seem to be a blinkered and angry bunch, but the line between them and the likes of Hague, Jill Stephenson and Neil Lovatt is becoming increasingly thin.
All of them seem to be obsessed with pointless online bickering and appear to engage in conversation only out of the desire to prove others wrong, rather than to actually have a respectful debate and understand each other's point of view.
All of them regularly whine about the division the SNP have sown in Scotland while they themselves show a contempt for those with different viewpoints.
All of them are admired by equally divisive bickering idiots with far too much time on their hands.
Hague recently said he'd noticed an increase in nasty Unionist accounts online, suggesting he’s venturing into unsubstantiated conspiracy theory territory – a staple of the cybernats.
He also complains about the abuse he receives online while feeling free often to tell those of different political persuasions to “fuck off”. It’s this kind of obliviousness to your own behaviour that is another feature of nationalists online.
There is a distinction, I’ll admit, regarding how well informed they are and the degree of anger in what they say, but basically, Hague and co. on one hand, and Rev Stu and co. on the other are close to being two sides of the same coin. Give it 12 months and the same people will still be here bickering about the same issues having done nothing to genuinely bring No and Yes Scots together. Meanwhile, the rest of Scotland – the non-zoomer contingent of the population – will just get on with their lives.
Keith - I think maybe you just need a hug
Anyone who has read my contributions over the past little while will know that I do not always agree with Kevin Hague. For example, I have always thought the austerity attack on the UK administration from 2010-2015 was entirely overblown, and had the effect of demeaning the term austerity. And so it has proved. Sturgeon is one of many who use the term pejoratively to achieve a cheap political point. Real austerity would make the temporary imbalances of income in one of the world's wealthiest countries look trivial, as indeed they are. Go to Africa or India if you want to see grinding poverty, not the so-called 'deprived' areas of Glasgow where the Chardonnay SNP set, typified by Mhairi Black, live.
But having said that, Hague is still more intelligent, fundamentally more honest intellectually, and more thorough in his posts than the SNP and Wings over Scotland. Halliday and Scotland may want to 'just get on with their lives', but, like Quebecers, their lives will have been needlessly impoverished by Sturgeon, Salmond and their ilk. As Philip Stephens sagely observed recently, Brexiters see exit as an event (as do Scotexiters), whereas Remainers see exits as long-drawn-out processes that will lead inexorably to economic decline. If that's what the SNP can persuade Scots to vote for, fine, but don't complain if the other side thinks that the SNP case is built on lies and pixie-dust The case against exit may take time to emerge, but it will emerge. Sturgeon's latest outburst of sensitivity to criticism on the subject of care-givers shows that she, and her second-rate team, are slowly running out of financial road in their strategy of squeezing local councils dry. Driving the insurance/pension industry out of Edinburgh, and defence contracts out of Glasgow are clearly major projects for the SNP and will inevitably accelerate the decline.
Keep up the good work, Kevin, and ignore the idiots.
Thank's David - much appreciated
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