Show Me Long Period Labor Demand Curves For This Technology
Robert Vienneau
This long post presents an example in which higher wages for
unskilled labor are associated with firms choosing to employ more
unskilled workers per unit output produced. The exact numeric values
used are obviously unreasonable. The example, howevever, is used to
raise questions about the logical implications of maximizing
behavior.
Some further points might help clarify the questions. The example
illustrates behavior that is possible under some maximizing frameworks.
Those who accept one of these frameworks, but reject the possibility
of this behavior occuring in existing economies must accept the
existence of additional special case assumptions. Those adopting this
position should clearly state their assumptions, ad hoc as they may be.
They might also try to give some rationale for why one should be
interested in this special case. If one does not accept any maximizing
model that could produce the illustrated behavior in the general case,
but does accept the use of mathematical models of maximization in
economics, one should outline an alternative model. The models in
which I am especially interested, although not exclusively so, are
those of steady state or long run prices. In a long run position,
the need for specific quantities of capital goods will have been
foreseen and the structure of capital goods will have been adapted to
production. I question whether equilibria of this sort can be explained
by the intersections of long run supply and demand curves. Some
economists have raised this question.
2.0 DATA ON TECHNOLOGY
Consider a very simple economy that produces a single consumption
good, corn, from inputs of skilled and unskilled labor, steel, and
(seed) corn. All production processes in this example require a year to
complete. Two production processes are known for producing steel. These
processes require the inputs shown in Table 1 to be available at the
start of the year for each ton steel produced and available at the
end of the year.
TABLE 1: INPUTS REQUIRED PER TON STEEL PRODUCED
Process A Process B
Steel 0 Tons (3/10) Ton
Corn (71/100) Bushel (1/50) Bushel
Skilled Labor (1/100) Person-Year (33/50) Person-Year
Unskilled Labor 1 Person-Year (6/5) Person-Year
Two processes, as shown in Table 2, are also known for producing
corn.
TABLE 2: INPUTS REQUIRED PER BUSHEL CORN PRODUCED
Process C Process D
Steel (1/10) Ton (1/5) Ton
Corn 0 Bushels (1/10) Bushel
Skilled Labor 1 Person-Year (7/10) Person-Year
Unskilled Labor 1 Person-Year (4/5) Person-Year
A technique consists of a process for producing the consumption good,
corn and a process for producing each non-consumption reproducable good
used as an input in the process for producing the consumption good. In
other words, a technique is a combination of one steel-producing
process and one corn-producing process. The number of techniques is the
product of the number of corn-producing processes and the number of
steel-producing processes. Thus, there are four techniques in this
example. They are defined in Table 3.
TABLE 3: TECHNIQUES AND PROCESSES
Technique Processes
Alpha A, D
Beta A, C
Gamma B, C
Delta B, D
3.0 QUANTITY FLOWS
The example is constructed by comparing constant prices associated
with stationary states for producing the net output of a bushel corn.
Four stationary states are possible, or linear combinations of these.
Each of the pure stationary states corresponds to a choice of one
of the techniques. Table 4 shows the quantity flows for a stationary
state in which the alpha technique is used. The quantity flows for
the stationary states in which the other techniques are used are
shown in the appendix.
TABLE 4: QUANTITY FLOWS FOR THE ALPHA TECHNIQUE
INPUTS STEEL INDUSTRY CORN INDUSTRY
Skilled Labor (1/379) Person-Year (350/379) Person-Year
Unskilled Labor (100/379) Person-Year (400/379) Person-Year
Steel 0 Tons (100/379) Ton
Corn (71/379) Bushel (50/379) Bushel
OUTPUTS (100/379) Ton Steel (500/379) Bushel Corn
The amount of any input required per bushel corn produced net is
merely the sum across the columns in the tables showing stationary
state quantity flows. Table 5 shows the unskilled labor intensity
for each technique.
TABLE 5: UNSKILLED LABOR INTENSITY
TECHNIQUE INTENSITY
Alpha (500/379) Unskilled Person Years per Bushel
Beta (1100/929) Unskilled Person Years per Bushel
Gamma (410/349) Unskilled Person Years per Bushel
Delta (400/313) Unskilled Person Years per Bushel
4.0 PRICES
The argument proceeds by determining which technique is
cost-minimizing at equilibrium prices. In this context, equilibria
have the following properties:
o At least one corn-producing process is operated, and at least one
of the steel-producing processes is operated.
o The cost of inputs for each process in operation does not exceed
revenues.
o No process can be used to obtain pure economic profits.
I assume that steel and corn inputs are paid for at the beginning
of the year. Labor, although hired at the beginning of the year,
is paid out of the product at the end of the year.
Given these conditions, Equations 1 and 2 must be satisfied if
the Alpha technique is chosen:
(71/100)( 1 + r ) + (1/100) w1 + w2 = p (1)
[ (1/5) p + (1/10) ]( 1 + r ) + (7/10) w1 + (4/5) w2 = 1 (2)
where corn is the numeraire, p is the price of steel, w1 is the wage of
skilled labor, w2 is the wage of unskilled labor, and r is the rate of
profits (sometimes called the interest rate). This is a system of two
equations with four unknowns. Thus, there are two degrees of freedom.
This system can be solved for the wage of skilled labor and the price
of steel in terms of a given rate of profits and the wage of unskilled
labor. Equations 3 and 4 show this solution:
w1 = [ 379 - 192 r - 71 r r - (500 + r) w2 ]/(351 + r) (3)
p = ( 253 + 248 r + 346 w2 )/(351 + r) (4)
Equation 3 is the factor price surface for the Alpha technique. This is
a two-dimensional surface in a three-dimensional space.
Corresponding price systems for the Beta, Gamma, and Delta techniques
are relegated to the appendix.
5.0 CHOICE OF TECHNIQUE
It remains to be shown which technique is cost minimizing. I consider
two values of the exogeneously specified rate of profits, 0% and 150%.
5.1 CASE 1: r = 0%.
Figure 1 shows the factor price curves for three techniques when
the rate of profits is zero. (The curve for delta is never on
the frontier and is not shown.) The cost-minimizing technique, at
a given rate of profits and a given wage of unskilled labor will
maximize the wage of skilled labor. Thus, the cost-minimizing
technique at a zero rate of profits is the frontier constructed
as the outer envelope of the three lines shown. Notice that the curves
for alpha, beta, and gamma are straight lines. This is an implication
of the mathematics in general. There cannot be reswitching at a given
rate of profits between skilled and unskilled labor.
S |
k 379/351+
i | . alpha
l 929/1001+ ./
Wl | . .
ae | . .
gd 349/383+ . .
e | . . .
L 119/286+ . x
oa | . ..
fb | . .. beta
o | .. ./
r 301/1089+ . x
| . . . gamma
( | . . ./
w | . . .
1 +--------------------+--------------+--------x------x--------x
) 41/88 3229/5445 929/1100
379/500 349/410
Wage of Unskilled Labor (w2)
FIGURE 1: FACTOR PRICE FRONTIER (NOT TO SCALE)
Since the technique and prices have been determined at a zero rate of
profits, for any given wage of unskilled labor, one can graph the labor
intensity for unskilled labor against either the wage of unskilled
labor or relative wages along the factor price frontier. Figure 2
shows the latter. Notice that higher wages of unskilled labor are
associated with a step-decrease in the unskilled labor intensity of the
cost-minimizing technique. This case conforms to the intutition of the
traditional story.
|
500/379+-------+
Labor | |
Intensity | |
| |
(Unskilled 1100/929+ +-----------------+
Person- | |
Years | |
per 410/349+ +------->
Bushel) |
|
|
|
|
+-------+-----------------+---------
5863/5236 3229/1505
Ratio of Wages of Unskilled and Skilled Labor
FIGURE 2: UNSKILLED LAOR INTENSITY VS. RELATIVE WAGES (NOT TO SCALE)
5.2 CASE 2: r = 150%
Figure 2 shows the factor price curves when the rate of profits
is 150%. Only the Gamma and Beta techniques appear on the frontier in
this case; the Alpha and Delta techniques are dominated.
S |
k |
i |
l 95/166+ Gamma
Wl | ./
ae | .
gd 445/802+ .
e | . .
L | . .
oa | . .
fb | . .
o 5/18+ ..
r | . . Beta
| . ./
( | . .
w | . .
1 +------------------------------+-------------------x----------x
) 2/9 19/44 89/200
Wage of Unskilled Labor (w2)
FIGURE 3: ANOTHER FACTOR PRICE FRONTIER (NOT TO SCALE)
Figure 4 shows the intensity of unskilled labor for the chosen
technique graphed against relative wages. In this case, a higher
wage for unskilled labor can be associated with a choice of technique
in which vertically integrated firms want to hire more unskilled
workers per unit output.
|
|
Labor |
Intensity |
|
(Unskilled 1100/929+ +---------------->
Person- | |
Years | |
per 410/349+----------------+
Bushel) |
|
|
|
|
+----------------+------------------
4/5
Ratio of Wages of Unskilled and Skilled Labor
FIGURE 4: UNSKILLED LAOR INTENSITY VS. RELATIVE WAGES (NOT TO SCALE)
6.0 CONCLUSIONS
This example clearly shows that it is possible for a technique that
uses an input more intensively to be adopted by cost-minimizing firms
when the price of that input is higher. In the case illustrated by
Figure 4, vertically integrated firms desire to hire more unskilled
workers, per bushel corn produced net, at a higher wage for unskilled
labor. This is a matter of logic.
Those who do not think that this possibility ever occurs in
the real world have failed to face a challenge for decades now.
What are the special case assumptions adopted so as to rule out the
possibility illustrated in the example? Furthermore, why should
a special-case model be preferred to the more general model? The
general model for analyzing the choice of technique does not imply
a less-labor intensive technique will be adopted at a higher wage.
