Re: CJE 2001 critical review of trade theory and policy

[Bruce McFarling <ecbm@xxxxxxxxxxxxxxxxxxx>]

At 00:19 26/03/02 +1100, Leigh Harkness wrote:
>> You do seem to be excessively reluctant to actually look at
>> the proposal.

>You are right.  My web brouser is not functioning.  I am dependant
>on you to explain your approach in a few words.

>> QUOTE
>> 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.

How you drop ALL wages across the board without modifying
demand curves is what the mechanical approach to the monetary
system is required for.  Unfortunately, if the monetary system
is more complex than that, and cannot be "fine-tuned", it falls
apart.  And, yes, the monetary system IS more complex than that,
and, yes, fine-tuning does not work.  The most egregious flaw
for these "micro models inflated into macro models" is that they
are always commit the fallacy of composition.  Every single
time.  That's why the fallacy of composition used to be taught
properly by macroeconomists, and why dropping the bar so that
anyone can get out of grad school without understanding the
fallacy of composition and what it means for modelling complex
economic systems is crucial for letting "micro models drawn with
macro labels" pass as if they were macroeconomic theory.

Virtually,

Bruce McFarling, New Lambton, NSW
ecbm@xxxxxxxxxxxxxxxxxxx