2014 Young Economist of the Year Essay Competition

From the final shortlist of 18 essays drawn from a total entry of over 1600, the judging panel of

Charles Bean (RES President), Professor Tim Besley (London School of Economics) and Stephanie

Flanders (JP Morgan) have selected five winners and wish to congratulate them, together with all of

the other students that made the short list.

Once again the overall standard was extremely high, with a number of entries from international

schools. A list of highly commended entries and also a list of the schools and colleges from the UK

and overseas that joined in the 2014 competition is published at www.res.org.uk

This year the judges unanimously agreed that the best essay was by Kartik Vira, who addressed the

topic: “Are the advanced economies in for a long period of economic stagnation?”

The judges thought this was an outstanding essay that was particularly well organised, with a clear

discussion of the competing reasons as to why the advanced economies might be entering a period

of so-called “secular stagnation”, backed up by judicious reference to data and arguments in the

literature. This essay was notable for including an extended discussion of possible policy responses.

The judges agreed this essay would be a worthy winner of the RES 2014 Young Economist

Competition.

Second Place went to Jessica Zeng for her essay on the question: “Does immigrant labour benefit or

impoverish the United Kingdom?”

The judges enjoyed the clear narrative structure of this essay. The author showed a good grasp of

the analytical issues and explained them well, with a particular focus on skills and whether migrant

labour was in competition with indigenous workers or complementary to them. She also buttressed

her argument effectively with empirical evidence.

Reflecting the high overall standard this year, the judges also wished to recognise three other essays

by awarding them Joint Third Place: Viva Avasthi, who also addressed the question of whether the

advanced economies were facing a long period of economic stagnation; David Bullen, who examined

the impact of HS2; and Hannah Dudley, who considered the question of whether Scottish

independence was consistent with Scotland keeping the pound.

The 2014 Young Economist of the Year is therefore Kartik Vira, Hills Road VI Form College,

Cambridge, who will receive the glass trophy and a prize of £1,000. Second place goes to Jessica

Zeng, Withington Girls’ School, Manchester (£500). And joint third place goes to: Viva Avasthi, King

Edward VI Handsworth School for Girls, Birmingham; David Bullen, Manchester Grammar School;

and Hannah Dudley, Toot Hill College, Nottingham, each of whom will receive £250. All winners are

invited to an award ceremony to take place at the RES Annual Public lecture at the Royal Institution

in London on Tuesday 25 November. Their winning essays will be published on the RES website.

Charlie Bean, Tim Besley and Stephanie Flanders,

31 July 2014.

The essay titles for 2014, set by the Royal Economic Society President and judges were:

1. Promoting growth and fighting poverty should be the priority in the developing world, not

reducing greenhouse gases. Do you agree?

2. Should childcare costs be deductible against tax for working mothers?

3. HS2 will blight the countryside and just lead even more businesses to locate in London. Discuss.

4. Are the advanced economies in for a long period of economic stagnation?

5. Is independence consistent with Scotland keeping the pound?

6. Does immigrant labour benefit or impoverish the United Kingdom?

The following final shortlist of applicants were chosen by a panel of teachers having considered all

1610 entries:

Anindita Nag, Tiffin Girls’ School, London

Danielle Ball, Nottingham Girls’ High School

David Bullen, Manchester Grammar School

Felix Clarke, RGS Guildford

George Bearryman, City of London Freeman’s School, Surrey

Hannah Dudley, Toot Hill College, Nottingham

Harry Thompson, Holmes Chapel Comprehensive School, Cheshire

James Taylor, Reigate Grammar School

Jamie Cuffe, Eton College, Berkshire

Jessica Zeng, Withington Girls’ School, Manchester

Joseph Ellis, Runshaw College, Leyland, Lancashire

Joseph Millard, St Paul’s School, London

Kartik Vira, Hills Road VI Form College, Cambridge

Lucy Zhu, RGS Colchester

Max Brewer, Exeter School

Neil Reilly, Portadown College, Northern Ireland

Tim Rawlinson, Eton College, Berkshire

Viva Avasthi, King Edward VI Handsworth School for Girls, Birmingham

1

Are the advanced economies in for a long period

of economic stagnation?

Kartik Vira

At the time of writing, the signs for the advanced economies were looking more optimistic than at any

time since the financial crisis. The IMF reported that “Global activity strengthened during the second half

of 2013 and is expected to improve further in 2014–15. The impulse has come mainly from advanced

economies” (IMF 2014b). There would appear to be little support for the idea that the advanced

economies are stagnating. Yet that is precisely the argument made by a growing number of economists.

The serious discussion about long-run economic stagnation in the advanced economies was started by

Larry Summers’ speech to the IMF in 2013, where he argued that very rapid growth should have been

expected in the aftermath of the financial crisis, as businesses rebuilt inventories and began to use their

unused capacity. The fact that we have not seen this suggests that there is a long term problem with

growth in the advanced economies. This is illustrated in Figure 1: actual and potential GDP in the

advanced economies are both well below what was expected before the crisis. Summers refers to this as

“secular stagnation”. This term was first used in the aftermath of the Great Depression, most

prominently by Alvin Hansen, to explain the American’s economy’s weak performance. The post-war

boom largely discredited Hansen’s theory, but Summers argues that it is an accurate description of our

current situation.

Figure 1: From Davies (2013)

2

Since secular stagnation is a long-run phenomenon, there must be evidence for it from before the crisis.

Many agree that the early 2000s was characterised by an enormous asset bubble (Bernanke 2010); this

should have increased aggregate demand greatly, by creating a wealth effect that enabled higher

consumption and borrowing, while having no impact on aggregate supply. The impact should have been

first to push the economy to its capacity, and then to lead to overheating as the economy exceeded its

capacity. There are key signs of an overheating economy that we would expect to see in the years before

2008: high inflation, unemployment below the estimated non-inflation-accelerating rate, very high capacity

utilisation, and growth above the estimated trend for the economy. Yet none of these things were actually

observed in the early 2000s. This is highly puzzling, and what the secular stagnation hypothesis seeks to

explain. If there had been a long-run decline in aggregate demand over the period, excluding the effects

of the bubble, the increase in aggregate demand from that bubble would not produce an overheated

economy, but might only have sufficed to bring the economy near capacity. The bubble was necessary to

prevent an output gap from being sustained.

This idea is often discussed in terms of interest rates. The natural rate of interest is defined as the rate

of interest at which desired savings equal planned investment at full employment. An interest rate set

below this natural rate will lead to excess investment demand, while a rate set above the natural rate will

depress aggregate demand. If the secular stagnation hypothesis is correct, aggregate demand was not

sufficient to produce full employment before the crisis, indicating that the interest rate set by central

banks and in financial markets was above the natural rate. But since interest rates were not significantly

higher than they had been in the past, the logical conclusion is that the natural rate of interest has fallen

significantly. This conclusion is supported by the long term reduction in various interest rates over the past

30 years reported in the World Economic Outlook 2014, as well as in Laubach and Williams (2003), the

updated conclusions of which are illustrated in Figure 2. There are two major problems caused by this

decline in the natural rate. The first is that such low rates of return will push investors to look for more

risky assets with higher yields, creating bubbles and financial instability. The second is that if the real

natural rate becomes so negative that nominal rates also have to be negative, then it is impossible for the

central bank to loosen monetary policy enough, and advanced economies will be left with permanent

output gaps as well as the instability created by low rates. Summers et al argue that this was the case

from the mid 2000s, but Figure 2 suggests that this argument does not have universal support.

3

Figure 2: The estimated natural rate of interest in the US, from Laubach and Williams (2003)

Nevertheless, if the natural rate of interest is declining, it is a worrying trend. It suggests that

advanced economies are doomed either to consistently have large asset bubbles, and a correspondingly

high level of economic volatility, or to have an economy that consistently under- invests, leading both to

output gaps and to lower potential growth; if nominal rates have to be negative to produce equilibrium,

they will have both. Relatively high growth rates, such as the 3.0% growth between Q1 2013 and 2014

in the UK, are consistent with the secular stagnation hypothesis – firstly because the economy is still well

below its trend level of output, and secondly because the possible development of new asset bubbles may

offset the impacts of secular stagnation.

The secular stagnation hypothesis is relatively new in the modern context, and little formal research has

been conducted on secular stagnation after the post-war boom discredited the original theorists.

However, Eggertsson and Mehrotra (2014) recently created a model that explains some ways for the

natural rate of interest to become negative. They find that under some unconventional but justifiable

assumptions1, various factors can lead to the equilibrium natural rate of interest being negative;

significantly, many of the factors that they identify as theoretical causes of secular stagnation are observed

in advanced economies.

1 Their model includes three heterogeneous generations, rather than one representative agent, as is usually used in similar models.

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The first of these is demographic. Aging and slower-growing populations will reduce future demand for

products, both because the middle aged and old have a lower marginal propensity to consume than the young,

and because the fall in population growth will mean fewer people needs have to be fulfilled. This means that

less investment is required to increase capacity to meet demand, so planned investment falls and the

natural rate of interest decreases. Almost every developed country has seen their population age in recent

years, as life expectancy increases and fertility rates decline. Japan, which has been in stagnation for over 20

years (Economist 2009), is one of the countries with the most aged populations; in 2010, more than half of its

population was over 45 (UN 2013). This provides some real-world evidence that an aging population could

lead to stagnation, and suggests that the other developed economies may follow suit.

