Keeping Cool

 Keeping Cool

    We have just lived through the three hottest UK June days ever, each day hotter than the day before. No doubt many people, like me, will have finally woken to the reality of 'Climate Change' and 'Global Warming'. Good!

    Of course we shall have to adapt, step by step, to meet these realities. There is some talk of fitting 'Air-Conditioning' in schools and old-people's homes. I hope we look also at passive means of keeping cool: shutters, insulation, trees, work-schedules, siestas. In the longer term we could look at the design of houses and villages in countries where these temperatures have been familiar for centuries.  

    While admitting the needs of schools and old-peoples-homes, I shall continue to regard air-conditioning as, for me, unnecessary, and degenerate. I see around me that many people are new to this technology and need educating about the etiquette. Mid-afternoon on the 24th June, I made my way from my dentist down to the bus terminus, choosing, for once, to walk through the air-conditioned shopping arcade rather than the 'fresh-air'  or 'canal-side' routes. I found that the automatic doors had been jacked open by the janitor staff. I expostulated to the first janitor I met. 
    "Which doors?", he asked.
    "Those out to the street!", I wooffed, for I still had a gauze wad clenched between my teeth. "Why are they open?"
    "To let in the air", he replied, as though I was the dumb one. I gave up and walked on down the hall to the information desk where I hoped for a more open mind.  I noticed all the doors to the outside were open. Again an uncomprehending shrug. On the point of giving up I turned back and tried a parting shot.
    "It is like leaving the fridge-door open! You pump all that heat out and it comes rushing back in.!
    "I see what you mean", he conceded.  

    My grand-daughter told me that her school class room was set at 22ºC, which shocked me. I remember learning, some decades ago, that California, faced with a shortage of electricity in summer, pleaded that no thermostat be set lower that 78ºF (25.5ºC) if the house is occupied. (Or 85°F if the house is unoccupied.) I know that I can manage sedentary work perfectly well at 25ºC.

Classical vs Modern Monetary Theory

Classical vs Modern Monetary Theory

I am intrigued that both Classical Monetary Theory (CMT) and Modern Monetary Theory (MMT) have a way of explaining how macroeconomics works, yet both think the other theory is wrong, while their own theory is right.  

I think it is generally agreed that it is bad to let a sovereign currency inflate, i.e. devalue. It is tantamount to stealing from anyone who holds cash in that currency. It is embarrassing and to be avoided. But deflation is also to be avoided. It seems there is an international consensus that a currency should inflate, but only by a steady 2% per annum. 

CMT believes that a thrifty, well run country should not run a deficit but should raise in taxation as much money as its government spends.  If there is a deficit, CMT believes that printing money, or simply writing it into existence, causes inflation –– at least, in the absence of growth in the economy.  For it believes that the value of a currency is a simple but inexorable function of the total quantity of 'Goods' divided by the total quantity of 'Money'.  The preferred CMT response to a deficit is to borrow on the international bond market. But the CMT economists warn that too much borrowing will 'spook' the markets and interest rates will go up. The country will find itself stretched over a barrel as more and more of our tax goes straight off to pay interest on our National Debt. Were inflation to occur, the Bank of England would raise interest rates, which inhibits the economy. That would curb spending by the poorer (indebted) citizens while cushioning (or even rewarding) the better-off lenders.

MMT believes that deficits are vital if the economy is to grow, as it is the only way that money (currency) can enter the private sector. MMT holds that taxes are not required to "pay for government", for there is no reason why the money cannot be created (by a sovereign government; provided that it does not cause inflation). If there is idle capacity in the economy, printing money should stimulate the economy. If the economy is at full employment and surplus money is still chasing goods and services there will be inflation. The MMT answer to inflation is to raise taxes (rather than interest rates). This takes money off those that have it (rather than those that do not have it). Taxes can have other beneficial effects besides reducing demand for goods; it can reduce inequality, and it can reduce e.g. smoking or carbon dioxide emission.

Where CMT thinks that the value of a currency is set by the ratio of the total quantity of 'Money' (defined narrowly, or broadly?) to the total quantity of 'Goods', it could be argued that prices are set much more locally, by people who know neither the total quantity of 'Money', nor of 'Goods'; prices even respond to 'expectations'. Look at the way BP's profits soared when the Iranians closed the Strait of Hormuz. Perhaps the biggest difference between the two theories is in the different ways in which they propose to handle inflation. Though both schools aim to reduce the local availability of money, the CMT school would raise interest rates, inhibiting business and penalising the indebted, while the MMT school would raise taxes.