Re: CJE 2001 critical review of trade theory and policy

[Bruce McFarling <ecbm@xxxxxxxxxxxxxxxxxxx>]

On Date: Mon, 11 Mar 2002 17:20:05 -0800, John O'Donnell
<jackodonnell@xxxxxxx> wrote:

>"Henry C.K. Liu" wrote:

>> Central banks, by adopting the "natural" rate of unemployment (NAIRU) as a
>> component of monetary policy, is condamning 4% of the labor force to
perpetual
>> involuntary unemployment.  It seems self evident that the population has a
>> natural right not to be forced to be part of this 4% of unfortunate souls.

>How long will it take for economists to accept that monetary
>policy is not a determinant of employment? All they need do
>to solve this seemingly perplexing problem is to accept
>their own dictum concerning marginal cost of production.
>Reduce the marginal cost of production and prices fall
>accompanied by rising production and employment. And what is
>the most significant marginal cost of production? Wages!

My first reaction to this is to wonder whether it is a troll
or a joke, since noone could seriously post on a Post Keynesian
Thought list that "economist", _sui generis_, would have such
a theory of employment.

Then it struck me that it is also grossly bad neoclassical
economics.  The comparison is the MC to the MVP, and the
most common even causing either an increase or a decrease
in the quantity of employment at which MC intersects MVP
would be either an increase or reduction in effective
demand, since beyond the point where there is effective
demand for a product the MVP drops to a nil or negligable
value which it would be difficult to undercut at even zero
wages, supposing that there are some material or energy
costs involved in the production process.

--
Dr. Bruce R. McFarling, PhD
Bus. Office 1.72 -- (02) 4348-4078
School of Business
Faculty of the Central Coast
Newcastle University, Ourimbah