Another possible cause of stagnation is income inequality. Briefly, inequality redistributes income from

the poor to the rich, and as the rich tend to have a higher marginal propensity to save, this will increase

desired saving in the economy, causing the natural rate of interest to fall. Income inequality has been rising in

almost all developed economies; the OECD (2011) reports that the average Gini coefficient across its

members increased by 10% between the 1980s and the late 2000s, while Piketty (2014) has documented

similar trends in wealth inequality. So inequality is another theoretical cause of secular stagnation that is

observed in the advanced economies.

A third possible cause is a “deleveraging shock”. This occurs following a so-called “Minsky moment”

which is the moment when a financial bubble collapses, and borrowers start to reduce their debt levels, or

deleverage. This forces them to reduce their consumption or borrowing and increase their savings,

contributing further to the fall in the natural rate of interest. In combination with the other factors

contributing to secular stagnation, it may take a long time for the deleveraging process to be completed, as

increased saving will reduce incomes and therefore make it harder to reduce their debt levels – the classic

paradox of thrift. Japan’s period of stagnation was triggered by a financial crisis in the early 1990s,

which is likely to have been accompanied by deleveraging, and the other advanced economies all suffered

similar shocks in 2008. Debt levels have fallen in these countries after their financial crises, but remain fairly

high in some sectors (IMF 2014a). However, while deleveraging contributes to secular stagnation, high

levels of leverage contribute to economic instability. So deleveraging is associated with the same growth-

stability trade-off that is characteristic of secular stagnation more generally.

The final cause suggested by the model is a reduction in the relative price of investment goods. If

investment goods become cheaper, the total spending on investment across the economy will decrease, as

investment will only take place to the extent that it fulfills a demand for a product; demand for investment

is a derived demand. This decline in desired investment spending will cause the natural rate of interest to

fall further. We observe such a long-term reduction in relative prices in data from the US, illustrated in

Figure 3.

5

Figure 3: The price of investment goods relative to consumption goods, as an index where the value in 2005 is

1. From FRED (2013)

The model does not take account of international capital flows, and there is reason to believe that these

also contributed to the fall in interest rates. Rising incomes in developing countries, particularly China,

greatly increased the global supply of savings, reducing interest rates globally. The greatly increased financial

flows between countries in the past decades mean that this decline will be passed on to the national interest

rates in developed countries.

So most of the theoretical causes for secular stagnation are, in fact, occurring in at least some

advanced economies at present. This would seem to suggest that it is at the very least a strong possibility.

But if it is true, do we have to accept lower real growth rates? Three main possibilities have been

suggested for escaping secular stagnation.

The first, and least desirable option, is the “business as usual” scenario: more asset bubbles. Bubbles in

the 1990s and 2000s managed to maintain growth at trend levels, despite the fact that secular stagnation

had already begun to take hold. This worked, as described above, by the asset bubbles producing a wealth

effect that enabled higher consumption and borrowing, thereby pushing up interest rates and maintaining

aggregate demand. If similar bubbles are allowed to form again, we should see the same effect. This should

be good enough to raise our growth rates back to the trend level. Of course, there are some downsides to

such a policy. Pre-2008 growth rates based on pre-2008-style asset bubbles will inevitably result in 2008-style

financial crises. Bubbles increase growth at the cost of macroeconomic stability, and that is not a trade-off

that people are likely to accept, given the very high social cost of recessions. Unfortunately, it is

6

perhaps the most likely path for the advanced economies, given that it requires government inaction

rather than action, although the trend towards giving central banks macroprudential powers suggests that

various governments are trying to avoid new bubbles forming. However, some markets seem to be re-

entering bubble territory, such as in the London housing market, where house prices rose by 4.5% in Q1

2014 and are expected to continue rising (Bank of England 2014). This could be an explanation for the

unexpectedly high growth rates recorded in the UK in recent months.

The second option is to increase inflation. The secular stagnation problem centres around the fact that the

central bank cannot reduce rates low enough to produce full employment, as the natural rate is negative.

However, the natural rate is expressed in real terms, while the central bank rate is a nominal rate. The zero

lower bound is, in real terms, a lower bound of 0% minus the inflation rate. If the real natural rate of

interest is, say, -3%, then given inflation of 4% the central bank could set this rate by setting the nominal

rate to 1%. If inflation is 2%, however, they are unable to reach this interest rate and it will therefore

not be possible to reach full employment. So if we are in conditions of secular stagnation and real interest

rates are negative, raising inflation could help to close the output gap by allowing the real interest rate to

fall to its natural rate. However, there are also significant problems with this course of action. The

inherent disadvantages of inflation will intensify if the inflation target is increased. It is possible that a

moderate increase – for example, from 2% to 4% – will not increase these costs so much that they override

the benefits of lower output gaps. However, an additional consideration is that a central bank raising its

inflation target may cause it to lose credibility. So this policy could only be successful if central banks

could show that the raising of the inflation target does not constitute a more lax attitude towards inflation

generally.

The third option is the one proposed by Summers as the best solution, but also the least probable

one. If the governments in advanced economies finance high levels of public investment, they will be able to

close the output gaps and achieve full employment; this will consume the excess saving that are

characteristic of stagnation without allowing them to be driven into damaging asset bubbles. As the key

problem is that interest rates are too low and not enough investment is taking place, crowding out of

productive private sector investment is unlikely to be a major problem. Investment in infrastructure and

major projects will have three positive effects: increasing aggregate demand and closing short-term

output gaps, reducing the long- term impact of these output gaps on growth through hysteresis, and

increasing the economy’s productive capacity. Politically, however, the trend in recent years has been

away from fiscal intervention, and it seems unlikely that any government will consider permanent fiscal

stimulus until another crisis develops.

On balance, there appears to be evidence that investment in the advanced economies is low and

declining, due to forces that are predicted by the model of secular stagnation. As a result, relative

economic stagnation seems to be a likely outcome over the next few decades; even if growth rates are

fairly high at times, this is likely to be offset by increased economic volatility, so that trend growth rates

over the business cycle decrease significantly. However, there are solutions to this; none of them are

perfect, but increased government investment appears to be the most effective solution. If governments

carry this out, it should be possible to mitigate at least some of the effects of stagnation. The advanced

economies are not doomed to stagnation, but they need to take action if they want to avoid it.

word count: 2480 words

7

References

Bank of England. 2014. Financial Stability Report. June. http://www.bankofengland.co.uk/

publications/Pages/fsr/2014/fsr35.aspx.

Bernanke, Ben S. 2010. “Monetary Policy and the Housing Bubble.’’ http://www.federalreserve.

gov/newsevents/speech/bernanke20100103a.htm.

Davies, Gavyn. 2013. “The implications of secular stagnation.’’ Financial Times. http://blogs.

ft.com/gavyndavies/2013/11/17/the-implications-of-secular-stagnation/.

Eggertsson, Gauti B., and Neil R. Mehrotra. 2014. “A Model of Secular Stagnation.’’ http :

//www.econ.brown.edu/fac/gauti_eggertsson/papers/Eggertsson_Mehrotra.pdf.

Federal Reserve Economic Data, Federal Reserve Bank of St. Louis. 2013. “Relative Price of Investment

Goods [PIRIC].’’ http://research.stlouisfed.org/fred2/series/PIRIC.

International Monetary Fund. 2014a. Global Financial Stability Report: Moving from Liquidity- to Growth-Driven

Markets. April. http://www.imf.org/external/pubs/ft/gfsr/2014/01/ index.htm.

. 2014b. World Economic Outlook: Recovery Strengthens, Remains Uneven. April. http:

//www.imf.org/external/Pubs/ft/weo/2014/01/.

Laubach, Thomas, and John C. Williams. 2003. “Measuring the Natural Rate of Interest.’’ The Review of

Economics and Statistics. http:// www. frbsf. org/ economic- research/ economists/john-

williams/Laubach_Williams_updated_estimates.xlsx.

Organisation for Economic Co-operation and Development. 2011. “An Overview of Growing Income

Inequalities in OECD Countries.’’ In Divided We Stand: Why Inequality Keeps Rising.

http://www.oecd.org/els/soc/49499779.pdf.

Piketty, Thomas. 2014. Capital in the Twenty-First Century. Translated by Arthur Goldham- mer.

Summers, Lawrence H. 2013. http://larrysummers.com/imf- fourteenth- annual- research-conference-in-

honor-of-stanley-fischer/.

The Economist. 2009. “The incredible shrinking economy.’’ http://www.economist.com/node/

13415153.

United Nations, Department of Economic and Social Affairs, Population Division. 2013. World Population

Ageing. http://www.un.org/en/development/desa/population/publications/

pdf/ageing/WorldPopulationAgeing2013.pdf.

Jessica Zeng RES Young Economist of the Year 2014 Page 1

Does immigrant labour benefit or impoverish the United Kingdom?

Imagine a newlywed young couple from China, or perhaps Romania, Poland or Pakistan. Though

they have only just started their married life, they want something bigger, something better than their

country can offer them. The UK seems as good a place as any: better employment prospects, high

job creation rates, an impressive average standard of living, free healthcare and secondary school

education. So, they decide to emigrate. With the appropriate skills, their job options are many,

ranging from professorship to construction work to managerial positions. Together, they can support

themselves and their family back home. But they are constantly accused of taking “our” jobs, jobs

that should go to British workers. This forms one of the main arguments used to support legislation

that limits and reduces immigration. Therefore, how does immigrant labour benefit the United

Kingdom if there are fewer jobs for the British?

