Re: Question about Say's Law

[Gil Skillman <gskillman@xxxxxxxxxxxx>]

> Here's an odd thought. Tuesday I went to a public forum on immigration and
> labour. The big issue, apparently -- especially for the speakers from the
> business associations -- was the looming shortage of skilled workers.
>
> Well hold on a minute, here, Chester. Doesn't the classic comix version of
> Say's Law claim that "supply creates its own demand"? Can somebody please,
> please explain to me why this would apply only to an INCREASE in labour
> supply and not to a DECREASE in labour supply? Now I'm not saying I
> subscribe to that interpretation of Say's Law but the business folks
> avowedly do. Or are the business folks committing a "lump-of-laborers fallacy"?

As is implicit in several responses so far, Say's Law is a story about
macro, i.e. *aggregate* demand and supply.  Keynes's general theory is a
response to that claim.  The issue here is relative supply and demand in a
specific subset of markets, and therefore micro in nature.  I think Bill's
response suggested the sense in which business leaders are worried about
it:  if these markets don't tend to clear (think nursing, e.g.), then the
shortages are literal and persistent; if they do, then "shortages"
translates into "having to pay higher wages."

And, by the way, contra Max, persistent ("equilibrium") shortages are most
definitely not "impossible" in micro.  They can arise due to monopsony
power or a phenomenon Stiglitz refers to as "the dependence of quality on
price." It is typical to have supra-market-clearing equilibrium wages in
the latter scenario.

Gil