Press release: German contraction shows European Central Bank must act

Commenting on Germany's shock 0.2% economic contraction, Research Director of the Adam Smith Institute, Sam Bowman, said: "Germany's contraction might be a wake-up call to the European Central Bank (ECB) that it is driving Europe's economies into the ground. If it forces the ECB to finally ease policy, it may prove to be a blessing in disguise.

"Tight money is almost entirely to blame for the Eurozone's current problems: as the rest of the world has slowly recovered from the Great Recession with relatively accommodative monetary policy, Europe has sunk back into deep recession.

"Inflation in the Eurozone has been dangerously low over the past six years. The ECB has a mandate to target 2% inflation, which it has consistently failed to reach in recent years. The result has been a 'musical chairs' problem where there is not enough money circulating in the Eurozone to match people's wage demands. The result has been unprecedentedly high unemployment in many Eurozone countries.

"Once, economists warned that Europe faced a Japan-style 'lost decade' of unemployment and economic stagnation. That now seems like wishful thinking: because the ECB has kept money so tight and so much wealth has been lost, the Eurozone is likely to be in extremely bad shape for many years to come.

"If the ECB was really willing to do 'whatever it takes' to reach its inflation target, including quantitative easing, it could bring the Eurozone back to growth. The Eurozone has needed easier money for years now; now that Germany does too, it may finally see it."

For further comments or to arrange an interview, contact Kate Andrews, Communications Manager, at kate@adamsmith.org / 07584 778207.

The Adam Smith Institute is an independent libertarian think tank based in London. It advocates classically liberal public policies to create a richer, freer world.

Sam Bowman's comments on Scotland's currency debate are featured in City AM

The Research Director of the Adam Smith Institute, Sam Bowman, was quoted in a City AM article that highlighted a poll that found the majority of Scots think an independent Scotland should keep the pound.

If an independent Scotland decided to keep the pound it could follow the example of countries such as Ecuador and Panama, which use the US dollar.

Indeed, as the research director of the Adam Smith Institute, Sam Bowman, points out:

An independent Scotland could flourish either by using the pound sterling without the permission of the UK (or by setting up a “ScotPound” pegged to sterling through a currency board, which would achieve a similar end). This ‘sterlingization’ would emulate a number of Latin American countries that use the US Dollar without an official agreement with the US government.

Read the full article here.

Dr Eamonn Butler is quoted in The Federalist - The BBC Is A Cross Between PBS And The IRS

The Director of the Adam Smith Institute, Dr Eamonn Butler, was interviewed and featured in an article for The Federalist on draconian nature of the BBC.

Of the 180,000 people prosecuted in 2012 for not paying the license fee, two-thirds were women. Those prosecuted are usually poor. “The people who find it most difficult to pay the license fee are people in poor families and single mothers. Of all the people who get prosecuted for not paying the fine, they’re almost all single parents. That cannot be right,” says Eamonn Butler, director of the Adam Smith Institute, a free-market think tank in London.

Read the full article here.

Director of TEN writes for City AM - It’s time to start talking about the British dream

The Director of the Entrepreneur's Network, Philip Salter, wrote an op-ed for City AM which highlights the need for British business and immigration policy to reflect young people's drive towards entrepreneurship.

ENTREPRENEURSHIP is all the rage. Research released today by HSBC shows that nearly a quarter of young people starting university this autumn want to work for themselves when they graduate. Banker, lawyer and consultant are no longer the default options.

This news won’t please everyone. Due to the conspicuous wealth of Silicon Valley’s have-yachts and other cultural biases, entrepreneurship is often crudely misrepresented as solely a private good. However, successful entrepreneurs will go on to employ thousands of people and provide goods and services that make all our lives better in a trillion different ways. Even failed entrepreneurs provide feedback for other business founders about what will and won’t work.

Read the full op-ed here.

Dr Eamonn Butler's Letter to The Herald: Post-Yes, an informal currency union should be plan A, not B

The Director of the Adam Smith Institute, Dr Eamonn Butler, wrote a letter to The Herald arguing that if Scotland votes for independence, there is nothing to stop them from continuing to use the pound:

I HAVE no wish to argue for or against independence, but as an economist I would like to separate the economic realities of the currency issue from the political bluster that obscures them.

The Chancellor has ruled out a formal currency union, though some say this is just negotiating bluff. Either way, there is nothing to stop Scots continuing to use the pound if they choose. A Westminster government with no jurisdiction over an independent Scotland has no power to stop them.

Several independent countries, including Panama, use the US dollar, without seeking the permission of America's central bank, the Federal Reserve. In the absence of a formal currency union agreement, Panama has no say in the Federal Reserve's monetary policy, which is conducted solely for the benefit of America. Some argue, by analogy, that if an independent Scotland continued using the pound without a formal currency union, Scotland would have no say in Bank of England policy, which could be potentially damaging for Scotland's economy.

