Bailouts and the Optimal Size of States

Risk-pooling in an era of frequent financial crisis is not as good an argument against Scottish independence as Tyler Cowen thinks it is. First off, bailing out is a policy choice to which there are alternatives. Second, financial governance matters. Who had a worse financial crisis in 2008: the United States (population 300 million) or Canada (population 35 million)? Which set of countries suffered more in the 1997 East Asian financial crisis: South Korea, Thailand, and Indonesia or Singapore, Hong Kong, and Taiwan?

Finally, the European Central Bank and leading European Union member states have shown that they are more than willing to pool risk with weaker members. The SNP favors joining the Eurozone in the event of Scottish independence. Even if the optimal size of nations has gone up with the increased risk of financial crisis, that does not mean that Scotland falls below the optimal size.

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