Splitting America three-ways

If you refounded North America, how many currencies would you go for?

If you refounded North America, how many currencies would you go for? Whatever the answer, you probably wouldn't insist on Vancuver and Seattle being different.

The whole thing is reminicisent of the debate around Europe. In May, a JP Morgan research note revealed that the Eurozone was more diverse than pretty much every other possible monetary union:

The x-axis is a measure of similarity between countries. It measures over 100 economic, social and political characteristics. Michael Cembalest, the report's author, then applied this measure to 11 hypothetical monetary unions, as well as to the major countries of the Eurozone (he excluded smaller countries like Cyprus and Malta, but the results aren't that different if they are included; nor does the inclusion of Greece affect the results all that much).

What he finds is that many monetary unions that came close to existing exhibit far more similarity than the Eurozone. This includes Latin America, the Gulf states, and Central America. He then pushed it further: reconstituting several former empires, including the USSR, Ottoman Empire, and the British Empire in Africa, would also result in unions with more similarity than the EU.

Now, three academics from the Democritus University of Thrace have performed a similar analysis on the US and Canada, and found that – economically, at least – the present borders make little sense. E. Chrysanthidou, P. Gogas, and T. Papadimitrioy apply Robert Mundell's theory of Optimal Currency Areas (OCA) to the hypothetical issue of a north American currency union.

An OCA is an area where the macroeconomic conditions between two or more regions are suitable for creating a monetary union. All such unions have potential benefits – eliminating currency risk means that conditions are much more favourable for trade within the union – but they also have potential downsides, as the eurozone is demonstrating presently. If the various involved regions are similar enough, the benefits are likely to outweigh the risks.

The theory, which stems from the 1960s, was originally based on an examination by Mundell of the US and Canada, but it took on a more practical bent with proposition of the European Monetary Area. Since then, it has been largely applied to Europe and similar cases of actually-existing, or at least widely proposed, currency unions.

The authors return to the source, and attempt to work out, using two different methods (Correspondence Analysis and Hierarchical Cluster Analysis), what the groupings between the fifty US states and ten Canadian provinces ought to be.

The conclusion is not two, but three different countries, one on each coast and one in the middle:

The authors describe the differences:

The first one includes regions mainly from the East that are industrialized, and characterized by high levels of economic activity as this is measured by the macroeconomic variables used in our analysis.

The second part includes regions mainly from western US and Canada with diverse levels of economic activity and prosperity.

Finally, a third group of regions can be identified. This group includes a geographically diverse set of regions as it spans from east to west. The common factor though that links these regions is the relatively low level of economic prosperity as it is measured in our study in terms of income, growth, imports, exports, etc.

It would be rather awkward, to be sure – but no less awkward than the current arbitrary line drawn along the 49th parallel.

The US-Canada border. Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

Photo: Getty
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The big problem for the NHS? Local government cuts

Even a U-Turn on planned cuts to the service itself will still leave the NHS under heavy pressure. 

38Degrees has uncovered a series of grisly plans for the NHS over the coming years. Among the highlights: severe cuts to frontline services at the Midland Metropolitan Hospital, including but limited to the closure of its Accident and Emergency department. Elsewhere, one of three hospitals in Leicester, Leicestershire and Rutland are to be shuttered, while there will be cuts to acute services in Suffolk and North East Essex.

These cuts come despite an additional £8bn annual cash injection into the NHS, characterised as the bare minimum needed by Simon Stevens, the head of NHS England.

The cuts are outlined in draft sustainability and transformation plans (STP) that will be approved in October before kicking off a period of wider consultation.

The problem for the NHS is twofold: although its funding remains ringfenced, healthcare inflation means that in reality, the health service requires above-inflation increases to stand still. But the second, bigger problem aren’t cuts to the NHS but to the rest of government spending, particularly local government cuts.

That has seen more pressure on hospital beds as outpatients who require further non-emergency care have nowhere to go, increasing lifestyle problems as cash-strapped councils either close or increase prices at subsidised local authority gyms, build on green space to make the best out of Britain’s booming property market, and cut other corners to manage the growing backlog of devolved cuts.

All of which means even a bigger supply of cash for the NHS than the £8bn promised at the last election – even the bonanza pledged by Vote Leave in the referendum, in fact – will still find itself disappearing down the cracks left by cuts elsewhere. 

Stephen Bush is special correspondent at the New Statesman. He usually writes about politics.