From long experience, I know that some are likely to make logical
mistakes at this point. So I'll conclude with a few observations. The
effect illustrated in the example can arise when there are many more
processes to choose from. It can arise in models with more than two
goods being produced. I don't think it depends on the existence of a
produced good that is used either directly or indirectly in the
production of all goods. (Both steel and corn have this property in
the example.) It can arise if there are non-produced commodities used
in production ("land") and capital-goods that last more than one
production cycle ("fixed capital" or "machinery"). I gather that
numeric examples with reasonable values are easier to construct, in
some sense, if there are more produced goods. At least, more degrees
of freedom arise.
Consequently, incorrect answers to my question are assumptions
that more goods are produced, more techniques are available, etc.
These assumptions are simply insufficient to imply the conclusion
that higher wages of a specific type are associated with a choice of
a technique using that type of labor less intensively.
The final questions posed by this example are a matter of the
sociology of knowledge. Similar examples have been available
in the literature for over three decades. Many economists,
including specialists in labor economics, seem to be unaware of
this possibility. Why do so many economists have logically
mistaken beliefs about their subject? Why do they continue to
teach irrelevant dogma?
REFERENCES
Heinz D. Kurz and Neri Salvadori, _Theory of Production: A
Long-Period Analysis_, Cambridge University Press, 1995
J. S. MetCalfe and Ian Steedman, "Reswitching and Primary Input Use,"
_Economic Journal_, 1972
APPENDIX
This appendix contains some supplementary tables and calculations for
anybody who wants to check my work.
A.1 QUANTITY FLOWS
TABLE A-1: QUANTITY FLOWS FOR THE BETA TECHNIQUE
INPUTS STEEL INDUSTRY CORN INDUSTRY
Skilled Labor (1/929) Person-Year (1000/929) Person-Year
Unskilled Labor (100/929) Person-Year (1000/929) Person-Year
Steel 0 Tons (100/929) Ton
Corn (71/929) Bushel 0 Bushels
OUTPUTS (100/929) Ton Steel (1000/929) Bushel Corn
TABLE A-2: QUANTITY FLOWS FOR THE GAMMA TECHNIQUE
INPUTS STEEL INDUSTRY CORN INDUSTRY
Skilled Labor (33/349) Person-Year (350/349) Person-Years
Unskilled Labor (60/349) Person-Year (350/349) Person-Years
Steel (15/349) Ton (35/349) Ton
Corn (1/349) Bushel 0 Bushels
OUTPUTS (50/349) Ton Steel (350/349) Bushel Corn
TABLE A-3: QUANTITY FLOWS FOR THE DELTA TECHNIQUE
INPUTS STEEL INDUSTRY CORN INDUSTRY
Skilled Labor (66/313) Person-Year (245/313) Person-Years
Unskilled Labor (120/313) Person-Year (280/313) Person-Years
Steel (30/313) Ton (70/313) Ton
Corn (2/313) Bushel (35/313) Bushel
OUTPUTS (100/313) Ton Steel (350/313) Bushel Corn
A.2 PRICE EQUATIONS
A.2.1 BETA PRICES
The Beta price system is:
(71/100)( 1 + r ) + (1/100) w1 + w2 = p (A-1)
(1/10) p ( 1 + r ) + w1 + w2 = 1 (A-2)
The solution is:
w1 = [ 9929 - 142 r - 71 r r - (1100 + 100 r) w2 ]/( 1001 + r ) (A-3)
p = ( 720 + 710 r + 990 w2 )/( 1001 + r ) (A-4)
A.2.2 GAMMA PRICES
The Gamma price system is:
[ (3/10) p + (1/50) ]( 1 + r ) + (33/50) w1 + (6/5) w2 = p (A-5)
(1/10) p ( 1 + r ) + w1 + w2 = 1 (A-6)
The solution is:
w1 = [ 349 - 152 r - r r - (410 - 90 r) w2 ]/( 383 - 117 r ) (A-7)
p = ( 340 + 10 r + 270 w2 )/( 383 - 117 r ) (A-8)
A.2.3 DELTA PRICES
The Delta price system is:
[ (3/10) p + (1/50) ]( 1 + r ) + (33/50) w1 + (6/5) w2 = p (A-9)
[ (1/5) p + (1/10) ]( 1 + r ) + (7/10) w1 + (4/5) w2 = 1 (A-10)
The solution is:
w1 = ( 313 - 174 r + 13 r r - 400 w2 )/( 311 - 39 r ) (A-11)
p = ( 304 - 26 r + 156 w2 )/( 311 - 39 r ) (A-
--
r a Whether strength of body or of mind, or wisdom,
v c p or virtue, are found in proportion to the
i s e power or wealth of a man is a question fit
e . . perhaps to be discussed by slaves in the
n m c hearing of their masters, but highly unbecoming
@ a o to reasonable and free men in search of the
d e m truth.
r -- Rousseau
SUSUPPLY
>1.0 INTRODUCTION
>
> This long post presents an example in which higher wages for
>unskilled labor are associated with firms choosing to employ more
>unskilled workers per unit output produced.
How about you answering some questions for a change, say Chris Auld's two of a
couple of months ago to you?
Then you might want to comment on the following:
<< Mellowing Out? Not This Union Boss
<< Business Week; New York; January 31, 2000; Jack Ewing in Frankfurt;
<< In his three-piece suits, chauffeured Audi limo, and wood-paneled office
outside Frankfurt, Klaus Zwickel could be just another rich investment banker.
But when he jabs his thick index finger to make a point, his rough toolmaker's
hands reveal someone far more fearsome: the head of IG Metall, Germany's
largest labor union. With a wave of one of Zwickel's fat cigars, his union's
2.8 million members could shut down most of German heavy industry, including
companies such as DaimlerChrysler and Mannesmann.
<< Now, as Chancellor Gerhard Schroder finally shows signs of delivering the
reforms long sought by business, Zwickel is the guy standing in the way.
Schroder just found that out. On Jan. 9, he got union leaders to say they would
seek moderate pay increases if business agreed to make it easier for workers to
retire at 60 rather than 65. Zwickel signed--then days later demanded a 5.5%
raise for his people, far above what anyone expected. Business leaders were
enraged. ``The demand violates the letter and spirit of the agreement,'' says
Dieter Hundt, president of the German Employers' Assn. Schroder remained
silent, not wanting to risk alienating IG Metall before some crucial state
elections.
<< Although the union is likely to settle for 3% to 3.5%, business leaders and
economists say any raise above the estimated 2.5% growth in productivity will
kill jobs and add to Germany's 10.2% unemployment rate. ``There is no union
that has more radical, more militant, more old-fashioned views than IG
Metall,'' rails Hans-Olaf Henkel, president of the Federal Association of
German Industry.
<< Don't whine to Zwickel, 60, about holding down wages to make Germany more
competitive. The beefy, crew-cut labor boss, whose salary runs into six
figures, personifies the resentment many Germans feel about giving up their
social perks in the name of globalization. His membership is among the best
treated in the world, earning an average of $30,000 a year, with 35-hour work
weeks plus six weeks of vacation. Zwickel wants to keep it that way.
<< He has the clout to do it. His union is so feared that companies such as
IBM's German unit have redrawn their corporate structure to minimize the number
of workers who would qualify for IG Metall membership.
[Their demand curves slope how, Robert?]
<< And Zwickel's power radiates beyond the union. He sits on the supervisory
boards of two of Germany's most important companies, Volks- wagen and
Mannesmann. IG Metall typically sets the tone, prompting other unions to seek
similar pay hikes.
<< But critics say the union is digging its own grave. By winning annual raises
of up to 6.8% in the last decade, the union drove German business to invest in
machines rather than people.
[Well, how silly of them.]
<< And as industry moved production to cheaper locations overseas, IG Metall
lost members--600,000 since 1992. As chairman of the union for the last seven
years, Zwickel, who declined requests for an interview, shoulders much of the
blame. >>
The first question I'd ask him is, does he accept advice from Robert.
Patrick
Chris Auld
> This long post presents an example in which higher wages for
>unskilled labor are associated with firms choosing to employ more
>unskilled workers per unit output produced.
Rob has been working on Sraffa3.ps some more. Is there a new version
number now, Rob?
In answer to the challenge in the subject: do it yourself. Since you
have two types of labor, however, the question is ill-posed. Choose
one type and deduce the profit-maximizing amount of that type hired as
its own price changes in one period, all else equal (the way Rob phrases
the question, "long period demand," implies the ol' ceteris paribus
explicit in the definition of "input demand function" is still a point
Rob is confused about.)
>The exact numeric values
>used are obviously unreasonable. The example, howevever, is used to
>raise questions about the logical implications of maximizing
>behavior.
For the n-th time, Rob, all us stupid mainstream economists are well
aware that the locus of equilibria traced out as multiple prices
endogenously change will not necessary exhibit the same properties as
its partial equilibrium analog. Why do write this essay as if you're
saying something that's surprising or at odds with the "brainwashing"
we teach to even undergraduate micro theory students?
>They might also try to give some rationale for why one should be
>interested in this special case.
Empirical evidence? For instance, Rob has repeatedly suggested that
the mechanism in this paper is responsible for Card and Krueger's
controversial empirical results on minimum wages. But he refused to
say whether he really believed that endogenous responses in the world
interest rate feeding back to the labor market in one State were
really strong enough to generate the result. Recall that if we leave
the pointlessly cumbersome world of fixed coefficient production
functions and use differentiable technologies, Rob's result (with one
type of labor) can be generally written:
dL \partial L \partial L \partial r
-- = ---------- + ---------- ---------- .
dw \partial w \partial r \partial w
The first term on the right-hand side is negative; Rob's result stems
from the fact that it's possible that the second term is positive and
larger in magnitude than the first. But I've argued that, based on both
theory and evidence, that term is likely to be the product of two small
values, and is therefore likely to be swamped by the first term. So that
is one reason why the partial equilibrium concept 'labor demand schedule'
is still useful even when we all know the ceteris paribus assumption is
false (oh, and by the way, Rob, I don't agree with the "F-twist," so it's
odd you think I've been "lecturing" you on it.)