Let’s think about our happy couple. With 50.2% of the working age population of the UK having

finished education at age 16 or under, and 53.6% of new immigrants obtaining university level

education (equating to 41.1% of all immigrants), it is evident that a larger proportion of immigrants

have obtained a level of education higher than that of UK born citizens. Thus, it is likely that our

happy couple are well-educated and skilled - a significant factor in the consideration of the benefits

of immigrant labour, as it takes years to educate and train people. With 532,000 citizens migrating to

the UK during the year ending September 2013, an increase from the previous year, the UK is able to

benefit from the labour of these educated and skilled workers instantly, without waiting for current

UK citizens to be trained and educated. Therefore, through filling any gaps in the labour supply

market, the market can expand and shortages can be prevented in professions such as lectureship

(which requires an obviously extensive knowledge of the subject) in the UK. Consequently, the

presence of immigrants in the workforce means that there are more workers with the appropriate

expertise and experience, leading to a greater human capital stock. The UK economy can benefit

from this as it is less likely to be restricted by bottlenecks and thus, the economy can become more

competitive and efficient. This effect is mostly seen for skilled jobs as 23% of immigrants have a

professional occupation but as 16.2% fill elementary occupations, labours shortages for lower-skilled

jobs can also be filled through immigrant labour (though shortages here are less likely to occur).

In addition to increasing the supply of educated and skilled workers, the presence of immigrants in

the workforce increases productivity, most commonly measured as output per person. A report from

the National Institute of Economic and Social Research (NIESR) shows that between 1997 and 2007

a 1% increase in the number of immigrants employed correlated with a rise in labour productivity of

0.06-0.07%. This increase in productivity occurs for many reasons: skilled immigrants are more

willing to take on lower-skilled jobs, employing their expertise; the diversity of teams with

immigrant workers is conducive to productivity; immigrants’ knowledge of their home countries; the

more prevalent promotion of specialisation with immigrant workers present, but mainly, because of

the hard-working nature of immigrants. For example, our skilled young couple immigrate to the UK

in search of a better life; therefore, they are willing to work hard to make one for themselves, even if

this requires taking on more undesirable jobs, such as those with unsociable hours. An increase in

productivity enhances the UK economy through the increased international competitiveness, which

Jessica Zeng RES Young Economist of the Year 2014 Page 2

derives from an increased output decreasing the prices of goods and services. Furthermore, the

NIESR have found evidence of the skill of immigrants acting as a complement to that of native

workers. Because of this, immigrant labour can be said to benefit the UK by incentivising UK born

workers to try and obtain the same level of education/ same skills as immigrants. The resultant

competition could help the economy to expand through increasing the productive capacity of the UK.

As productivity of labour is intrinsically linked with a country’s standard of living, one of the most

important ways of increasing economic growth in a country is through encouraging productivity in

order to boost the potential capacity of the economy. As wages earned by migrants in the UK are

often seen as more than could have been earned in their country of origin, national consumption

would increase, as more of the population would be purchasing native goods. Further contributing to

the economy would be the lower prices resulting from increased productivity, improving exports.

This provides a means of economic growth as aggregate demand increases, which the economy can

greatly benefit from. Therefore, when our happy couple immigrates to the UK, not only can they aid

the economy through contributing their skills and education but also through consuming the UK’s

products and adding demand to the economy.

Despite contributing to the economy in the aforementioned ways, the 31st NatCen Social Research

British Social Attitudes survey shows that almost 25% of Britons believe the main reason workers

immigrate to the UK is to claim benefits and over 75% of the population have the view that

immigration should be reduced. It is surprising therefore, that a study at UCL discovered recent

immigrants were 45% less likely to receive money from the government through benefits between

2001 and 2011 than UK born workers. Immigrants from the European Economic Area have, in total,

added £22.1 billion to the economy through taxes and the like equating to 34% more than has been

taken out through benefits or such. Contrarily, UK born citizens have contributed only 89% of the

money they have taken out - this is a loss of £624.1 billion to the UK financial system. Therefore, the

labour of immigrants benefits the UK as they support the economy by making a positive financial

contribution. As shown in figure 1, UK born citizens, compared to recent immigrants from both the

EEA and non-EEA, have had lower

revenue to expenditure ratio over recent

years. Therefore, immigrant labour (during

the 10-year period discussed) has

contributed significantly more to the

economy than received from the

government - this is especially important,

as this has helped lessen the UK’s

considerable budget deficit since the end of

2001.

Whilst contributing a financial surplus to the UK, remittances - the money that is sent home by

migrants - are significant cash flows out of the country. In 2012, around £236 billion worth of

remittances were recorded (likely to be a vast underestimate, considering how much is not recorded).

It is understandable for our happy couple to want to support their family back home and though

remittances do significantly help the country they are being sent to, they could be seen to impoverish

the UK through creating an outflow of money that should have been spent in the UK. It is difficult,

Figure 1

Jessica Zeng RES Young Economist of the Year 2014 Page 3

however, to say whether this really impoverishes the country as, even with money being sent back to

the immigrants’ native countries, the migrants are still able to positively contribute to the economy

(in contrast to native workers).

Despite the positive effect that immigrant labour has had through adding to the economy, immigrant

labour could be said to impoverish the UK through affecting wage distribution. Though a 1%

increase in the number of immigrants in the workplace in 1997-2005 led to a 0.1-0.3% increase in

wage, and during 2000-2007, a 1% increase of immigrants in the workplace caused a 0.3% fall in

wage, the average wage varies only slightly with the percentage of immigrant labour employed and it

is difficult to predict how- whether this change will be positive or negative. In contrast, during 1992-

2006, with a 1% increase in the number of immigrants in the workplace of unskilled or semi-skilled

workers, the average wage was reduced by 0.5%, thus impoverishing the UK through lower wages

for the least wealthy. Similarly, the same is true for the 5% lowest paid workers who faced a slightly

larger fall of 0.6% in average wage whilst skilled workers had higher wages with the presence of

immigrant labour. Thus increasing income inequality, which is significant: an IMF study has shown

that as inequality increases, growth decreases and will continue to do so in the future – the

correlation of which can be seen in figure 2 below. Therefore, immigrant labour could be said to

impoverish the UK through making the rich richer and the poor poorer, contributing to higher levels

of income inequality.

The effect of immigrant labour on the wages of

workers depends heavily on the nature of the

labour - if immigrant labour is complementary to

the labour and skills of native workers, it is

likely to have a positive effect on wages; in this

case, it is probable that immigrant labour was in

fact a substitute for the skill of workers. The

extent to which immigrant labour is

complementary or substitutable can also

influence the long-run and short-run effects of

immigrant labour. Substitutive immigrant labour

provides competition for the native citizens, thus

decreasing the average wage, whilst conversely,

complementary immigrant labour is likely to increase the average wage. However, in the long term,

because a larger proportion of working immigrants can lead to an increase in productivity and

consumption, investment will also rise as firms will have more profit. Therefore, the presence of

immigrants in the workplace helps the productive potential of the economy. Likewise, labour for

both immigrants and natives could increase in demand as wages decrease, therefore, increasing

employment. Both of these factors could benefit the UK such that it outweighs the loss made initially

when immigrant labour is substitutive and lowers the average wage through increasing employment/

job creation.

One of the determining factors to whether immigrant labour benefits or impoverishes the UK lies in

the country of origin of the immigrants. For example, the effect of EEA immigrant labour and non-

EEA immigrant labour is vastly different. During 1995 and 2011, immigrants from the EEA

Figure 2

Jessica Zeng RES Young Economist of the Year 2014 Page 4

contributed 4% more to the UK economy than they received, whereas non-EEA immigrants caused a

negative fiscal impact as, in general, they had more children than natives thus received more in

benefits - obviously impoverishing the UK. As discussed before, EEA immigrants during the years

2001 to 2011 contributed 34% to the economy but non-EEA immigrants contributed only 2%

comparatively (adding £2.9 billion to the economy) and are around 7% more likely than EEA

immigrants to claim benefits - showing a noticeable difference. The origin of immigrants has also

correlated with changes in employment rates. In 1995-2010, EU immigrants did not seem to affect

employment rates but non-EU immigrants seemed to increase unemployment of natives. Therefore,

if this were to continue, the labour of non-EU immigrants could be seen to impoverish the UK

through increasing unemployment levels for those born in the UK.

Arguably the most significant determinant of the benefit of immigrant labour is the current skills and

characteristics of the immigrants. Currently, when comparing the likelihood of recent immigrants

claiming benefits to native workers, recent immigrants are 45% less likely but when compared to UK

born workers of the same age/ education level/ gender, this statistic falls to 21%. Therefore, this is

indicative of the effect that characteristics of immigrants have on the extent to which immigrant

labour benefits/ impoverishes the UK. However, the age of the immigrants can be of an advantage to

the UK. For example, though our happy couple may enjoy the life they make in the UK, there is a

high chance that they decide to migrate back to where they grew up and were born originally,

whether to be with family or for familiarity. This means that during the least productive and probably

least economically active portion of their life, they are not draining the UKs resources through

pensions and increased healthcare costs. Rather, they are returning home after having contributed

positively to the economy, especially when considering that many immigrants reach their

productivity peak/ the peak of their economic activity during their time as an immigrant in their host

country. On the other hand, this could be seen as a negative factor - after working in the UK, they are

taking the money they earned and spending it elsewhere. Like remittances, this may be a negative

withdrawal from the economy - not something that they originally would have had without the

immigrant labour, but something the UK should have received afterwards. Therefore, this lack of

consumption caused could be said to impoverish the UK but, most likely, the return home of the

immigrants would be beneficial to the UK when balanced alongside the cost of healthcare and

pensions that would no longer be incurred on the government.

