Re: CJE 2001 critical review of trade theory and policy

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

Leigh Harkness wrote:
>
> Bruce wrote
>
> > 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.
>
> Bruce, thankyou for your explanation of this essentially micro-economic
> theory.  It assumes the macro-economic environment to be given or exogenous
> to your model.

Firstly, Bruce didn't write this explanation, I did.

Secondly, yes, it is a micro analysis and yes it does assume
the macro environment [i.e. --  the value of the currency]
is independent from the effect the analysis has on this
micro example of widget sales. However, in the full
explanation beginning at:
http://www.geocities.com/jackodonnell.geo/c04r4a.html the
relationship of this micro example to the macro environment
is explained.

> But unemployment is most likely to be a macroeconomic problem.

Again, yes, but the macro level of employment is the sum of
the micro employments. Provide a change to the macro
environment [i.e. -- Change variable costs of production to
fixed costs of production.] in a way that causes the micro
employer to lower his asking price to obtain greater profit
and he will hire the extra people to produce that greater
production. As explained in the full analysis, because this
effect would, if left as the only change, cause an increase
in the value of the currency relative to all the things now
becoming lower in price so that a corrective to this
deflation problem will be required. That is also explained
in at the above referenced web address. For access to the
complete analysis of macro performance go to:
http://www.geocities.com/CapitolHill/1067/c00r4.html and
follow the page references for each element of the analysis.

The rest of your commentary is irrelevant to the specific
consequences of the macro policy of changing given costs
[namely taxes] in form so that the same amount now collected
as a variable cost of production is changed to a form that
makes the same amount of tax be collected as a fixed cost of
production. It is not neccessary to change all taxes this
way, just the ones that could be changed without causing any
other consequences to the macro environment. However, the
reality is that changing all the taxes that resolve to
variable costs of production to taxes that resolve to fixed
costs of production would have the greatest effect, it would
just take time for the prices of all the offered for sale
prices to accommodate to the changes.

Note the emphasis on "the same amount of tax" meaning that
no other changes are required to cause an increases in micro
production decisions and the concurrent result of an
increase in both micro and its summation as macro
employment.

<<SNIP>>
--
			-- jbod

		Tax Privilege, Not People
___________________________________________________
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