I've also explained how standard econometric techniques can recover both
the labor demand curve and the total derivate of labor response to a wage
change, and why the former concept is still a useful building block even
if these feedback effects are relatively large in magnitude. To no avail,
apparently.
Why don't you tweak the model in a way that hasn't been done and both
post the results here and send them to a journal (sans the overblown
rhetoric, of course), Rob? That would be a rare example of a genuine
Pareto improvement.
--
Chris Auld (403)220-4098
Economics, University of Calgary <mailto:au...@ucalgary.ca>
Calgary, Alberta, Canada <URL:http://jerry.ss.ucalgary.ca/>
Robert Vienneau
> Robert Vienneau <rv...@see.sig.com> wrote:
> > This long post presents an example in which higher wages for
> >unskilled labor are associated with firms choosing to employ more
> >unskilled workers per unit output produced.
> [ Irrelevancy deleted. ]
> In answer to the challenge in the subject: do it yourself.
Which of these possible responses to my challenge is Chris making:
a) Admitting that he doesn't know how to draw factor demand
curves in this situation
b) Admitting supply and demand is not applicable to factor
markets in the long period.
c) Deciding to call some such locus like I draw a type of demand curve
Or has Chris found some valid fourth response?
Note that I do not choose (c) in the post to which Chris is responding.
> Since you
> have two types of labor, however, the question is ill-posed.
Here Chris seems to have actually read part of the post to which he is
responding, but not its title. Why the challenge to draw labor demand
curveS is ill-posed when there is more than one type of labor is a
mystery that we members of the laity will never know.
> Choose
> one type and deduce the profit-maximizing amount of that type hired as
> its own price changes in one period, all else equal (the way Rob phrases
> the question, "long period demand," implies the ol' ceteris paribus
> explicit in the definition of "input demand function" is still a point
> Rob is confused about.)
Chris is being silly. Just because I know how to correctly analyze the
choice of technique in a long period position does not mean I am now
confused about anything. I showed this analysis to highlight a property
of the example I thought some might find interesting. The correct
analysis also serves as a contrast.
The only place the word "demand" appears in the post to which Chris is
pretending to respond is in the introductory paragraph concluding with
these sentences.
"...In a long run position,
the need for specific quantities of capital goods will have been
foreseen and the structure of capital goods will have been adapted to
production. I question whether equilibria of this sort can be explained
by the intersections of long run supply and demand curves. Some
economists have raised this question."
Given Chris' understanding, he should demonstrate that the wage of
a type of labor *can* vary in the example, leaving all other prices
unchanged. The profit-maximizing firm should be producing at a
positive level, then, that can be an equilibrium (when supply curves
are at the appropriate location). Chris, of course, substitutes insults
for addressing the challenge.
> >The exact numeric values
> >used are obviously unreasonable. The example, howevever, is used to
> >raise questions about the logical implications of maximizing
> >behavior.
> For the n-th time, Rob, all us stupid mainstream economists are well
> aware that the locus of equilibria traced out as multiple prices
> endogenously change will not necessary exhibit the same properties as
> its partial equilibrium analog. Why do write this essay as if you're
> saying something that's surprising or at odds with the "brainwashing"
> we teach to even undergraduate micro theory students?
If Chris isn't brainwashed, why cannot he respond with something
that exhibits a moment's command of reason?
For the n-th time, I'd like to see an explicit derivation in one
of my examples - in this case, this example - of one element, a
demand curve for one or another sort of labor, of that "partial
equilibrium analog." The claim I am making is that such a long
period curve cannot be constructed.
> >They might also try to give some rationale for why one should be
> >interested in this special case.
> Empirical evidence?
If one had some sort of formal model, that would answer the suggested
question. But it would be nice to see a response to the question,
"What are your assumptions?" other than the non-sequitur, "Assumptions
do not need to be realistic." In other words, Chris does not have
a model to compare with empirical evidence.
Also notice that if Chris had a model appropriate for the suggested
question, in context, it would not be a model of suppply and demand
curves, as he understands them.
By the way, Barkley Rosser has a book chaper from his new
edition of _ From Catastrophe to Chaos: A General Theory of Economic
Discontinuities_ posted on his Web site <http://cob.jmu.edu/rosserjb/>.
In this chapter, he references Albin's (?) paper on a logging example
and one of his own co-authored papers as empirical evidence of
reswitching. Rosser also predates me in realizing Cambridge
Capital Controversy models point towards the possibility of
interesting dynamics arising in economic models. I have not read
his _Journal of Economic Theory_ (?) paper on the topic, but I
was influenced by his book.
[ Irrelevancy deleted. ]
> Recall that if we leave
> the pointlessly cumbersome world of fixed coefficient production
> functions
The points at issue have nothing to do with fixed coefficients, as
I understand them. Furthermore, as has been repeatedly pointed out to
Chris, my examples often do not use fixed coefficient production
functions. The example in the post to which Chris is pretending to
respond does not use fixed coefficient production functions. (If
they were fixed, he should be able to specify a unique value for
each coefficient.)
I'd be quite happy with a non-trivial step function as an
answer to my challenge, if it could be answered.
> and use differentiable technologies, Rob's result (with one
> type of labor) can be generally written:
>
> dL \partial L \partial L \partial r
> -- = ---------- + ---------- ---------- .
> dw \partial w \partial r \partial w
Here Chris is addressing another post. The interesting aspect
of *this* example arises when (del r/del w) is zero. Of course,
I change another wage when varying the first wage. That's all part
of my question whether one can draw meaningful factor demand curves
for this example.
Notice that Chris has not derived expressions for the terms in the
above equation from maximizing conditions.
> The first term on the right-hand side is negative; Rob's result stems
> from the fact that it's possible that the second term is positive and
> larger in magnitude than the first. But I've argued that, based on both
> theory and evidence, that term is likely to be the product of two small
> values, and is therefore likely to be swamped by the first term.
Uh, this heterogeneous labor example suggests that that's not all
there is to it. Furthermore, I disagree with Chris' understanding
of the theory. The question is can one coherently vary the wage
of just one type of labor, while leaving all other prices fixed?
> So that
> is one reason why the partial equilibrium concept 'labor demand
> schedule'
> is still useful even when we all know the ceteris paribus assumption is
> false
The above seems to be a non-sequitur until Chris shows how to draw
a labor demand schedule.
> (oh, and by the way, Rob, I don't agree with the "F-twist," so it's
> odd you think I've been "lecturing" you on it.)
I suppose Chris hasn't said that unrealistic assumptions are a positive
virtue. He has merely said discussions about the realism of assumptions
are of no worth and has frequently illustrated his supposed position
about methodology with examples of assumptions meant to be unrealistic.
I guess it's "odd", given some knowledge about economists'
discussions on these matters, to infer that Chris is supporting the
F-twist. Of course, Chris has also said that he more-or-less agrees
with McCloskey's take on Methodology - or rather, methodology.
But don't let this side discussion distract Chris from admitting the
challenge in the thread title cannot be met.
> I've also explained how standard econometric techniques can recover both
> the labor demand curve and the total derivate of labor response to a wage
> change, and why the former concept is still a useful building block even
> if these feedback effects are relatively large in magnitude. To no
> avail,
> apparently.
In a rare burst of candor, Chris once acknowledged he did not know how
to use econometric techniques to distinguish between short and long
period results.
> Why don't you tweak the model in a way that hasn't been done and both
> post the results here and send them to a journal (sans the overblown
> rhetoric, of course), Rob? That would be a rare example of a genuine
> Pareto improvement.
Actually, I am using this example to make a point other than the ones
Steedman and Metcalfe develop from it. They go on to show that the
Heckscher-Ohlin-Samuelson analysis is not correct if production is
taken seriously.
But my point could not be published because it is obvious and well-known.
Once one acknowledges that neoclassical factor supply and demand curves
are not applicable to the theory of long period distribution, one could
go on to make other points:
1) An important element in the 1870s development of neoclassical
economics was the claim that prices and quantities could be
explained in all runs by the intersection of stable and regular
supply and demand functions. Perhaps the extension of supply and
demand curves to the long run was a mistake. Perhaps Ricardo and
Marx had a coherent theory of long period positions that should be
revived.
2) The Cambridge Capital Controversy was about more than aggregation
issues. In particular, it developed, at least, a clarification
of the long run theory of prices and distribution.
3) It is often claimed that unemployment results from sticky
wages and prices. It is claimed if institutional rigidities
in wages and prices (e.g. labor unions, minimum wage laws) were
removed, markets would move quicker toward long run positions in
which labor markets clear. This perspective seems not to be
a logical implication of rigorous economic theory. In other
words, Sraffa can add to Keynes' critique of "classical"
dogmas.
Of course, none of the above points are novel. In fact, I consider
them too well known to be publishable. The last point might have
policy consequences.
Chris Auld
Robert Vienneau <rv...@see.sig.com> wrote:
>Which of these possible responses to my challenge is Chris making:
>
> a) Admitting that he doesn't know how to draw factor demand
> curves in this situation
As I've explained numerous times before, Rob's ludicrous insistence on
doing everything with non-differentiable production functions and without
an algebraic presentation makes actually working with any of his models
very tedious. I had my fill of deriving labor demand curves in such
situations in intermediate micro many years ago.
> b) Admitting supply and demand is not applicable to factor
> markets in the long period.