Ultimately, immigrant labour has benefitted the UK over the years, especially more recently. The

reason for this is quite clear: the UK attracts educated and skilled immigrants, thus the benefits

received from these immigrants are most often

positive. This perhaps, is one of the strongest

characteristics of the UK economy and lasts

even through economics downturns, such as the

2008 recession. It is difficult however, to predict

how long this trend will continue for and it is

this trend which will have the biggest effect on

whether the UK benefits from or is

impoverished by immigrant labour. After the

Figure 3

Jessica Zeng RES Young Economist of the Year 2014 Page 5

laws restricting Romanians and Bulgarians from working in the UK were lessened, there was a

decrease of 4000 Romanians and Bulgarians working in the UK in the first quarter of 2014 as seen in

figure 3, invalidating predictions that forecasted a dramatic increase in the number of Romanians and

Bulgarians immigrating/ working in the UK. Therefore, predictions of immigration are sometimes

inaccurate and difficult to make. Thus, predictions about the types of immigrants (as in skilled or

unskilled, educated or uneducated) the UK attracts may also be difficult to make. Moreover, with

anti-immigration parties such as UKIP increasing in power and popularity, the economy could be

harmed if laws limiting immigration were passed - the effect could be positive and encourage only

the most educated and skilled workers to immigrate (and so continuing the trend), or it could

persuade immigrants of all levels of skill to decide to live elsewhere.

So, our happy and well-educated couple chose to immigrate to the UK. Whether in the future, similar

people will decide to immigrate is difficult to predict. But overall, the labour of immigrants has

benefitted the UK thus far and, hopefully, will continue to do so in the coming years.

Word count (excluding bibliography): 2430

Jessica Zeng RES Young Economist of the Year 2014 Page 6

References and Bibliography

Cribb, J. (2013). Income inequality in the UK. Available:

http://www.ifs.org.uk/docs/ER_JC_2013.pdf

Dustmann, C and Frattini, T. (November 2013). The Fiscal Effects of Immigration to the

UK. CReAM Discussion Paper. No. 22/13. Available: http://www.cream-

migration.org/publ_uploads/CDP_22_13.pdf

Easton, M. (May 2014). Romanian and Bulgarian migration: Dip in workers coming to UK.

Available: http://www.bbc.co.uk/news/uk-27407126

Ford. R and Heath, A. (2014). Attitudes to Imigration. British Social Atttitudes. No. 31.

Kay, J. (2004). The Economics of Immigration. Everlasting Light Bulbs: How economics illuminates

the world. The Erasmus Press. P64-67.

Ostry, J., Berg, A. and Tsangarides, C. (February 2014). Redistribution, Inequality, and Growth. IMF

Staff Discussion Note. No. 14/2. Available:

http://www.imf.org/external/pubs/ft/sdn/2014/sdn1402.pdf

Rolfe, H., Rienzo, C., Lalani, M. and Portes, J. (November 2013). Migration and productivity:

employers’ practices, public attitudes and statistical evidence. NIESR. Available:

http://niesr.ac.uk/sites/default/files/publications/Migration%20productivity%20final.pdf

Ruhs, M. and Vargas-Silva, C. (March 2014). The Labour Market Effects of Immigration. Migration

Observatory briefing, COMPAS. No. 2.

Wadsworth, J. (June 2012). Immigration and the UK Labour market: The latest evidence from

economic research. CEP Policy Analysis.

Are the advanced economies in for a long period of economic stagnation?

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1 | P a g e

The future: a murky blur of possibilities, problems, and potential shifts in paradigms. Attempting to make

sense of our collective experiences in the past and present to make informed predictions about the future is

one of the difficult tasks faced by economists across the world. At present the key question haunting

economists and leaders of the advanced economies is the one which this essay attempts to answer.

Setting the stage for analysis

Since we are constrained by the word limit, let’s consider the advanced economies to be the US, UK and

European economies. Most notably, Japan has been omitted. Several key reasons for this must be condensed

into the following: Japan is structurally quite different from the other economies since it has a far stronger

manufacturing sector, far better standards of education, and a greater social cohesion. Its prospects seem

much brighter than the rest of the advanced economies’ for these reasons. Thus (perhaps rather

controversially!) it was felt that there was no need for it to be included in this analysis.

Traditionally, economic stagnation is considered a prolonged period of little or no growth in the economy,

often with annual GDP growth of less than 2-3%. High unemployment is generally perceived to accompany this

low growth. However, perhaps such GDP growth benchmarks become redundant when one considers that

‘normal’ growth might not actually be normal at all. Pre-crisis levels of GDP growth can be described as being

not normal for the entire period between today and the 1980s because of the existence of various bubbles

providing artificial boosts and drags on GDP. Even before then, we were living in a world boosted by the

massive demand created in the aftermath of the world wars, and so it would be irrelevant to compare the

growth levels of today to those of that time. So perhaps measuring economic stagnation by looking at GDP

growth alone doesn’t make much sense.

To measure economic stagnation we must consider what we value as important for an economy: growth levels

in themselves, or standards of living, equality and sustainability of growth? A better measure of economic

stagnation than GDP growth may be real median income levels. With 95% of the increase in American income

since 2009 having gone to the top 1% (Saez and Piketty, 2012), it is clear that just looking at GDP growth can

cause issues, since the sort of growth occurring does not benefit the economy as a whole. More suitable

measures, perhaps, are unemployment levels (accounting for those who have given up actively seeking work),

investment levels and productivity levels.

The secular stagnation argument

As economists we might try to look back at history to provide us with some idea of what to expect for the

future. Lawrence Summers (2013) recently looked back to the ideas of Alvin Hansen (1939) who argued that

the end of the Great Depression would mark the start of a future of ‘secular stagnation’. Hansen wrote: “This is

the essence of secular stagnation – sick recoveries which die in their infancy and depressions which feed on

themselves and leave a hard and seemingly immovable core of unemployment.” He feared that future

investment levels would be poor because he thought that: the US’s invention engine had run out of steam; the

population would decrease as fertility reduced; and the US was highly unlikely to discover new territories or

new resources. Hansen turned out to be spectacularly wrong. The baby-boom years followed the War,

technological development was phenomenal during the 30s, and in 1941 the US economy produced almost

40% more output than it had in 1929.

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Summers looks at things slightly differently.

According to him the advanced economies are in a

secular stagnation situation where the natural real

rate of interest (i.e. the rate at which desired

savings and desired investment would be equal at

full employment) is pretty much permanently

negative, and has declined over time (see Fig. 1),

but central banks have been and still are

constrained by the zero lower bound. He argues

that it’s only through the creation of bubbles that

the natural real rate of interest is raised from

negative levels. This explains why the advanced

economies have had trouble in maintaining full

employment, strong growth and financial stability

simultaneously since the 1980s.

But what’s the link between Hansen and Summers’ ideas? The ageing population argument. When the US

economy was last able to sustain full employment without bubbles, during the period from 1960-85, the US

labour force grew 2.1% annually, on average. Looking forward, the working population is expected to grow at

an annual rate of just 0.2% between 2015 and 2025. Thus, linking to Hansen’s point, sustaining investment will

be difficult in the future, considering the accelerator effect. In support of Summers’ natural real rate of interest

theory is the Samuelson consumption-loan model (1958) which suggests that the natural rate of interest

equals the rate of population growth. Although the model seems a tad over-simplified, the general connection

seems to make sense, in which case Hansen’s factor of decline in population growth will affect the natural rate

of interest in the way Summers expects.

This idea of a declining natural rate of interest is a fascinating one, but one which others seem to have

accepted far too readily. One wonders whether the actions of central banks could have led to this trend

emerging artificially. Digging into research reveals that low

interest rates may be self-reinforcing and therefore not

‘natural’ (Borio and Disyatat, 2014). Figure 2 indicates how

policies which do not tighten against booms, but ease

aggressively during busts force a downwards bias in interest

rates over time and an upwards bias in debt. This might be

considered a sort of “debt trap” which could have serious

implications for financial stability in the long term.

Taking this alternative approach into consideration, Summers’

ideas of how secular stagnation may have arisen might be

flawed. Regardless, the underlying solution to the issues raised

is the same: monetary policy should be used very little and the

focus needs to be on fiscal and structural policies to improve

growth potential in the long term and strengthen demand in

the short term. While politicians remain hostile to increasing

budget deficits in the short term, however, the risks for the

long term seem very real indeed.

Figure 1: Natural Rate of Interest

Figure 2: Low interest rates in a time of debt

Source: Borio and

Disyatat (2014)

Source: Summers (2014)

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Risks from unwinding QE

What Andrew Haldane of the Bank of England calls “the single biggest risk to global financial stability” is

something too many people ignore when considering the future of the advanced economies. Quantitative

easing, that is. Whatever the BofE and Fed might say, QE has no real precedent at all. “But Japan,” people

often cry, “used QE measures in the 2000s!” The difference, though, is that whereas the US and UK engaged in

QE using long-term bonds, Japan largely used short-term ones, so the complications which may arise for

Britain and America when they begin to unwind QE are some which never existed for Japan.

The trouble is that the UK and US central banks are now the largest buyers of their own government bonds.

This means that it is impossible for them to sell back into the market since, their being the biggest players in

the market, if they sold, everybody else would start selling and interest rates would surge. This potentially

massive rise in interest rates could make government borrowing more expensive for years to come, impacting

long term growth. The alternative, writing these debts off, doesn’t seem feasible either, since that might

damage the UK and US’ credibility with international debt markets and so potentially raise borrowing costs for

a long time.

