RE: stability of equilibrium (was: Debunking economics)

["John M. Legge" <jlegge@xxxxxxxxxx>]

Alan,

I am aware of the nature of Bertrand and Cournot competition.  Stephen
Martin was kind enough to let me read pre-publication chapters of his
forthcoming text on advance industrial economics.  Inter alia, Martin's
discussion of Chicago orthodoxy is nearly as damning as Steve Keen's.

The point that I was making is that entry is necessarily not infinite.  If
every living being on earth was supplying a single market, that would not
constitute an infinite number of suppliers and my analysis holds: the P=MC
equilibrium is unstable under the normal assumptions of perfect competition,
(and calling for infinite entry seems to me to be a reductio ad absurdum,
strengthening, not diminishing, my proof).

Martin proves that under most circumstances Bertrand competition is also
unstable and an oligopoly will have a stable Cournot equilibrium with
positive definite profits.

Your reference to later year and post graduate economics misses the entire
point of Keen's book.  The vast majority of business undergraduates, and
most economics undergraduates, are taught that perfect competition is
"perfect" and from that viewpoint taught to despise trade unions, call for
ever-smaller government, and tolerate oligopolisation of product markets
under the assumption that two competitors, or a monopolist plus the
possibility of entry, suffices to bring about P=MC pricing.  I-O economics
is a later year elective in many universities, and honours graduates,
aspiring to get published in the EJ or the AER, concentrate on ever more
arcane development of GE theory.

As soon as one admits the existence of positive profits and persistent
market power a great number of the simple neoliberal prescriptions for
public policy are shown to have no theoretical foundation.  The think tanks
stand exposed for what they are: shameless advocates for the over-privileged
masquerading as legitimate scientists.

Economic fundamentalism relies on two sociological facts: one is that most
students of economics never get beyond Samuelson and Nordhaus or some even
more doctrinaire text; and the second is the fact that the less educated
tend to respect the opinions of people with doctorates and professorial
chairs.  Popular disgust with neoliberal policy is leading to declining
enrolments in economics courses, but also a progressive loss of popular
respect for science in all its forms.

In Australia the econocracy has just approved the takeover of Colonial Bank,
a small, innovative and aggressive player, by the Commonwealth Bank, the
price leader in the ring of four oligopolists who dominate Australian
banking.  The regulators and economic commentators have relied on the
assumptions from the first five chapters of Samuelson and Nordhaus to
"prove" that this step towards increasing concentration in a highly
concentrated industry will make consumers better off!

If Steve Keen is 100% successful the current first year of practically every
undergraduate program will have to be scrapped.  Books like Hugh Stretton's
institutional treatment are candidates for a realistic introduction to
economics (my review is at
http://www.users.bigpond.com/msn/jlegge/Articles/reviewof.htm ).  I believe
that Stretton's book went into an early reprint, suggesting that at least
some academics are looking for a way out of the neoclassical cesspit,

JML



> -----Original Message-----
> From: Alan G. Isaac [mailto:aisaac@xxxxxxxxxxxx]
> Sent: Wednesday, 31 May 2000 1:29 AM
> To: Post Keynesian Thought (E-mail)
> Cc: John M. Legge
> Subject: stability of equilibrium (was: Debunking economics)
>
>
> John,
>
> It seems to me that the relevant literature is
> the discussion of Bertrand and Cournot
> competition (e.g., in Varian).
> Like your presentation, the literature works
> with a short-run notion of equilibrium and
> side-steps issues of entry.
>
> I think you will find from that literature that
> you have not attacked the stability of an
> equilibrium concept but rather have been
> discussing a case where MC=P is not
> an equilibrium. (No surprise.)
>
> Cheers,
> Alan
>
>