I don't even know what this means, Rob. Do you mean that, if we *must*
change many prices at once, the resulting locus is not a demand curve?
Do you mean that supply and demand are not useful tools for in some
contexts for predicting gross quantity and price changes? Why have you
never answered my two simple questions which turn critically on that
point?
>Here Chris seems to have actually read part of the post to which he is
>responding, but not its title. Why the challenge to draw labor demand
>curveS is ill-posed when there is more than one type of labor is a
>mystery that we members of the laity will never know.
Well, what do you mean by "labor," Rob? The sum of unskilled and skilled
workers? In which case, what is the own price of that sum?
>> Choose
>> one type and deduce the profit-maximizing amount of that type hired as
>> its own price changes in one period, all else equal (the way Rob phrases
>> the question, "long period demand," implies the ol' ceteris paribus
>> explicit in the definition of "input demand function" is still a point
>> Rob is confused about.)
>
>Chris is being silly. Just because I know how to correctly analyze the
>choice of technique in a long period position does not mean I am now
>confused about anything. I showed this analysis to highlight a property
>of the example I thought some might find interesting. The correct
>analysis also serves as a contrast.
>
>The only place the word "demand" appears in the post to which Chris is
>pretending to respond is in the introductory paragraph concluding with
>these sentences.
Rob might want to take a gander at the subject he chose (which brings to
mind fond memories of the thread he titled "labor demand curves can slope
up," and then insisted, when it was pointed out that he had shown no
such thing, that he had never meant to talk about labor demand curves at
all).
[ quoting out of order]
> Furthermore, I disagree with Chris' understanding
>of the theory. The question is can one coherently vary the wage
>of just one type of labor, while leaving all other prices fixed?
[and]
>Here Chris is addressing another post. The interesting aspect
>of *this* example arises when (del r/del w) is zero. Of course,
>I change another wage when varying the first wage. That's all part
>of my question whether one can draw meaningful factor demand curves
>for this example.
[and]
>Given Chris' understanding, he should demonstrate that the wage of
>a type of labor *can* vary in the example, leaving all other prices
>unchanged.
No, I should not. This is so frustrating. Rob, a "labor demand curve"
is, by definition, derived when only one price changes. It does not matter
if, in the model, changes in that price will alter other prices: if we
allow those other prices to alter,
THE RESULTING OBJECT IS NO LONGER A LABOR DEMAND CURVE.
Damnit, what is so hard to understand about this? I've spent years trying
to get this point across. Rob indignantly, as in this post, claims to be well
aware of it, and then of course it turns out he just doesn't get it, as amply
demonstrated above.
Look, Rob, generally a labor demand curve can be written L(w, \theta), where
\theta is a vector of other prices and any other relevant parameters in the
model. Suppose there is a relationship in the model, such as yours, where
we can write a functional w=w(\theta). A labor demand curve is STILL
(\partial L \over \partial w) even though we would never observe that
relationship in the modelled world. Get it? It's a tool, a concept, a
building block -- your objection that other prices change with the wage
rate does not invalidate the _definition_ of a labor demand curve. If
you want to claim that the _concept_ is not "meaningful," you're both
wrong (it's very useful) and making an entirely different argument than
all your charged rhetoric, and the subject of this thread, suggest.
>If Chris isn't brainwashed, why cannot he respond with something
>that exhibits a moment's command of reason?
Yup. I find it fascinating that Rob thinks statements along the
lines "you haven't interpreted this result correctly" are "insults"
and gets all huffy, but doesn't think twice about tossing off little
jewels of rational discourse such as that. Rob, if it makes you
happy to believe that spending a decade learning these concepts
formally and actually applying them is "brainwashing," be my guest.
>> >They might also try to give some rationale for why one should be
>> >interested in this special case.
>
>> Empirical evidence?
>
>If one had some sort of formal model, that would answer the suggested
>question. But it would be nice to see a response to the question,
>"What are your assumptions?" other than the non-sequitur, "Assumptions
>do not need to be realistic." In other words, Chris does not have
>a model to compare with empirical evidence.
OK, my assumption is that feedbacks from changes in the labor market in
a given country or part thereof to the interest rate are small relative
to the own-price effect. I draw upon a large body of empirical evidence
to support that assumption.
>Also notice that if Chris had a model appropriate for the suggested
>question, in context, it would not be a model of suppply and demand
>curves, as he understands them.
Rob is so cute when he's condescending!
>By the way, Barkley Rosser has a book chaper from his new
>edition of _ From Catastrophe to Chaos: A General Theory of Economic
>Discontinuities_ posted on his Web site <http://cob.jmu.edu/rosserjb/>.
>In this chapter, he references Albin's (?) paper on a logging example
>and one of his own co-authored papers as empirical evidence of
>reswitching.
Rob talking about empirical evidence! Wow, isn't that the fourth sign
of the Apocalypse?
Wouldn't the empirical methods used to find such an oddity be the
same ones I'm not allowed to use because "I don't have a model?"
> Rosser also predates me in realizing Cambridge
>Capital Controversy models point towards the possibility of
>interesting dynamics arising in economic models.
Damn, there goes your Nobel.
>Notice that Chris has not derived expressions for the terms in the
>above equation from maximizing conditions.
No, I haven't "derived" them, it's a general statement. The function
L() itself is derived from a maximization problem. Rob's pointlessly
lengthy posts are completely summarized (and clarified) by that one
equation I have, which I suppose ticks Rob off because all that tedious
math no doubt took a lot of effort.
>> (oh, and by the way, Rob, I don't agree with the "F-twist," so it's
>> odd you think I've been "lecturing" you on it.)
>
>I suppose Chris hasn't said that unrealistic assumptions are a positive
>virtue. He has merely said discussions about the realism of assumptions
>are of no worth and has frequently illustrated his supposed position
>about methodology with examples of assumptions meant to be unrealistic.
The "F-twist" says that the realism of assumptions is completely irrelevant.
I hold, rather, that unrealistic assumptions are necessary evils ("virtous"
in the tortured sense inherent in the oddly construed Georgia O'Keeffee quote
at the bottom of my web page) which do not necessarily invalidate the results
of a modelling exercise. I therefore find "you are wrong because your
objections are unrealistic" a naive and wrongheaded line of argument, altough
I might find an objection like "you are wrong because your result hinges on
additively seperable utility, and does not hold in the more general case"
compelling. Unfortunately, Rob's objections are usually more like the former
than the latter ("you are wrong because you assume utility maximization, yet
the Slutsky matrix is not found emprically to be symmetric" -- ugh).
>In a rare burst of candor, Chris once acknowledged he did not know how
>to use econometric techniques to distinguish between short and long
>period results.
No, I don't, which is why I would use a much better and more explicitly
dynamic model to deal with such a situation econometrically. Now, how
did the empirical piece Rob cites above deal with the problem?
>But my point could not be published because it is obvious and well-known.
Then why do you insist on posting this stuff ad nauseum here, Rob?
>Once one acknowledges that neoclassical factor supply and demand curves
>are not applicable to the theory of long period distribution, one could
>go on to make other points:
Rob, can you even vaguely understand how pointless your presentation is to
professional economists? How ludicrous it is to claim that the results you
present here comprise "the death of neoclassical economics?" Do you think
you could come up with a new issue to harp on (now that it's a new Millenium
and all) that isn't quite so archaic? How about finding fault with some
theory that's not archaic, perhaps one developed since, say, 1970, and
lecturing us on how dumb economists are for _that_ theory for the next five
years? It would be a nice change of pace.
SUSUPPLY
>> Rosser also predates me in realizing Cambridge
>>Capital Controversy models point towards the possibility of
>>interesting dynamics arising in economic models.
>
>Damn, there goes your Nobel.
Maybe a compensating entry in the Palgrave; Vienneauian Petulance?
Patrick
Robert Vienneau
> Robert Vienneau <rv...@see.sig.com> wrote:
> >Which of these possible responses to my challenge is Chris making:
> > a) Admitting that he doesn't know how to draw factor demand
> > curves in this situation
> As I've explained numerous times before, Rob's ludicrous insistence on
> doing everything with non-differentiable production functions and without
> an algebraic presentation makes actually working with any of his models
> very tedious. I had my fill of deriving labor demand curves in such
> situations in intermediate micro many years ago.
Once again, Chris does not rise to the challenge. As I've told him
repeatedly, respondents are free to use letters and append any
additional assumptions they want (e.g. on the product market).
And he hasn't explained that numerous times before. He objected
to long decimal expansions which seemed to be approximations to
fractions with ungainly numerators or denominators. (I believe
that was the case with my previous example, but it's been a
while since I constructed it.) So here I present an example
with fairly "nice" fractions.
Yet he still cannot draw the curves.
> > b) Admitting supply and demand is not applicable to factor
> > markets in the long period.
> I don't even know what this means, Rob. Do you mean that, if we *must*
> change many prices at once, the resulting locus is not a demand curve?
Yes, as Chris has been repeatedly saying. Here's an example of a
long period model. If labor demand curves are applicable, why doesn't
he construct them?
[>>> Since you ]
[>>> have two types of labor, however, the question is ill-posed. ]
> >Here Chris seems to have actually read part of the post to which he is
> >responding, but not its title. Why the challenge to draw labor demand
> >curveS is ill-posed when there is more than one type of labor is a
> >mystery that we members of the laity will never know.
> Well, what do you mean by "labor," Rob? The sum of unskilled and skilled
> workers? In which case, what is the own price of that sum?
"Curves" is plural. So one would have a labor demand curve for unskilled
labor and another curve for skilled labor. Chris continually responds
with these non sequiturs, but then wails and gnashes his teeth if I
exhibit any frustration with his reading comprehension problems. If I
were to aggregate labor, why would I be asking for him to draw more
than one curve?