Figure 3 indicates how Koo (2013) thinks the

tapering of QE will lead to instability in the

long term. Initially, long term interest rates

fall much further than they would in a

country without a QE policy, leading to a

faster economic recovery. However, as the

economy picks up, local bond markets

anticipate the central bank will unload its

holdings of long-term bonds, so long-term

rates rise sharply. Demand then falls in

sectors sensitive to interest rates, such as

housing, leading to an economic slowdown

and forcing the central bank to relax its policy

stance. Again, the market heads towards

recovery but again, the market fears that the

central bank will absorb excess reserves, and so the long-term rates surge in

a cycle Koo calls the QE “trap”. Unfortunately, Koo’s analysis seems to make an awful lot of sense, and, despite

much pondering, not a single solution springs to mind, at least, not at the moment…

Therefore, QE (which will have to be wound down at some point to prevent the risk of massive inflation once

liquidity eventually enters the economy) clearly provides a significant threat to the long-term recovery of the

advanced economies. But by exacerbating the already existing issues of inequality, it provides further risks…

Inequality bites economies where it hurts

Stan Druckenmiller (2013) called QE “the biggest redistribution of wealth from the middle class and poor to

the rich ever”. But how much of a problem is inequality for an economy in the long-term? A recent (2014)

paper by some IMF economists draws some fascinating conclusions. It appears that inequality functions as a

significant determinant not only of the pace of medium-term growth, but also of its duration. More

surprisingly (or not, depending on your previous knowledge!), redistribution measures, which many on the

right of the political spectrum argue are harmful to growth, apparently only have direct negative impacts on

growth in extreme cases.

Figure 3: US and UK economies may fall into QE 'trap'

Source: Richard Koo, Nomura (2013)

Are the advanced economies in for a long period of economic stagnation?

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4 | P a g e

What should we take from this? Consider

Figure 4. It shows that inequality has been

on the rise for some of the key advanced

economies and that even after the

financial crisis, it looks set to grow.

Tying this in with the conclusions drawn

by the IMF report, inequality seems to

be a considerable threat to long-term

economic prospects. It is one which

governments should seriously aim to

tackle to ensure the welfare of their

people and economies. One slightly

radical long-term approach might be for

governments to equip badly performing

schools with the tools to incentivise students to pay better attention during

lessons. This might be through liasing with theme parks and offering well-behaving

or high-achieving students free tickets to such places. The idea behind this would

be that by paying closer attention in lessons, students might come to realise how fascinating the topics taught

at school actually are, and educational attainment levels might increase. Perhaps using ideas from behavioural

economics more commonly could allow governmnets to find better, smarter solutions to the issues they face.

The spectre of hysteresis

What about the long-term

effects of the financial crisis?

As Figure 5.1 indicates,

potential output for most

countries is far below pre-

crisis trends: 11% below for

Britain and 4.7% below in

America. The chart seems to

suggest serious structural

issues at play, particularly in

the Eurozone, which might

be fixed through massive

increases in investment and immense structural reform. One reform of the Maastricht Treaty which ought to

be pushed is allowing European countries’ deficit to GDP ratio to be increased from the current 3% limit when

they are in serious recessions. This would potentially allow individual countries to stabilise their economies

without having to turn to the ECB for help.

Looking at Figure 5B, the biggest problem going forward for the US seems to be labour-force participation, and

a third of this drag is due to ageing (Hall, 2014). In addition, the US and the other advanced economies face the

issue of providing the long term unemployed (who have now given up searching for jobs, thereby lowering the

unemployment figures) with the incentives and skills to try to get back into the labour-force. The severity of

the situation is illustrated by the following: if the US unemployment rate were adjusted to include people no

longer actively seeking work, it would be over 9%. If it were adjusted to include those working part time

involuntarily, it would be over 12% (Stiglitz 2014).

Figure 4: The evolution of the shares of the top 1% in different countries

Source: Alvaredo, Atkinson,

Piketty and Saez (2013)

Figure 5: Counting the costs of the financial crisis

Source: The

Economist

(2014)

Are the advanced economies in for a long period of economic stagnation?

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5 | P a g e

Worse, senior Fed economists argue in a working paper (2013) that fewer businesses are being created and

existing ones are spending less on R&D, so productivity could suffer in the long term. Real R&D has grown only

1.6% per year since 2007, compared to 3.6% on average from 1990 to 2007. The fact that R&D investment has

reduced at a time when many argue that we aren’t advancing technologically at the pace that we should

anyway does not bode well for the future. But to what extent can it really be argued that the advanced

economies aren’t doing well in terms of technological developments?

Technology engine running out of steam?

Some economists (Gordon 2012) and others (Kasparov, Thiel 2012) have argued that technological progress is

far more limited today than it was during the industrial period until 1970. While our inventions today might be

‘cool’, they are incomparable in their usefulness and potential to generate employment to the ones of the

past. Gordon wrote: “The rapid progress made over the past 250 years could well turn out to be a unique

episode in human history”. This approach seems to be too pessimistic. It takes time before a new discovery is

found which revolutionises technological development, but when that happens, development is very rapid

indeed. It could be that robotics, which has really lifted off as an industry recently, with the number of

industrial robots sold globally hitting a record high of 179,000 in 2013, will lead the next tech revolution. Frey

(2013) predicts that 47% of existing US jobs are at “high risk” from work automation over the next two

decades, but agrees that automation will improve people’s livelihoods as companies’ extra revenues will feed

back to shareholders and employees, increasing consumer spending and creating more jobs. Rather than

worrying about the perceived lack of technological progress, governments might do better to invest in R&D

and STEM education to prepare the labour-force for the future.

Heading into the mire of stagnation

Where does our analysis bring us? Almost all the factors we’ve considered seem to suggest a bleak outlook for

the advanced economies. Yet sound policy-making has the potential to move us in the right direction. That

governments need to step in and stimulate demand in the short-term and make structural improvements for

the long term is a given. They also need to consider the importance of microeconomic-level policies in ensuring

stable economic environments in which businesses and consumers feel safe to spend. Could the British

government, for example, consider imposing a larger tax (maybe of 90-100%) on second homes which aren’t

being rented out, but have only been bought to accumulate wealth because people are speculating that

property prices will rise? Though it is probably politically unfeasible, it could do a great deal to stabilise the

housing market and the economy as a whole. With serious economic reform not on the horizon, though, the

advanced economies seem to be headed towards a not-too-bright future.

Word count: 2,496

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Bibliography and references:

Alvaredo, Atkinson, Piketty, and Saez. Summer, 2013. “The Top 1% in International and Historical

Perspective”, Journal of Economic Perspectives, 27(3): 3-20 http://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.27.3.3

Appelbaum, Binyamin. June 11, 2014. U.S. “Economic Recovery Looks Distant as Growth Stalls”, The New York

Times http://www.nytimes.com/2014/06/12/business/economy/us-economic-recovery-looks-distant-as-growth-lingers.html?hp&_r=1

Boesler, Matthew. October 23, 2013. “RICHARD KOO: I Can't Find Anyone To Refute My Argument That

America Is In A 'QE Trap'”, Business Insider http://www.businessinsider.com/koo-says-no-one-can-refute-the-qe-trap-2013-10

Borio, Claudio and Disyatat, Piti. June 25, 2014. “Low interest rates and secular stagnation: Is debt a missing

link?” Vox http://www.voxeu.org/article/low-interest-rates-secular-stagnation-and-debt

Crossley, Rob. June 30, 2014. “Will workplace robots cost more jobs than they create?” BBC News http://www.bbc.co.uk/news/technology-27995372

Frey, Carl and Osborne, Michael. September 17, 2013. “The Future of Employment: How Susceptible Are Jobs

To Computerisation?” Oxford Martin School http://www.oxfordmartin.ox.ac.uk/downloads/academic/The_Future_of_Employment.pdf

Gordon, Robert. August, 2012. “Is U.S. Economic Growth Over? Faltering Innovation Confronts the Six

Headwinds”, NBER Working Paper No. 18315 http://faculty-

web.at.northwestern.edu/economics/gordon/Is%20US%20Economic%20Growth%20Over.pdf

Halligan, Liam. October 21, 2013. “Quantitative Easing: Miracle Cure or Dangerous Addiction?” BBC Radio 4

Hansen, Alvin. March, 1939. “Economic Progress and Declining Population Growth”, The American Economic

Review, 29(1): 1-15

Kasparov, Garry and Thiel, Peter. November 8, 2012. “Our dangerous illusion of tech progress”, Financial

Times http://www.ft.com/cms/s/0/8adeca00-2996-11e2-a5ca-00144feabdc0.html#axzz2m8I4M2uL

Krugman, Paul. November 16, 2013. “Secular Stagnation, Coalmines, Bubbles, and Larry Summers.” The New

York Times http://krugman.blogs.nytimes.com/2013/11/16/secular-stagnation-coalmines-bubbles-and-larry-summers/

Leonhardt, David. April 12, 2011. “When Hard Times Led to a Boom”, The New York Times (interview of

Alexander Field) http://economix.blogs.nytimes.com/2011/04/12/when-hard-times-led-to-a-boom/?_php=true&_type=blogs&_r=1

Ostry, Berg, and Tsangarides. April 2014. “Redistribution, Inequality and Growth”, IMF http://www.imf.org/external/pubs/ft/sdn/2014/sdn1402.pdf

R.A., J.S. and L.P. September 12, 2013. “The rich get richer”, The Economist http://www.economist.com/blogs/graphicdetail/2013/09/daily-chart-8?fsrc=scn%2Ftw%2Fte%2Fdc%2Frichgetricher

Reifschneider, Wascher, and Wilcox. 2013. “Aggregate Supply in the United States: Recent Developments and

Implications for the Conduct of Monetary Policy”, Working paper, Finance and Economics Discussion Series,

Federal Reserve Board. http://www.federalreserve.gov/pubs/feds/2013/201377/201377pap.pdf

Stiglitz, Joseph. May 22, 2014. “The North Atlantic Malaise: Failures in Economic Policy”, Oxford Martin School

talk http://www.oxfordmartin.ox.ac.uk/videos/view/388

Summers, Lawrence. 2014. “U.S. Economic Prospects: Secular Stagnation, Hysteresis, and the

Are the advanced economies in for a long period of economic stagnation?

