From: smee@bristol.ac.uk (Paul Smee)
Newsgroups: soc.culture.british
Subject: Re: Currency Problems
Date: 30 Sep 92 09:14:50 GMT
Reply-To: P.Smee@bristol.ac.uk (Paul Smee)
Organization: University of Bristol

In article <qfgu4g0@zola.esd.sgi.com> livesey@solntze.esd.sgi.com (Jon Livesey) writes:
>In article <1992Sep29.161657.14744@bristol.ac.uk>, smee@bristol.ac.uk (Paul Smee) writes:
>> [Bunch of stuff deleted]
>  [Bunch of stuff deleted]

Don't want to argue with most of what Jon says here (even though I
interpret it differently than he does) because it DOES serve to further
illustrate the main point I was trying to make, which is that saying
'devaluing the pound should improve the economy' is much too simple.
The real world is more complicated than that, and you can argue fairly
coherently in either direction, for or against that statement,
depending on how you believe the economy works (which is NOT well
understood) and depending on what precise effects you believe are the
important ones (which verges on being a religious question).

>> (We're even importing COAL, for heaven's sake.  Even after the
>> devaluation, the government is planning to go ahead with the 
>> closure of another bunch of British coal pits, and the power 
>> companies are contracting outside.  Here's an island MADE of 
>> bloody coal, and we're buying it in.  Sigh...  Sorry, getting 
>> carried away.)
>
>Stupid argument.   If British coal is expensive, then importing
>cheap coal benefits coal's customers, and there are a damned 
>sight more jobs in British industries that *use* coal, than in 
>the British coal industry itself.

I'll have a pot-shot at this one, though, because the word 'stupid'
annoyed me.  The second sentence is true(-ish, with a twist I'll put on
in a minute).  However, even assuming it's 100% true, one effect of the
devaluation has been that the price in sterling of imported coal has
leapfrogged the price of British coal, so that the imports WON'T be
cheaper.  However, British industry can't take advantage of this now
cheaper British coal, because the British government has decided, in
its wisdom, that the pits have to close.  'Demand' doesn't enter into
their equation.

Now, the promised twists (which, if nothing else, will reveal that
there are even more possible complexities and points of view involved
in interpreting economics).  What are the 'real', total costs and
benefits of closing British coal pits, even assuming that British coal
is more expensive than imported?  (Jon almost certainly won't agree
with me here, because the answer depends on your political point of
view.)

I'd argue that you have to count in the costs involved in putting the
workers out of a job -- increased demand for unemployment pay and
support facilities, loss to the government of the money they'd have
paid in taxes, and loss to the economy of the money they'd have spent.
The last, of course, based on the assumption that they have higher
incomes while working than they will on the dole.  If you take all this
into account, the government could (and should, I say) benefit the
economy as a whole by keeping the pits open even at some monetary loss,
so long as that loss is smaller than the indirect costs of closing it.
Subsidies?  Yeah, why not?  They do, after all, subsidise (high-cost)
gas-turbine power generation and (high-cost) nuclear stations.

-- 
Paul Smee, Computing Service, University of Bristol, Bristol BS8 1UD, UK
 P.Smee@bristol.ac.uk - ..!uunet!uknet!bsmail!p.smee - Tel +44 272 303132