Chris complains I complain about aggregation of capital without
worrying about aggregation of labor. Well, here's perhaps the simplest
possible example of non-aggregated laborS and non-aggregated
commodities. And the usual counter-intuitive result arises.
> >> Choose
> >> one type and deduce the profit-maximizing amount of that type hired as
> >> its own price changes in one period, all else equal (the way Rob
> >> phrases
> >> the question, "long period demand," implies the ol' ceteris paribus
> >> explicit in the definition of "input demand function" is still a point
> >> Rob is confused about.)
Notice that the above non-sentence is obviously meant to be insulting.
> >Chris is being silly. Just because I know how to correctly analyze the
> >choice of technique in a long period position does not mean I am now
> >confused about anything. I showed this analysis to highlight a property
> >of the example I thought some might find interesting. The correct
> >analysis also serves as a contrast.
> >The only place the word "demand" appears in the post to which Chris is
> >pretending to respond is in the introductory paragraph concluding with
> >these sentences.
> Rob might want to take a gander at the subject he chose... [insulting
> silliness meant to be insulting deleted ]
I chose the subject title because I'd like to see either a construction
of labor demand curves for my example or an acknowledgement that
demand and supply functions are not applicable to long period models
in general. Chris has not provided either. Instead, he spouts
nonsensical non-sequiturs.
> [ quoting out of order]
> > Furthermore, I disagree with Chris' understanding
> >of the theory. The question is can one coherently vary the wage
> >of just one type of labor, while leaving all other prices fixed?
> [and]
> >Here Chris is addressing another post. The interesting aspect
> >of *this* example arises when (del r/del w) is zero. Of course,
> >I change another wage when varying the first wage. That's all part
> >of my question whether one can draw meaningful factor demand curves
> >for this example.
> [and]
> >Given Chris' understanding, he should demonstrate that the wage of
> >a type of labor *can* vary in the example, leaving all other prices
> >unchanged.
> No, I should not.
OK, Chris doesn't need to address the challenge in the subject header.
> This is so frustrating. Rob, a "labor demand curve"
> is, by definition, derived when only one price changes. It does not
> matter
> if, in the model, changes in that price will alter other prices: if we
> allow those other prices to alter,
>
> THE RESULTING OBJECT IS NO LONGER A LABOR DEMAND CURVE.
That is to say factor input curves are not applicable to my
example.
If Chris disagrees, there's a simple way to show me wrong. Construct
them.
The text that Chris quotes out of order shows that I understand the
point of his definition.
> [ Silliness exhibiting Chris' usual reading comprehension - deleted. ]
> Look, Rob, generally a labor demand curve can be written L(w, \theta),
> where
> \theta is a vector of other prices and any other relevant parameters in
> the
> model. Suppose there is a relationship in the model, such as yours,
> where
> we can write a functional w=w(\theta). A labor demand curve is STILL
> (\partial L \over \partial w) even though we would never observe that
> relationship in the modelled world.
Chris should say that the own-price derivative of a labor demand
curve is the above partial derivative.
> Get it? It's a tool, a concept, a
> building block -- your objection that other prices change with the wage
> rate does not invalidate the _definition_ of a labor demand curve.
These lectures on methodology are beside the point. Can factor
demand curves be legimately constructed for long period models?
Can they be applied to my example?
There's a simple way to answer the latter question in the affirmative -
construct them.
> If
> you want to claim that the _concept_ is not "meaningful," you're both
> wrong (it's very useful) and making an entirely different argument than
> all your charged rhetoric, and the subject of this thread, suggest.
Following Paul Feyerabend, one might accept that scientists can
advance with logical contradictions, sometimes.
> >If Chris isn't brainwashed, why cannot he respond with something
> >that exhibits a moment's command of reason?
> Yup. I find it fascinating that Rob thinks statements along the
> lines "you haven't interpreted this result correctly" are "insults"
> and gets all huffy, but doesn't think twice about tossing off little
> jewels of rational discourse such as that. Rob, if it makes you
> happy to believe that spending a decade learning these concepts
> formally and actually applying them is "brainwashing," be my guest.
It's weird that Chris doesn't know he's being deliberately insulting.
I also find it weird that he's not aware that many think ill of
mainstream economists and of the process by which they are
"educated."
If Chris isn't brainwashed, why does he not respond with the
obvious substantial reply to my challenge - construct labor
demand curves for the example?
> >> >They might also try to give some rationale for why one should be
> >> >interested in this special case.
> >> Empirical evidence?
> >If one had some sort of formal model, that would answer the suggested
> >question. But it would be nice to see a response to the question,
> >"What are your assumptions?" other than the non-sequitur, "Assumptions
> >do not need to be realistic." In other words, Chris does not have
> >a model to compare with empirical evidence.
> OK, my assumption is that feedbacks from changes in the labor market in
> a given country or part thereof to the interest rate are small relative
> to the own-price effect. I draw upon a large body of empirical evidence
> to support that assumption.
That's irrelevant to *this* example anyway and not an assumption
consistent with the methodological individualist approach of
neoclassical economics. The interesting effect shows up here when
the interest rate is constant.
> >Also notice that if Chris had a model appropriate for the suggested
> >question, in context, it would not be a model of suppply and demand
> >curves, as he understands them.
> Rob is so cute when he's condescending!
Of course, Chris was indeed responding to my suggestion that there
might, perhaps, maybe, be some unknown special case assumptions that
would imply the standard approach to the analysis of the choice of
technique in long period models would necessarily show that firms adopt
a more factor-intensive method of production when the price of
that factor is higher.
This analysis would not be of supply and demand, as Chris has
repeatedly stated.
I suppose Chris' silliness is in lieu of acknowledging that.
> >By the way, Barkley Rosser has a book chaper from his new
> >edition of _ From Catastrophe to Chaos: A General Theory of Economic
> >Discontinuities_ posted on his Web site <http://cob.jmu.edu/rosserjb/>.
> >In this chapter, he references Albin's (?) paper on a logging example
> >and one of his own co-authored papers as empirical evidence of
> >reswitching.
> Rob talking about empirical evidence! Wow, isn't that the fourth sign
> of the Apocalypse?
So how many times will Chris repeat his astonishment at my
talking about empirical evidence?
> Wouldn't the empirical methods used to find such an oddity be the
> same ones I'm not allowed to use because "I don't have a model?"
Don't know, don't care. My understanding of the point at issue
is the standard assumptions of long-period neoclassical economics do
not imply the results economists thought intuitive. Since this is
a point of logic, it is not clear how empirical evidence can be
relevant, much less decisive.
> [ Silliness deleted. ]
> >Notice that Chris has not derived expressions for the terms in the
> >above equation from maximizing conditions.
> No, I haven't "derived" them, it's a general statement. The function
> L() itself is derived from a maximization problem.
Notice that Chris has not derived the function L() itself from
maximizing conditions.
> Rob's pointlessly
> lengthy posts are completely summarized (and clarified) by that one
> equation I have, which I suppose ticks Rob off because all that tedious
> math no doubt took a lot of effort.
Chris is projecting the emotional heat with which he replies, I guess.
[ Comments about methodology demonstrating Chris' usual reading ]
[ difficulties and containing his usual silly personalites - deleted. ]
> >In a rare burst of candor, Chris once acknowledged he did not know how
> >to use econometric techniques to distinguish between short and long
> >period results.
> No, I don't, which is why I would use a much better and more explicitly
> dynamic model to deal with such a situation econometrically. Now, how
> did the empirical piece Rob cites above deal with the problem?
So the empirical work to which Chris vaguely refers deals with another
issue. How is it relevant to this thread?
> >But my point could not be published because it is obvious and
> >well-known.
> Then why do you insist on posting this stuff ad nauseum here, Rob?
It's well-known among well-educated economists. Why does Chris
keep disputing established results?
> >Once one acknowledges that neoclassical factor supply and demand curves
> >are not applicable to the theory of long period distribution, one could
> >go on to make other points:
> Rob, can you even vaguely understand how pointless your presentation is
> to
> professional economists? How ludicrous it is to claim that the results
> you
> present here comprise "the death of neoclassical economics?"
Why does Chris keep whining about thread titles from a long time ago?
Anyway, the demonstration, on one of several possible grounds, that
neoliberal advocates do not have a theory to support their remaking of
the world seems to be of contemporary interest.
> [ More silliness deleted. ]
Chris Auld
>Once again, Chris does not rise to the challenge. As I've told him
>repeatedly, respondents are free to use letters and append any
>additional assumptions they want (e.g. on the product market).
Well, fine: consider the firm's problem as a special case of:
profit = pf(x) - wx,
where f(x) is the (in this case, discontinous) production function
and x is the vector of inputs (here including two types of labor).
Let x(w) be the (again, in this case, discontinuous) demand functions
resulting from solving the maximization problem. The factor demand
curve for any of those inputs is the schedule x_i (w_i | w_{-i} ).
Sum these schedules across firms to get the aggregate labor demand
schedule.
Rob will object that in the "long period" there is a functional
relationship between the elements of w. Rob will fail, again, to
understand that that fact does not alter anything in the preceding
paragraph. If he wants to keep declaring his "challenge has not
been met," he must show why the problem he presents is not a
special case of the above.
>And he hasn't explained that numerous times before. He objected
>to long decimal expansions which seemed to be approximations to
Actually, Rob, if you check dejanews you will indeed find I have
taken you to task numerous times for your atypical presentation;
both the bizarre numerical values and the non-algebraic
presentation generally.
>> Well, what do you mean by "labor," Rob? The sum of unskilled and skilled
>> workers? In which case, what is the own price of that sum?