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Zero Lower Bound”, Business Economics, 49(2): 65-73 http://larrysummers.com/wp-content/uploads/2014/06/NABE-

speech-Lawrence-H.-Summers1.pdf

June 14, 2014. “Wasted potential”, The Economist, http://www.economist.com/news/finance-and-economics/21604188-

counting-long-term-costs-financial-crisis-wasted-potential

David Bullen RES competition 2014

Manchester Grammar School

HS2 will blight the countryside and just lead even more businesses to

locate in London. Discuss.

Hello, and welcome to BBC Radio 4. Tonight’s debate is on the controversial proposed high-speed

railway line between London, Leeds and Manchester, High-Speed 2. Construction of the line is due to

commence in 2017 and is expected to be finished by 2032. It will allow trains to travel at speeds up to

225mph which will significantly cut journey times. Joining us tonight is Sarah Kelly, a keen

environmentalist who lives in Stoneleigh, a village in Warwickshire which would be greatly affected

by HS2. We are also joined by Ashok Brahma, owner of Woking Ltd, which has branches in both

London and Birmingham. They are here to discuss whether HS2 will blight the countryside and just

lead more businesses to locate in London or whether it will have a more positive effect.

We will start with Sarah, who has serious concerns over the environmental impact of HS2.

Sarah: For me HS2 will undoubtedly blight the countryside and there is a great deal of evidence

supporting this. Personally, my biggest concern is the massive amount of precious habitats that the

new train line will destroy. This is called Habitat Fragmentation which endangers specific animals

such as Turtle Doves. To some people this may not seem important but that is an ignorant view to

have. According to the website StopHS2, the building of the train line will threaten 350 unique

habitats, 67 irreplaceable ancient woods, 30 river corridors, 24 Sites of Special Scientific Interest plus

hundreds of other sensitive areas. These are enormous numbers which show that HS2 would have a

catastrophic effect on certain important parts of the environment in England.

Ashok: Surely that would be the case for any new train line? Are you suggesting that, because of

the environment, we can’t build any new train lines?

Sarah: Not at all. The problem is HS2 plans to be ultra high-speed, meaning that the design is

affected. The tracks need to be straight meaning that they cannot curve around certain crucial areas

of land. This design issue has meant that the Kent Principles have been ignored for the planning of

HS2. Planning HS1 used the Kent Principles and this promoted environmental concerns. HS2 in

contrast does not care at all about the disastrous environmental effect it is having.

Ashok: Now I don’t think that’s completely true is it? Firstly HS2 Ltd says it has already altered

plans for the line in order to reduce the amount of people affected. The main alteration has been

to add more tunnels to the plan so that around 22 miles of the phase 1 route will now be

completely enclosed in tunnels. That is 18% of the 140 miles of rail from London to

Birmingham. Also, Peter Miller, Head of Environment and Planning for HS2, said that he plans to

‘recreate habitats’ that the building of the train line will destroy in other places so that there is

‘no net loss of bio diversity’. So here, in fact, is concrete evidence that HS2 does care.

Sarah: There are however several issues with ‘Habitat Recreation’. First of all, is that it will be

expensive. And this cost will be added on to the ‘supposed cost’ of £43 billion. Although we all know

that, in reality, this will end being much greater. Secondly I’m unsure as to how successful it will be.

It is impossible to completely replicate a habitat, so the question for me is how accurate and

effective the recreations will be. After all, saying that you’re going to do it is one thing. Doing it

David Bullen RES competition 2014

Manchester Grammar School

successfully is another. My final issue is loss of farmland. Not only will the train line destroy 6,916

acres of farmland between London and Birmingham according to the Community Transport

Association, but the habitat recreation plans mean that even more farmland (4,940 acres) will be

lost and this will inevitably affect certain farming businesses monumentally. This has encouraged

numerous complaints from the National Farmers Union. Overall the environmental impact of HS2 is

hugely negative and will ruin the lives of countless people.

Ashok: ‘Ruin’ is quite an extreme word. Every single person directly affected will be

compensated by the government including house owners near the line. The official HS2 website

says that they will get the ‘unblighted’ market value of their property, plus 10% (up to £47,000)

and if necessary moving costs will also be paid.

Sarah: Do you think that money is just everything? People’s lives will be affected in a way that

money will not be able to repair. Obviously it is good that people are being compensated, myself

included. But I can tell you personally that money will not solve everything. There will be visual and

noise pollution; negative externalities that will affect the lives of many. This will undoubtedly blight

the countryside.

Ashok: What about the fact that HS2 will reduce car use and hence will reduce CO2 emissions

from cars. Overall HS2 is quite green in that sense.

Sarah: I’m not so sure about it being green. The Environmental Audit Committee has said that it is

concerned that green benefits would be limited until the electricity that HS2 uses becomes Carbon

neutral. To further this, StopHS2 says that in order to achieve the speeds proposed for HS2, at least

three times as much energy will be needed as on conventional inter-city trains. This means that

Phase 1 will require 350 Mega Watts of power.

Ashok: Surely you must agree though, that the economic benefits of HS2 outweigh some of those

environmental problems. It will boost the U.K economy. As Transport Minister, Baroness

Kramer says ‘HS2 will generate thousands of jobs across the UK and provide opportunities to

boost skills.’ To be specific, according to the BBC, it will generate 22,000 construction jobs in the

next five years and once the entire line is running 100,000 jobs will have been created with the

government estimating that 70% of them will be outside of London. In terms of the economy,

KPMG have estimated that within five years of the line opening, UK productivity will rise by

£15bn a year which is an increase of 0.8% in GDP.

Sarah: That may appear positive but there has been much controversy over those KPMG figures. The

HS2 Action Alliance, which campaigns against the project, says that there is ‘no independent, peer-

reviewed research backing up KPMG's £15bn figure’. In fact, BBC business editor Robert Peston has

called them ‘spuriously precise’. The problem, according to Peston, is that KPMG's forecasts assume

that the biggest impediment to narrowing the economic divide between north and south is poor

transport. It ignores the impact of other hard-to-calculate factors such as skill shortages and lack of

developable land. Therefore I’m not convinced.

Ashok: I’m not sure about that, KPMG seem very reliable and respectable to me. Either way, I

have more statistics to support my argument. On the official HS2 website, it states that HS2 will

generate £59.8 billion in user benefits when the entire network is completed, as well as £13.3

billion in wider economic benefits. The Department for Transport estimates a benefit-cost ratio

David Bullen RES competition 2014

Manchester Grammar School

for the new railway at 2.3 to 1, showing that it is definitely beneficial. And this estimate could be

even higher if the benefits and costs weren’t capped over a 60-year period because I’m sure that

it will be in use for longer than that.

Sarah: Again I’m not convinced. Larry Elliot, the Economics editor of the Guardian says that ‘the

economics of HS2 suck.’ Elliot also states that ‘the cost is high and the benefits, in many cases, are

spurious’. We all know that the UK economy is dominated by London and this needs to be dealt

with. However HS2 won’t do this. The way it’s looking at the moment, it just appears to be an

expensive way of making regional imbalances worse not better.

Ashok: It will make regional imbalances worse? Are you joking? Nick Clegg says that the

government is ‘healing the north-south divide’ by investing in the Y-shaped train line. While

Chancellor George Osborne predicts High-speed 2 will be ‘the engine for growth in the north

and the Midlands’. How can you say that HS2 is worsening regional imbalances?

Sarah: It still seems to be too London dominated for me. HS2’s own forecasts state 80% of journeys

on the new line will begin or end in London. Given that most of the trips on HS2 are forecast to be

for leisure purposes (70%), more people and more money will go to London and so will the jobs to

support this. Tim Harford, author of ‘The Undercover Economist Strikes Back’, says history does not

support HS2's regeneration claims. He believes that a better idea would be to improve transport

between just the northern cities instead of including London. He would begin with the ‘V-shaped line

linking Manchester and Leeds with Birmingham’. Then there would always be the possibility of

adding London later. This would give the north an advantage and counter claims that the line would

suck investment to London. ‘Temporary upgrades on London commuter lines’ would then be a short-

term solution to overcrowding. This would stop HS2 being too London orientated.

Ashok: Surely involving London is the whole point of HS2. London being involved would bring

about positives for the North. An article that I read recently in the Telegraph states, if cities up

north become more accessible to London, then more companies will decide to locate there,

making use of cheaper office space and property, safe in the knowledge that ‘the capital remains

in easy reach’. My own company Woking Ltd plan to expand our Birmingham offices as well as

potentially investing in offices in Manchester in the future because of HS2 increasing the

mobility of labour and products. I believe this will become a trend as many companies are

looking at the possibility of expanding and moving. This will help these other cities such as

Manchester to grow. Alison Munro, Chief Executive of HS2 Ltd backs this up by saying that HS2

will be ‘truly beneficial to Manchester and the wider region’ because of the ‘greater connectivity

that HS2 will deliver to Greater Manchester, not only to London, but to other places in the

north’.

