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Money’s sentimental education, or less is more


While the financial world is on edge wondering about mega-macro themes such as gross domestic output, we are moving into a world of more nuanced ways of measuring both production and the means of exchange we use.

While the financial world is on edge wondering about mega-macro themes such as gross domestic output, we are moving into a world of more nuanced ways of measuring both production and the means of exchange we use.

 

REUTERS

A simple example comes from the way solar panels are installed on the rooftops of homes. Almost all of those in the northern hemisphere face south, for the simple reason that this maximizes the amount of energy they generate. However, to maximize the value of the electric power, panels should face west, as that captures the sunshine at the end of the day, when aggregate demand for power is highest.

Crunching American data, OPower, a software provider for utilities, found that

West-facing panels produce 20% less power over the course of a year than south-facing ones, according to American data crunched by OPower, a software provider for utilities. But the timed delivery of that power reduces the need for power companies to fire up their fossil-fuel burning generators for surge periods. As utilities ramp up smart-metering techniques to charge differential rates for access to the grid, this is an example of less actually being more.

Let’s switch to money, as in cash, which has become an unusually coveted good of late, not only for those who lack it but those who disburse it.

Most central banks – including right now the European Central Bank – are showing great interest in so-called “printing” money, a move they hope will spread it around and revive economic growth. Noting how this quantitative easing approach has given an enormous lift to asset values but only a modest one to GDP and a questionable effect if any on job creation, former U.S. Federal Reserve Chairman Ben Bernanke mused that it worked more in practice than in theory.

The desire to boost money supply even though it doesn’t offer a clear efficiency gain may echo the solar panel conundrum noted above.

Injections of cash are no panacea, just as the rage for solar panels may not mitigate the need for coal-burning electricity generation. It all depends on the context, which is the shorthand way of saying it’s really complicated.

Consider the move towards direct cash transfers rather than in-kind deliveries of food that are increasingly common in developing countries. Once again, the idea is efficiency. The World Bank notes that the cash in such programs ends up being spent mostly on better-quality food, thereby benefiting the recipient household’s health and ultimately opportunity to earn more money elsewhere.

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