>
>"Curves" is plural. So one would have a labor demand curve for unskilled
>labor and another curve for skilled labor. Chris continually responds
>with these non sequiturs, but then wails and gnashes his teeth if I
<yawn>
Rob, your phrasing was ambiguous. I thought you were asking for a demand
curve for "labor" when there are multiple types of labor.
>Chris complains I complain about aggregation of capital without
>worrying about aggregation of labor. Well, here's perhaps the simplest
>possible example of non-aggregated laborS and non-aggregated
>commodities. And the usual counter-intuitive result arises.
No kidding! Is that why you spent the time rewritting your essay? What
a waste. Recall, however, that my question was not that you didn't consider
aggregation of labor, but rather that you drew the conclusion from the
original model that payments to capital are not in exchange for production.
Do you wish to draw that conclusion for labor under the recognition that
labor is heterogeneous (not that you needed a model), or do you wish
to retract the assertion for capital?
>> Rob might want to take a gander at the subject he chose... [insulting
>> silliness meant to be insulting deleted ]
"Insulting silliness meant to be insulting!" Oh my! Rob, it _was_ rather
funny when you insisted the thread you titled "labor demand curves can
slope up" wasn't really about labor demand curves. I'd be embarrassed
too. But it isn't an insult to bring it up.
>> if, in the model, changes in that price will alter other prices: if we
>> allow those other prices to alter,
>>
>> THE RESULTING OBJECT IS NO LONGER A LABOR DEMAND CURVE.
>
>That is to say factor input curves are not applicable to my
>example.
Yet again, Rob, simply because multiple prices in your model change as
any factor price changes does not mean that a factor demand curve does
not exist, nor does it mean that the factor demand curve is not a useful
concept. If all you want to show is that other prices change as the
wage rate changes, why not simply replace your lengthy essay with one
paragraph:
"Standard, mainstream economic theory says that partial equilibrium
concepts may be misleading. Everyone knows this. I'm just pointing
it out again, albeit in an obnoxious fashion and with muddled
exposition meant to serve my political purposes and make it appear
to laymen that I'm saying something economists don't know."
>> jewels of rational discourse such as that. Rob, if it makes you
>> happy to believe that spending a decade learning these concepts
>> formally and actually applying them is "brainwashing," be my guest.
>
>It's weird that Chris doesn't know he's being deliberately insulting.
>I also find it weird that he's not aware that many think ill of
>mainstream economists and of the process by which they are
>"educated."
Rob, if you want to push your credibility from slim to none, why not
keep up this line of argument?
>> >But my point could not be published because it is obvious and
>> >well-known.
>
>> Then why do you insist on posting this stuff ad nauseum here, Rob?
>
>It's well-known among well-educated economists. Why does Chris
>keep disputing established results?
Exactly what result that's well-known do you imagine I'm disputing,
Rob? I do dispute your insistence, over the span of years, that
your result shows that factor demand curves can slope up -- that
interpretation is not "well known," however, because it is dead
wrong. Moreover, Rob has skirted my question with a clumsy insult:
Rob, you keep telling us that what you're saying is at odds with
mainstream economics, indeed, is of sufficient force to topple all
existing results and methodology, "the death of neoclassical
economics." The response he got was that this was rubbish: what
is true about your results is well-known, and the rhetoric wildly
overblown at best. And now he seems to be admitting that everything
he's saying is in fact well-known. So where does this leave the
vitriolic charges? "You know, that stuff you teach even to
undergraduates is... well, ok, it's correct." Wow. You got us
there, Rob.
>If Chris isn't brainwashed, why does he not respond with the
>obvious substantial reply to my challenge - construct labor
>demand curves for the example?
OK, you got me Rob. I remember the time in grad micro that I
brazenly stuck up my hand and asked if partial equilibrium concepts
can sometimes be misleading. The instructor, clad in black leather
and mirrored sunglasses, merely crinkled one corner of his mouth and
almost whispered the dreaded phrase, oh mercy, the dreaded phrase,
"Room 303." And off I was dragged to receive punishment for my crime.
I learned my lesson that day and refuse to pull out a calculator to
work through Rob's presentation not because it would bore me
and serve no purpose, but because I am still in the sway of my Dark
Masters. Who, of course, realize that using partial equilibrium
concepts is the key to keeping the ruling elite in power and stomping
on the little guy. Next time you see a black helicopter fly by, look
real close and you'll see on the side a little graph with two axes
and a curve labelled "Dl"....
>Anyway, the demonstration, on one of several possible grounds, that
>neoliberal advocates do not have a theory to support their remaking of
>the world seems to be of contemporary interest.
And here Rob's political motivations are laid bare. Rob's posts
would be more honest and more interesting if he would simply argue about
his political beliefs rather than pretending to be talking about
microeconomic theory.
SUSUPPLY
>>"Curves" is plural. So one would have a labor demand curve for unskilled
>>labor and another curve for skilled labor. Chris continually responds
>>with these non sequiturs, but then wails and gnashes his teeth if I
>
><yawn>
>
>Rob, your phrasing was ambiguous. I thought you were asking for a demand
>curve for "labor" when there are multiple types of labor.
Something every manager knows quite well. I guess Rob doesn't get around much.
>>Chris complains I complain about aggregation of capital without
>>worrying about aggregation of labor. Well, here's perhaps the simplest
>>possible example of non-aggregated laborS and non-aggregated
>>commodities. And the usual counter-intuitive result arises.
>
>No kidding! Is that why you spent the time rewritting your essay? What
>a waste. Recall, however, that my question was not that you didn't consider
>aggregation of labor, but rather that you drew the conclusion from the
>original model that payments to capital are not in exchange for production.
>Do you wish to draw that conclusion for labor under the recognition that
>labor is heterogeneous (not that you needed a model), or do you wish
>to retract the assertion for capital?
Yes, a question that has been put to him how many dozens of times, without Rob
even attempting an answer. Some day I'll have to make a list of "Pending
Questions for Vienneau". It would begin, "This long post....".
>>> Rob might want to take a gander at the subject he chose... [insulting
>>> silliness meant to be insulting deleted ]
>
>"Insulting silliness meant to be insulting!" Oh my! Rob, it _was_ rather
>funny when you insisted the thread you titled "labor demand curves can
>slope up" wasn't really about labor demand curves. I'd be embarrassed
>too. But it isn't an insult to bring it up.
One can always offer to stop telling the truth about Rob if he would stop
telling lies about thee. Though what fun would that be.
[snip]
>Yet again, Rob, simply because multiple prices in your model change as
>any factor price changes does not mean that a factor demand curve does
>not exist, nor does it mean that the factor demand curve is not a useful
>concept. If all you want to show is that other prices change as the
>wage rate changes, why not simply replace your lengthy essay with one
>paragraph:
>
>"Standard, mainstream economic theory says that partial equilibrium
>concepts may be misleading. Everyone knows this. I'm just pointing
>it out again, albeit in an obnoxious fashion and with muddled
>exposition meant to serve my political purposes and make it appear
>to laymen that I'm saying something economists don't know."
Well, numerous people have asked a version of that too. With no answer I can
ever remember.
[snip]
>OK, you got me Rob. I remember the time in grad micro that I
>brazenly stuck up my hand and asked if partial equilibrium concepts
>can sometimes be misleading. The instructor, clad in black leather
>and mirrored sunglasses, merely crinkled one corner of his mouth and
>almost whispered the dreaded phrase, oh mercy, the dreaded phrase,
>"Room 303." And off I was dragged to receive punishment for my crime.
Hmm. I think you might actually be encouraging him here.
>I learned my lesson that day and refuse to pull out a calculator to
>work through Rob's presentation not because it would bore me
>and serve no purpose, but because I am still in the sway of my Dark
>Masters. Who, of course, realize that using partial equilibrium
>concepts is the key to keeping the ruling elite in power and stomping
>on the little guy. Next time you see a black helicopter fly by, look
>real close and you'll see on the side a little graph with two axes
>and a curve labelled "Dl"....
I see Robert Vaughn as the head of the Bank of Sweden, Julia Roberts as the
love interest....
Patrick
Robert Vienneau
> Robert Vienneau <rv...@see.sig.com> wrote:
> >Once again, Chris does not rise to the challenge. As I've told him
> >repeatedly, respondents are free to use letters and append any
> >additional assumptions they want (e.g. on the product market).
> Well, fine: consider the firm's problem as a special case of:
> profit = pf(x) - wx,
> where f(x) is the (in this case, discontinous) production function
> and x is the vector of inputs (here including two types of labor).
> Let x(w) be the (again, in this case, discontinuous) demand functions
> resulting from solving the maximization problem. The factor demand
> curve for any of those inputs is the schedule x_i (w_i | w_{-i} ).
> Sum these schedules across firms to get the aggregate labor demand
> schedule.
The above is handwaving that assumes what is to be proved - that
the (vertically integrated) firm can be in long-run equilibrium
for some interesting range of p and w.
> Rob will object that in the "long period" there is a functional
> relationship between the elements of w.
Chris doesn't seem to understand the relationship between the
factor price frontier and profit-maximizing.
> Rob will fail, again, to
> understand that that fact does not alter anything in the preceding
> paragraph. If he wants to keep declaring his "challenge has not
> been met," he must show why the problem he presents is not a
> special case of the above.
This is to disguise that Chris has not met my challenge.
He is relying on popular non-formal understandings of "prices"
and "inputs" to disguise that he has not shown how to formulate
my example in his terms. In particular, I don't know how many
inputs he sees in my example, whether he sees more
than one variable denoting unskilled labor in his formulation
(perhaps at different dates), whether he considers the rate
of interest a price, and, if so, the price of what input.
Strangely enough, I have brought up these questions before. So
he should have been able to foresee these objections to his
post.
In short, Chris has not met any reasonable standard of the burden
of proof. He has not shown how to construct long period labor
demand curves for *this* example. His claim that I "must show
why the problem he presents is not a special case of the
above" is an implicit admission, as I read it, that he has
not met the challenge.
