Re: CJE 2001 critical review of trade theory and policy

["John O'Donnell" <jackodonnell@xxxxxxx>]

Bruce McFarling wrote:
>
> 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.

Not a joke. And when did it become a sin to post on PKT
anything but regurgitation of the biblical premise of PKT?

> Then it struck me that it is also grossly bad neoclassical
> economics.

Must all economic thought be labeled as particular to some
biblical standard of wherever stripe?

>  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.

I suppose MVP means something like marginal value of
production and not most valuable player. In any case, it
takes only a simple construction to see the point. Take any
widget with a normal demand curve and find the most
profitable production point under just two conditions.

First create an arbitrary normal demand curve. Then create a
normal cost of production curve with fixed and variable
costs of production with falling costs to the point of
diminishing returns and a rising cost beyond that point.
Then find the most profitable production point on the demand
curve.

With me so far?

Then when you've done this simple task find the variable
costs of production at the most profitable production point
and change a substantial portion of this cost to fixed cost
of production and find the new point of maximum profit that
falls on the same demand curve. That is, change only the
distribution of costs between variable costs and fixed costs
just as would occur if nominal wages collected by employers
as taxes and never seen by employees as actual wages were
collected as property taxes from the employer as I described
in the original post.

If you can manage to do that and honestly report the result
as an increase in the level of production you may even
accept the conclusion that such a change would increase
employment to produce the greater amount of product that is
sold more profitably at the lower price needed to obtain the
increased demand.

Or, if you prefer, you could go to <
http://www.geocities.com/jackodonnell.geo/widgets.html > and
use the program that does all the work for you. You could
even go to the description of each of the cost elements
beginning at <
http://www.geocities.com/jackodonnell.geo/c04r4a.html >

Of course you could also simply stay on your high horse and
criticize from ignorance.


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

--
			-- jbod

		Tax Privilege, Not People
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