Munro also says that HS2 will cause cities such as Leeds, Manchester and Birmingham to be

‘more connected to suppliers, to bigger markets, which they can serve, and to have access to

bigger labour markets’.Overall I am certain that the substantial price of HS2 is worth paying for

revitalizing Britain’s great northern cities.

Sarah: The real question is will these economic benefits actually occur? Will these cities be

revitalized? The perfect comparison can be made by looking at the TGV in France, because of its

similarities to HS2. The TGV became operational in 1980 and had the aim of reducing Paris’

dominance. According to Allister Heath in the Telegraph, France with the TGV ‘ought to have been

David Bullen RES competition 2014

Manchester Grammar School

the perfect example of rail infrastructure leading to job creation in recent decades’. Conversely

France is quite the opposite with its youth ‘demoralised by immorally high unemployment’, ‘its best

and brightest leaving at a rate not seen since the Huguenot exodus’, while its economy is barely

growing with Goldman Sachs predicting growth of a mere 0.7% this year. The evidence shows that

the TGV has done very little for the development of the cities it has connected or to reduce

unemployment.

The TGV also had a very limited effect on Paris’ dominance in France. The perfect example to

demonstrate this is the CAC 40 in France, where 33 of the 40 firms are still based in Paris. While 4 of

the remaining 7 firms are located abroad. So if you expect HS2 to create a movement of FTSE 100

Headquarters away from London to the north then you will be bitterly disappointed because there is

no evidence to believe that HS2 will be any different.

Ashok: UCL professors Peter Hall and Chia-Lin Chen say that when the TGV brought Lille within

one hour of Paris, ‘it morphed into a knowledge-economy city’. The example of Lille in Northern

France is extremely positive. According to the Centre for Cities report, the arrival of high-speed

rail played a ‘significant role in facilitating a structural transformation in a declining industrial

city and its hinterland.’ This is what I believe will happen to Leeds, Birmingham and

Manchester.

Sarah: Lille's revival was not purely caused by high-speed rail though. As Larry Elliot said, it was

combined with "extensive regeneration investment and improvements to local networks, which

were supposed to spread the benefits of high-speed rail across the region." Overall, Elliot’s view is

that the likely upshot of HS2 is that London will benefit most, the big regional hubs such as

Birmingham and Leeds will get some benefit, but cities bypassed by the line will lose out. The

Economist magazine also agrees with this view when it talks about existing long-distance routes

seeing fewer trains as a result of HS2, which would affect the cities not on HS2’s route. So

‘Birmingham’s gain could be Coventry’s loss ’. And the north is much larger than London-based

ministers seem to think. Although Leeds and Manchester may benefit, the north of England

stretches well beyond them to cities such as Newcastle which HS2 does not benefit at all.

Furthermore, Professor John Tomaney at UCL’s Bartlett School of Planning has suggested, using

evidence from Spain, France and South Korea that capital cities benefit as more wealth is sucked to

the centre. He believes that the main effect of HS2 is that ‘Birmingham will become part of the South

East labour market.’

We’re running out of time. Please could both of you briefly conclude?

Ashok: HS2 will inevitably cause some environmental problems for the countryside but

programmes are being introduced to reduce this. Overall I believe that economically and

socially, HS2 will benefit other hubs in England and will certainly reduce London’s dominance

with many businesses such as my own, now looking at new offices away from London.

Sarah: For me HS2 is quite simply disastrous. It will completely blight certain areas of the

countryside, majorly affecting people who live there such as myself. There is no evidence from

overseas that HS2 will reduce London’s major influence because for me HS2 is too London

orientated. I completely agree with Tim Harford’s idea of cutting out London and turning the Y-

shaped train line into a V-shaped line.

David Bullen RES competition 2014

Manchester Grammar School

I would like to thank both of you for giving such strong arguments on what is a highly controversial

and complex topic. Today we have gone into depth on the effects of HS2 on the countryside and on

businesses as well as scratching the surface on the costs involved and the full economic effects. The

bill for Phase 1 of HS2 will not pass through parliament before the 2015 general election. Until then,

this incredibly divisive debate on HS2 will not cease. Thank you for listening.

Word Count: 2,487

David Bullen RES competition 2014

Manchester Grammar School

References and Bibliography

The Economist. (2013). High Speed Rail: Accounting Trips. November 2013.

BBC1 Countryfile: HS2 and the Environment. June 2014.

BBC News. 22 January 2014. HS2 legal bid rejected by Supreme Court.

Stop HS2. (2014). Stop HS2 facts and problems. Available: http://stophs2.org/news/10028-hs2-

facts-and-problems. Last accessed 12th June 2014.

Tom de Castella. 24 September 2013. BBC News. HS2: 12 arguments for and against.

The Economist. 2 November 2013. High-Speed Railways: Still off-track

Larry Elliot. Nov 2013. HS2 will be more London gravy train than locomotive of regional

growth. Available: http://www.theguardian.com/business/economics-blog/2013/nov/24/hs2-

locomotive-growth-london-gravy-train

Allister Heath. 3 June 2014. Telegraph. HS2 is not the answer to London’s economic domination.

Available: http://www.telegraph.co.uk/finance/economics/10872729/HS2-is-not-the-answer-to-

Londons-economic-domination.html

hs2.org.uk. Official website of HS2

http://www.hs2actionalliance.org/

Shelina Begum. 17 March 2014. HS2 will benefit North-West Firms. Manchester Evening News.

http://www.manchestereveningnews.co.uk/business/business-news/hs2-benefit-north-west-firms-

6838697

The Undercover Economist Strikes Back. Tim Harford.

Jonathan Riley. 28 April 2014. Hs2 land grab excessive, say Landowners. Farmers Weekly.

http://www.fwi.co.uk/articles/28/04/2014/144318/hs2-land-grab-excessive-say-landowners.htm

Hannah Dudley Toot Hill College [IS INDEPENDENCE CONSISTENT WITH SCOTLAND KEEPING THE POUND?]

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Is Independence Consistent

With Scotland Keeping The

Pound?

Hannah Dudley

Toot Hill College

2014

Hannah Dudley Toot Hill College [IS INDEPENDENCE CONSISTENT WITH SCOTLAND KEEPING THE POUND?]

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Soon, there could be a divorce bigger than the Chris Martin and Gwyneth Paltrow

self-titled “conscious uncoupling” (Perkins, Guardian, 24th March 2014) which graced

the pages of UK gossip magazines. However this break up is unlikely to reach the

front pages of Hello! and may be far less amicable. Scotland may leave the UK and

file to take joint custody of the pound. The question is, can Scotland broker monetary

union after fiscal divorce whilst retaining independence?

First reactions to this question would undoubtedly be no. Surely retention of the

pound would mean the creation of a formal currency union, resulting in delegation of

power to the UK government, in terms of monetary policy? If Scotland were to retain

the pound a formal currency union is likely on the basis that the rest of the UK would

bail out Scotland if economic crisis arose, effectively becoming the “Lender of Last

Resort” (Spence, CityA.M 13th February 2014)

An optimum currency area could be created as part of a formal union given the level

of integration between Scotland and the UK. In 2011 Scotland exported £36 Billion to

the rest of the UK and imported £49 Billion (HM Government, Scotland Analysis,

September 2013). The provision of this optimum currency area, outlined by Mundell

(1961), results in loss of independent monetary policy, to influence inflation rates to

control demand and mitigate asymmetric shocks.

This theory applies to the Eurozone where interest rates are set by the European

Central Bank (ECB) to “maintain the euro's purchasing power and thus price stability

in the euro area” ( European Central Bank online 6th June 2014). The loss of

economic sovereignty has gone further in recent times as member states have

ceded fiscal control through the ‘Fiscal Compact’ 2012 , which requires that all

signatories adhere to a “balance budget rule”(European Council Europa Treaty on

Stability, Coordination And Governance 2012) . Monitoring of member states fiscal

policy has now become part of the ECB’S remit in management of the optimal

currency area. Applying this to Scotland, control of monetary policy will be ceded

and interest rates most likely set by the Bank of England which may go even further,

introducing fiscal coordination to maintain the stability of Sterling. Furthermore if the

Scottish economy were to experience sluggish demand and needed to lower interest

rates to incentivise consumption, the Scots would be unable to exercise loose

monetary policy, due to the binding nature of the currency union enforcing a blanket

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monetary programme. The blanket approach to monetary policy does not take into

account asymmetry in members’ economic cycles. Therefore Scotland’s long term

economic prosperity may be jeopardised if a formal currency union and subsequent

optimum currency area was formed.

The maintenance of this optimal currency area may require Scotland to surrender

monetary control conflicting with the ideals of independence, essentially self-

determination. Furthermore Alistair Darling architect of the Better Together

opposition movement described the effects of such a relationship on Scotland as a

“legal straightjacket” (Shedden, The Wee G March 2014) suggesting Scotland will

not be securing independence through monetary union. The formation of a formal

currency union and potential optimum currency area may further undermine

independence as Scotland may be forced to sacrifice fiscal autonomy for ideological

independence. Perhaps the most significant comment made on the retention of the

pound leading to loss of monetary sovereignty is the assertion from Danny

Alexander “Scotland would have no control over mortgage rates and would be

binding its hands on tax and funding for vital public services” ( Taylor BBC News

online 29th March 2014).