Nevertheless, as a result of using the dollar, Panama - a country comparable in population to Scotland - has one of the world's most stable banking sectors. And the economic interdependence between Scotland and the other countries of the present United Kingdom is so deep that the Bank of England would, in reality, have to take Scotland's welfare into account when setting monetary policy. Not to do so would risk damaging the other UK countries just as much as Scotland.

Another suggestion, from Jim Sillars, is that Scotland should print its own currency and tie it to the pound. There is no substantive difference between this idea and using the pound. As the two are pegged, the only difference is the design on the currency. And why (apart from national pride) go to the expense of printing Scottish notes, exactly equivalent to the pound - but which people south of the Border might be reluctant to accept?

The other option, switching to some other currency such as the euro, would be even more costly and difficult, and would raise huge, business-damaging uncertainties. It would also leave Scotland subject to the monetary policy of a country or agency with a very distant interest, if any, in Scotland's welfare.

The easiest solution, therefore, would be for Scotland to continue using the pound, with or without a currency union, safe in the knowledge that, as an important part of the sterling economy, the Bank of England would have to take Scotland's interests into full account when setting policy. The currency problem just isn't a problem.

Eamonn Butler,

Director, Adam Smith Institute,

23 Great Smith Street,

London.

ASI Senior Fellow writes for Forbes - Of Course We Should Abolish The Corporation Tax

ASI Senior Fellow, Tim Worstall, argues that the United States should abolish corporation tax in Forbes.

Corporation tax, or the corporate income tax for the US, is one of the more inefficient taxes that we impose upon economic activity. As all should know it’s not actually the companies that pay the tax as companies are not real live human beings. And it’s a standard point that any and every tax lightens the wallet of one or other live human being. Thus it cannot be the companies carrying that burden of this specific, or any other, tax. We also know that the corporate income tax is expensive. All taxes have deadweight costs, the economic activity that does not happen simply as a result of the existence of the tax. Different taxes have different deadweight costs and capital and corporate taxes have higher costs than do income, consumption or property taxes. That is, for the same revenue collected we destroy more economic activity (which is the same statement as “make ourselves poorer”) than if we used property, consumption or income taxes to raise the necessary money for government.

Read the full article here.

The ASI is featured in The Herald's article on Salmond's proposed currency union

The Director of the Adam Smith Institute, Dr Eamonn Butler, was quoted in The Herald, arguing that an independent Scotland should informally keep the pound. Read the article here.

Research Director writes for Conservative Home - Scotland could use sterling, without a central bank

The Research Director of the Adam Smith Institute, Sam Bowman, wrote an op-ed for Conservative Home. He argued that if Scotland were to become independent, it should keep using the pound, with or without permission from Westminster.

In practical terms, there’s virtually nothing stopping any country in the world from using any other country’s currency as its own. Indeed, some countries already do this – notably, the ‘dollarized’ economies of Panama, Ecuador and El Salvador.

So Scotland could keep using the pound with or without a currency union. The difference would be that a ‘currency union’ would force the Bank of England to consider Scottish interests when making decisions about things like setting interest rates, and – crucially – acting as a lender of last resort to Scottish banks, lending to them when they were illiquid.

Read the op-ed here.

Sam Bowman's comments on the currency union are featured in City AM

The Research Director of the Adam Smith Institute, Sam Bowman, was quoted in a City Am article discussing a potential currency union between Scotland and the rest of the UK.

However, there seems little doubt that an independent Scotland would be within its rights to declare sterling sole legal tender and borrowing it on the financial markets to hold in reserve.

"Everyone says Mr Salmond needs a Plan B if the UK does not agree to a currency union with Scotland. But unilateral adoption should be Plan A, making Scotland’s economy more stable and secure. The UK’s obstinacy would be Scotland’s opportunity," said Sam Bowman, research director of the Adam Smith Institute on Wednesday.

Read the article here.

Sam Bowman's comments on an independent Scotland's use of the pound are featured on The Guardian's live blog

The Adam Smith Institute's Research Director, Sam Bowman, was quoted on The Guardian live blog, arguing that an independent Scotland should unilaterally adopt the pound, with or without the permission of the rest of the UK.

During the debate Salmond refused to name a ‘Plan B’ currency for Scotland if the chancellor continues to oppose a currency union. Sam Bowman, research director of the Adam Smith Institute, has a couple of ideas.

An independent Scotland could flourish either by using the pound sterling without the permission of the rUK* (or by setting up a “ScotPound” pegged to sterling through a currency board, which would achieve a similar end).

(1) Because Scottish banks would not have access to a currency-printing lender of last resort, they would have to make their own provisions for illiquidity, and would necessarily act more prudently.

Scotland actually had this system of ‘free banking’ during the 18^th and 19^th centuries, during which time its economy boomed relative to England’s and its banks were remarkably secure. And Panama, which uses the US Dollar in this way, has the seventh most stable financial system in the world.

(2) Everyone says Mr Salmond needs a Plan B if the rUK does not agree to a currency union with Scotland. But unilateral adoption should be Plan A, making Scotland’s economy more stable and secure. The UK’s obstinacy would be Scotland’s opportunity.

Read The Guardian's live blog here.