> If all you want to show is that other prices change as the
> wage rate changes, why not simply replace your lengthy essay with one
> paragraph:
> "Standard, mainstream economic theory says that partial equilibrium
> concepts may be misleading. Everyone knows this. I'm just pointing
> it out again, albeit in an obnoxious fashion and with muddled
> exposition meant to serve my political purposes and make it appear
> to laymen that I'm saying something economists don't know."
Chris is being silly. It would help his claim that economists
such as himself understood my point if he would show some grasp
of the analytical tools that I think useful for the analysis
of the choice of technique in long period positions. I don't
think he understands them.
It should be clear that one part of my motivation is finding
certain analytical tools elegant.
> >> >But my point could not be published because it is obvious and
> >> >well-known.
> >> Then why do you insist on posting this stuff ad nauseum here, Rob?
> >It's well-known among well-educated economists. Why does Chris
> >keep disputing established results?
> Exactly what result that's well-known do you imagine I'm disputing,
> Rob?
I suppose Chris cannot be said to be disputing the use of the factor
price frontier to analyze the choice of technique. He is merely
not demonstrating any command of this tool. In fact, I honestly
think he is still ignorant of this tool.
> I do dispute your insistence, over the span of years, that
> your result shows that factor demand curves can slope up -- that
> interpretation is not "well known," however, because it is dead
> wrong.
"However, as was argued in Section 3 with regard to 'perversely'
shaped, that is, upward sloping, factor-demand functions, this
possibility would question the validity of the entire economic
analysis in terms of demand and supply."
-- H. D. Kurz and N. Salvadori, _Theory of Production: A Long
Period Analysis_, Cambridge University Press, 1995.
I find Kurz and Salvadori quite credible. The above is near the
end of a long textbook. The analysis in that textbook, as should
be true of most textbooks, was built up over decades. Important
economists in developing this analysis include such obscure nonentities
as Paul Samuelson, Robert Solow, Franco Modigliani - not that
they would necessarily agree with Kurz and Salvadori's
conclusions.
Despite Chris' insistence that this interpretation is dead wrong,
I have yet to see him grapple much with the arguments I
report. His demonstrated resistance to such serious intellectual
work I find to be of most interest for psychology or the
sociology of knowledge.
I think he has a point that talking about upward sloping,
factor-demand functions in this context is metaphoric. That is
why I have moved to thinking it better to saying supply and
demand is not applicable to long period analysis. But I'm am
still willing to use thread titles like "Literature Review Of
Upward Sloping Factor Demand Curves" when posting a literature
review of claims that factor demand curves can slope up.
Furthermore, anyone who has bothered reading this stuff for a
while can look at my first post on this thread and see that
I deliberately avoided tendentious phrasing.
> [ Further silliness deleted. ]
> >If Chris isn't brainwashed, why does he not respond with the
> >obvious substantial reply to my challenge - construct labor
> >demand curves for the example?
> OK, you got me Rob. I remember the time in grad micro that I
> brazenly stuck up my hand and asked if partial equilibrium concepts
> can sometimes be misleading. The instructor, clad in black leather
> and mirrored sunglasses, merely crinkled one corner of his mouth and
> almost whispered the dreaded phrase, oh mercy, the dreaded phrase,
> "Room 303." And off I was dragged to receive punishment for my crime.
> I learned my lesson that day and refuse to pull out a calculator to
> work through Rob's presentation not because it would bore me
> and serve no purpose, but because I am still in the sway of my Dark
> Masters. Who, of course, realize that using partial equilibrium
> concepts is the key to keeping the ruling elite in power and stomping
> on the little guy. Next time you see a black helicopter fly by, look
> real close and you'll see on the side a little graph with two axes
> and a curve labelled "Dl"....
Of course, the above is a confession, perhaps witty if one finds it
so, that Chris has still not met the challenge in the subject header.
Of course, it being winter in Canada, Chris really is currently
mostly under the sway of darkness.
> >Anyway, the demonstration, on one of several possible grounds, that
> >neoliberal advocates do not have a theory to support their remaking of
> >the world seems to be of contemporary interest.
> And here Rob's political motivations are laid bare. Rob's posts
> would be more honest and more interesting if he would simply argue about
> his political beliefs rather than pretending to be talking about
> microeconomic theory.
But many economists think the stuff taught in "mainstream" intermediate
microeconomics classes is ideology, incoherent as theory. I am indeed
arguing about those incoherences.
Chris Auld
>au...@jerry.ss.ucalgary.ca (Chris Auld) wrote:
>> resulting from solving the maximization problem. The factor demand
>> curve for any of those inputs is the schedule x_i (w_i | w_{-i} ).
>> Sum these schedules across firms to get the aggregate labor demand
>> schedule.
>
>The above is handwaving that assumes what is to be proved - that
>the (vertically integrated) firm can be in long-run equilibrium
>for some interesting range of p and w.
This is nonresponsive. How precisely does your problem not fit into
the general framework given, Rob? Yet again, one does not impose a
zero profit condition nor vary any other parameter than the factor
price of interest when deriving the schedule. Let's make it even
more general, Rob: the write the firm's profit function as
P(x | w_i ; \Omega), where x is the set of choice variables, w_i is
the factor price we are intersted in deriving a factor demand curve
for and \Omega is every other parameter affecting the firm's
decisions. Maximize with respect to x. The resulting schedule
x_i(w_i | \Omega) is the factor demand function for factor i. It
does not slope up, as a simple axiomatic argument shows, and it
does exist.
Simply, in Rob's context, the demand curve for unskilled labor at time
t is the responses to the query "how much unskilled labor would the
firm hire at t" as the wage of unskilled labor at t varies, ALL ELSE
EQUAL. It is permissible for the answer to be zero, unbounded, or
not unique.
Consider again a simpler presentation of the basic ideas in Rob's
posts. Let z(w,r)=0 denote an aggregate zero profit condition.
Suppose it is monotone such that we can write r=r(w) in equilibrium.
Let L(w,r) denote a labor demand schedule. L(w|r) is the factor
demand schedule, EVEN THOUGH it is generally the case that
z(w,r) != 0 along that schedule.
>> Rob will object that in the "long period" there is a functional
>> relationship between the elements of w.
>
>Chris doesn't seem to understand the relationship between the
>factor price frontier and profit-maximizing.
Really? How exactly did Rob draw that conclusion in response to
my remark?
>> Rob will fail, again, to
>> understand that that fact does not alter anything in the preceding
>> paragraph. If he wants to keep declaring his "challenge has not
>> been met," he must show why the problem he presents is not a
>> special case of the above.
>This is to disguise that Chris has not met my challenge.
>He is relying on popular non-formal understandings of "prices"
>and "inputs" to disguise that he has not shown how to formulate
>my example in his terms.
Actually, Rob, I presented a very general and very common (and
formal) statement of the problem.
> In particular, I don't know how many
>inputs he sees in my example,
It doesn't matter. The simple framework I gave is applicable for
an arbitrary number of inputs.
> whether he sees more
>than one variable denoting unskilled labor in his formulation
>(perhaps at different dates), whether he considers the rate
>of interest a price, and, if so, the price of what input.
Yet again, it doesn't matter. The rate of interest is held constant
while deriving a factor demand schedule. Yet again, it doesn't matter
if that fact places the economy in disequilibrium or violates a zero
profit condition.
>In short, Chris has not met any reasonable standard of the burden
>of proof. He has not shown how to construct long period labor
>demand curves for *this* example. His claim that I "must show
>why the problem he presents is not a special case of the
>above" is an implicit admission, as I read it, that he has
>not met the challenge.
As I've said repeatedly, I am NOT going to drag out a calculator and
work through Rob's pointlessly tedious and cumbersome presentation.
Yet again, Rob's claims are based on his faultly understanding of
elementary microeconomic theory, namely, his abject failure to
acknowledge that when many prices change, the resulting locus of
equilibria is not a labor demand curve, "long period" or otherwise.
>Chris is being silly. It would help his claim that economists
>such as himself understood my point if he would show some grasp
>of the analytical tools that I think useful for the analysis
>of the choice of technique in long period positions. I don't
>think he understands them.
Oh, he got me! Turns out junior high school algrebra is far
beyond me (don't tell, 'k? I'd get fired -- lucky I've been able
to bluff thus far). Why Rob thinks that using cumbersome assumptions
such as discontinuous technologies form an "analytical tool" which is
mysterious or difficult to understand is quite an enigma.
>It should be clear that one part of my motivation is finding
>certain analytical tools elegant.
Elegant!? Good grief, Rob, you have failed. Miserably.
>> Exactly what result that's well-known do you imagine I'm disputing,
>> Rob?
>
>I suppose Chris cannot be said to be disputing the use of the factor
>price frontier to analyze the choice of technique. He is merely
>not demonstrating any command of this tool. In fact, I honestly
>think he is still ignorant of this tool.
Damnit, Rob, when many parameters vary (along a factor price frontier)
the resulting locus of... oh, why bother?
>> I do dispute your insistence, over the span of years, that
>> your result shows that factor demand curves can slope up -- that
>> interpretation is not "well known," however, because it is dead
>> wrong.
>
> "However, as was argued in Section 3 with regard to 'perversely'
> shaped, that is, upward sloping, factor-demand functions, this
> possibility would question the validity of the entire economic
> analysis in terms of demand and supply."
> -- H. D. Kurz and N. Salvadori, _Theory of Production: A Long
> Period Analysis_, Cambridge University Press, 1995.