However, if Scotland retains the pound, the loss of independence may not be as

severe as first assumed. The Scottish National Party (SNP) may be able to negotiate

and gain official representation on the Monetary Policy Committee (MPC). The SNP

stated that they would regard themselves as a “shareholder” in the Bank of England

once independence had been attained and would expect consideration accordingly

(Stewart, Guardian 26th November 2013). Laurence H White writing for the Institute

of Economic Affairs suggests this may be achieved through “a change in the Bank of

England’s governing statutes” allowing for official representation on the MPC. He

likened this to the US Federal Reserve System on which the Federal Reserve Bank

of New York sits. This suggests complete sovereignty in monetary policy does not

have to be ceded, instead collaboration can be sought. Although it is worth noting,

Parliament may be unlikely to make major constitutional change accommodating the

economic wants of a newly divorced party. White continues to put forward a

convincing argument in terms of the issuing of banknotes ensuring independence as

he asserts “the Bank of England dos not need to have any other form of relationship

with the Scottish banking system…… private Scottish banks can continue to issue

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banknotes”. The Lender of Last Resort principle will not apply, in which case the loss

of monetary policy may be less extensive. However this is subject to the cooperation

of the rest of the UK in allowing an informal currency union to operate. The SNP’s

Fiscal Working Group have outlined proposals for monetary policy including the

retention of Sterling with the “day to day monetary policy discharged independently

by the Bank of England” suggesting an informal currency union may be sought

(Fiscal Commission Working Group Macroeconomic Framework 2013).

The feasibility of an informal currency union is indicated by Joan McAlpine who

backs the “Panama option” referring to the informal currency union existing between

Panama and the US (Torrance, Herald Scotland, and 31st March 2014). The

International Monetary fund commented the union has effectively engineered a

system which “lacks a traditional Lender of Last resort”, monetary control has not

been delegated to the US and thus remains sovereign. The existence of an informal

currency union between Scotland and the rest of the UK may yield similar results.

Fiscal divorce may not entail monetary union entirely stripping Scotland of monetary

independence.

George Osborne commented on Scotland potentially adopting the pound with a

similar arrangement declaring “the pound is not an asset to be divided up between

two countries after a breakup like a CD collection” (BBC News online 13th February

2014) implying the formation of an informal currency union may be unlikely. The

retention of monetary policy and therefore independence is subject to the

cooperation of the rest of the UK in terms of agreeing to an informal currency union.

Perhaps the most poignant comment made by the Fiscal Commission Working

Group is the absolute support they extend to the retention of the pound “we believe

that retention of the sterling is the best option” suggesting that the advocates for

independence believe that independence is consistent with keeping the pound.

A major alternative to retaining the pound may be the adoption of an independent

Scottish currency fulfilling, the ideological ambition of Alex Salmond, creating

complete fiscal and monetary autonomy. The success of a Scottish fledgling

currency depends on the transition/transaction costs associated with its

implementation and the credibility of the currency in the long term.

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The dawn of independent Scottish currency would in theory see a new Scottish

central bank created to issue the fiat currency. In order to ensure stability and

confidence the new central bank would need to garner credibility. This may be

achieved through a constitutional commitment to keep to inflation targets, to

convince international markets the currency and central bank are plausible.

The ability of the central bank to do this may be hampered by the effects of ‘Dutch

Disease’ outlined by W. Max Cordon (1982). Scotland relies on North seas oil for

12% of its fiscal revenue ( Ashcroft Scottish Economy Watch, 20th January, 2012) ,

suggesting a newly independent Scottish state may be susceptible to an overly

strong exchange rate, backed by finite resources ,in the long term prompting a

decline in the manufacturing sector. This would be disastrous for the fledgling state

whose long term economic plans focus on broadening “the base of the economy and

reindustrialising” (John Swinney, SNP.ORG). Long term decline in manufacturing

may cause the prices of domestic goods to rise, creating inflationary pressure

thwarting the central banks attempt to gain credibility through controlling inflation.

The threat of Dutch Disease may also hinder the new sovereign state by creating

unnecessary trade barriers. The appreciation of the exchange rate may make

Scottish currency relatively more expensive in international markets, resulting in

domestic goods being less attractive to perspective overseas consumers. In effect

the disease artificially raises the value of the currency, hindering trade. Consequently

in the long term, the creation of an independent currency may adversely affect

economic prosperity. The economic viability and credibility of an independent

Scottish currency may be questionable if the effects of Dutch Disease are felt.

The transition costs associated with the introduction of a fledgling currency are also

a cause for concern. Costs would be incurred by business and households during

the transition. The estimated costs to the rest of the UK alone is reported to be

approximately £500m per year (Scotland.gov.uk). Even more significant are the

capital controls necessary during transition, to stop investment volatility in response

to the potential appreciation/ depreciation of the currency against sterling. This

control may be actualized in a Tobin tax (Tobin 1974); a charge on financial

transactions between one currency and another. This may deter extreme changes in

capital outflows/inflows, remedying uncertainty and potential domestic market

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distortions. The case for capital controls during transition has been raised by

Government, referring to the analysis of Scottish currency and monetary policy (HM

Government Scotland Analysis, April 2013). Although issues with transition could be

mitigated by utilising capital controls, is it worth it? A currency union using a stable

and credible currency (e.g. Sterling) could be pursued. The implementation of

capital controls and transition costs incurred during transition to an independent

currency may not be necessary. Furthermore the implementation of capital controls

is not guaranteed to remedy investment volatility. The Walls and Gates theory

outlined by M.W.Klien details that episodic capital controls (gates) are unlikely to be

as effective as long-term controls (walls). The success of an independent Scottish

currency, ensuring long-term independence, depends on the willingness of the

Scottish Government to commit to long term capital controls to ensure a successful

transition. The introduction of an independent Scottish currency may create

ideological independence but long term, Scotland may be bound by the interaction of

international markets through the necessity of maintaining capital controls instead of

catering to domestic needs.

In terms of transaction costs, the launching of an independent currency may fail to

ensure independence. The HM Government report on Scotland’s currency and

monetary policy asserts “the introduction of an independent Scottish currency would

increase transaction costs for all Scottish business that operate outside Scotland and

for all businesses located in the rest of the UK that currently trade with

Scotland”(Scotland Analysis: Currency and Monetary Policy April 2013). Monetary

independence may be achieved at the expense of economic viability.

Furthermore, a commitment is necessary to an exchange rate regime. Scotland may

choose to implement a floating exchange rate or opt to fix the currency. The

question is, will floating or fixing better serve the ideals of independence? The

contention between these two regimes is perhaps best described in the Theory of

the Impossible Trinity developed by Mundell and Fleming (1960). The theory states

that “market forces restrict the ability of a country to achieve three policy objectives

simultaneously” (Aizenman the Impossible Trinity, May 2010) namely, free capital

flow, independent monetary policy and stable exchange rate. In Scotland’s case the

main goal of launching an independent currency is to retain control of monetary

policy. This objective may be compromised if Scotland subscribes to a fixed

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exchange rate regime as only free capital flow and a stable exchange rate can be

achieved .Monetary policy will be committed to maintaining parity of the pegged

currency. This may mitigate volatile capital flows in which case free capital flow

exists. However the use of monetary policy as a domestic tool has been lost. The

independence of monetary policy has been compromised.

Therefore, the only way in which Scotland could retain monetary policy for domestic

purposes, is to subscribe to a floating exchange rate regime. However the retention

of flexible monetary policy may be at the expense of increased transaction costs.

Government analysis on Scotland’s currency and monetary policy supports this view,

asserting an independent currency subscribing to a floating exchange rate regime

“would come at the microeconomic cost of increasing transaction costs with the UK”

(HM Government Scotland Analysis April 2013). It has already been established the

rest of the UK and Scotland could constitute an optimal currency area; the perceived

advantages of flexible monetary policy may not offset the increased transaction costs

associated with a floating exchange rate regime when an optimal currency area

could be achieved. The World Bank reports “smaller countries are better off pegging

their currency to a larger neighbour or adopt a neighbour’s currency as their own”

(World Bank, April, 2001) suggesting that in terms of economic viability, an

independent Scottish currency may not be worth the sacrifice.

The creating of an independent currency may at first, seem to fulfil the ideals of

independence ensuring self-determined monetary policy; however the case becomes

muddied when applied to the practicalities of launching and sustaining an

independent currency. What use is independence in monetary policy if it is not

economically viable or sustainable in the long term?

In conclusion an independent currency and monetary policy is often associated with

an autonomous state. This has been proven by sovereign countries created by the

dissolution of the old Soviet Bloc. Countries such as Latvia and Estonia founded

their own independent currency the Lats and the Kroon replacing the soviet Ruble

(Oanda Forex Trading) creating complete monetary control. In this sense Scottish

independence is not consistent with the retention of the pound. However, soon after

launch of their independent currencies, states began to experience unstable inflation

and fluctuating exchange rates (Fidler December 2010) eventually adopting the

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Euro. The new independent currency was not sustainable long-term. A new Scottish

currency would encounter credibility issues, transaction and transition costs proving

unviable. Scotland may have to sacrifice true independence for economic longevity

as an independent state. This sacrifice may see an informal currency union created

which allows for some retention of monetary policy and negotiations culminating in

Scottish input on the MPC. Independence is consistent with Scotland Keeping the

pound. The implementation of an informal currency union is the only feasible

alternative, in which Scotland can retain elements of monetary policy without

jeopardising economic prosperity. If Scotland decides to “consciously uncouple” from

the UK, hopefully a union will be brokered to co-parent the pound.

2469

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