>
>I find Kurz and Salvadori quite credible. The above is near the
>end of a long textbook. The analysis in that textbook, as should
>be true of most textbooks, was built up over decades. Important
>economists in developing this analysis include such obscure nonentities
>as Paul Samuelson, Robert Solow, Franco Modigliani - not that
>they would necessarily agree with Kurz and Salvadori's
>conclusions.
We have discussed this quote before. Either (1) Rob is quoting out
of context or (2) Kurz and Salvadori are abusing standard terminology.
Rob's argument from authority when he thinks authority is on his side
noted (if he can find Samuelson, Solow, or Modigliani talking about
upward sloping labor demand curves, _that_ would be interesting).
>Despite Chris' insistence that this interpretation is dead wrong,
>I have yet to see him grapple much with the arguments I
>report. His demonstrated resistance to such serious intellectual
>work I find to be of most interest for psychology or the
>sociology of knowledge.
Yeah, I know Rob, I'm a dunce. Not unlike every other professional
economist who's ever posted here, and many other notable economists
who Rob has deigned to give his opinions on. Of course, it seems to
me that the "serious intellectual work" the eminent Rob Vienneau
"reports" on is mostly simplistic, archaic, and often hilariously
misinterpreted. Perhaps worthy of a solid A- and a gentle lecture
from the professor on style in an undergraduate history of thought
class. But what do I know? I'm not as clever as Rob.
I guess, given the self-aggrandization Rob indulges in above, he
needs to rebuked again for taking himself and this forum far, far too
seriously. This is entertainment, Rob, if you want to contribute to
the "serious" intellectual conversation of economists, a peer-
reviewed journal is the appropriate venue.
>I think he has a point that talking about upward sloping,
>factor-demand functions in this context is metaphoric. That is
>why I have moved to thinking it better to saying supply and
>demand is not applicable to long period analysis.
Define, "not applicable." Economists tend to use supply and demand
to think about gross price and quantity changes, mostly in markets
which are small relative to the economy. Under such conditions,
the feedback effects Rob has been preaching about for years are
vanishing relative to own-price effects, and supply and demand can
be a very useful tool. More complex models are employed to analyze
deviations from competive assumptions in many markets (notably, the
labor market) and when general equilibrium considerations
are important (and, of course, in the common situation when outcomes
other than prices and quantities are of interest). So, again,
exactly what do you mean by "not applicable," Rob? And _exactly_
what are you saying that any second year economics major isn't
already aware of?
>> >Anyway, the demonstration, on one of several possible grounds, that
>> >neoliberal advocates do not have a theory to support their remaking of
>> >the world seems to be of contemporary interest.
>
>> And here Rob's political motivations are laid bare. Rob's posts
>> would be more honest and more interesting if he would simply argue about
>> his political beliefs rather than pretending to be talking about
>> microeconomic theory.
>
>But many economists think the stuff taught in "mainstream" intermediate
>microeconomics classes is ideology, incoherent as theory. I am indeed
>arguing about those incoherences.
When Rob is railing against "neoliberal advocates," he is not, of course,
talking about microeconomic theory. I would be interested if he could
name one economist who would label "the stuff" in intermediate micro
"incoherent ideology." I seem to recall learning about basic tools and
concepts such as: demand, supply, cost, equilibrium, utility, the envelope
theorem, the Slutsky equation, the core, moral hazard, adverse selection,
externalities, public goods, market structure, Nash and subgame perfect
equilibrium, rent seeking behavior, Pareto criteria, dynamic games, a
little dynamic optimization, and many others in undergraduate
microeconomics. All nonsense; the lot is neoliberal, incoherent ideology.
Right Rob? Question: can one understand neo-Marxist, or neo-Institutional,
or any other "school" of economic thought absent any understanding of the
concepts presented in mainstream undergraduate microeconomics?
Rob also seems to think that support for neoliberal politics begins and
ends with a demonstration that (consumer surplus + producer surplus) is
at a maximum where supply and demand curves intersect. While I would not
classify my own political beliefs as consistently "neoliberal," I will
point out that Rob's charge is just, well, silly (to use his favorite term).
SUSUPPLY
> he has
>>...not met the challenge.
>
>It would help his claim that economists
>>such as himself understood my point if he would show some grasp
>>of the analytical tools that I think useful for the analysis...
>He is merely
>>not demonstrating any command of this tool. In fact, I honestly
>>think he is still ignorant of this tool.
>>I have yet to see him grapple much with the arguments I
>>report.
In other words, Robert is claiming that Chris won't answer questions.
>> His demonstrated resistance to such serious intellectual
>>work I find to be of most interest for psychology or the
>>sociology of knowledge.
We can all agree that a persistent refusal to answer straightforward questions,
all the while accusing others falsely of that charge, is the stuff of what
psychologists call "projection", can't we, Robert?
So, I forget, what was your advice to the governor about funding the Sraffa
memorial, Robert?
Patrick
Robert Vienneau
> Robert Vienneau <rv...@see.sig.com> wrote:
> >au...@jerry.ss.ucalgary.ca (Chris Auld) wrote:
> >> resulting from solving the maximization problem. The factor demand
> >> curve for any of those inputs is the schedule x_i (w_i | w_{-i} ).
> >> Sum these schedules across firms to get the aggregate labor demand
> >> schedule.
> >The above is handwaving that assumes what is to be proved - that
> >the (vertically integrated) firm can be in long-run equilibrium
> >for some interesting range of p and w.
The firm is in equilibrium when it is profit maximizing:
"Given the price system p, the jth producer chooses his
production in his production set Yj so as to maximize his
profit. The resulting action is called an equilibrium
production of the jth producer relative to p."
-- Debreu (1959)
> This is nonresponsive. How precisely does your problem not fit into
> the general framework given, Rob?
Chris seems to forget that he was claiming to have met the
challenge in the thread title. It is his task, if he wants to
address the challenge, to show how the problem maps into his
formalism, a task he refuses to even indicate the start of.
As for his inference from his reading comprehension problems that I
am nonresponsive, see below for one more re-iteration of my point.
> Yet again, one does not impose a
> zero profit condition nor vary any other parameter than the factor
> price of interest when deriving the schedule. Let's make it even
> more general, Rob
> [ Pointless generality that still provides no guidance on ]
> [ meaing of prices and inputs in my example - deleted. ]
> Simply, in Rob's context, the demand curve for unskilled labor at time
> t is the responses to the query "how much unskilled labor would the
> firm hire at t" as the wage of unskilled labor at t varies, ALL ELSE
> EQUAL. It is permissible for the answer to be zero, unbounded, or
> not unique.
I don't know what "at time t" is doing there, considering I asked
about long period curves and Chris refuses to discuss how many inputs
of unskilled labor are in my example.
If Chris is going to produce a step function, I want a non-trivial
one - e.g. with at least two steps. I mentioned this some posts
ago:
"I'd be quite happy with a non-trivial step function as an
answer to my challenge, if it could be answered."
> Consider again a simpler presentation of the basic ideas in Rob's
> posts. Let z(w,r)=0 denote an aggregate zero profit condition.
> Suppose it is monotone such that we can write r=r(w) in equilibrium...
Suddenly, Chris seems to be talking about homogeneous labor again,
unlike me in this thread.
> >> Rob will object that in the "long period" there is a functional
> >> relationship between the elements of w.
> >> Rob will fail, again, to
> >> understand that that fact does not alter anything in the preceding
> >> paragraph. If he wants to keep declaring his "challenge has not
> >> been met," he must show why the problem he presents is not a
> >> special case of the above.
> >This is to disguise that Chris has not met my challenge.
> >He is relying on popular non-formal understandings of "prices"
> >and "inputs" to disguise that he has not shown how to formulate
> >my example in his terms.
> Actually, Rob, I presented a very general and very common (and
> formal) statement of the problem.
Indeed it is common. However, Chris has not shown how to
formulate my example in his terms. He is relying on non-formal
understandings.
> [ Non-responsiveness deleted. ]
> The rate of interest is held constant
> while deriving a factor demand schedule. Yet again, it doesn't matter
> if that fact places the economy in disequilibrium or violates a zero
> profit condition.
Consider Chris' thought experiment of varying the wage of unskilled
labor, while leaving all other prices and the interest
rate constant. This will move the firm off the factor price frontier,
assuming it was on it to begin with. The vertically integrated firm
will not be profit maximizing if it continues to manufacture both steel
and corn.
In other words, if the supply curve of (the type of) labor shifted
to intersect with Chris' non-existent long period labor demand
curve at this new wage, that intersection would not be a long
period equilibrium.
The above merely reiterates my ignored point from several posts ago:
Given Chris' understanding, he should demonstrate that the wage of
a type of labor *can* vary in the example, leaving all other prices
unchanged. The profit-maximizing firm should be producing at a
positive level, then, that can be an equilibrium (when supply curves
are at the appropriate location). Chris, of course, substitutes insults
for addressing the challenge.
There is another way of looking at my example - as a limit of an
Arrow-Debreu intertemporal equilibrium. In this case, one would find
my example has an infinite number of dated inputs of skilled and
unskilled labors. The Arrow-Debreu model is not a long run model,
and the limit point is not determined by the intersection of long
run demand and supply curves. Furthermore, the factor price frontier
does not describe an Arrow-Debreu path. But it can be the case that
in a comparison of two paths, the path converging to a point with
a higher wage of unskilled labor is also converging to the point
with profit-maximizing firms employing more labor. My sort of
example seems to have (in)stability implications for such analyses,
not that economists haven't known that there are stability problems
there anyway.
To adopt the Arrow-Debreu intertemporal equilibrium or temporary
equilibria models as the preferred framework for discussing my example
is to adopt a framework where my challenge cannot be met. This change
in the notion of equilibrium was, in fact, a common response among
some mainstream economists to this sort of challenge. Thus, the
extension by Marshall and others of supply and demand explanations
to all runs has been acknowledged to be mistaken, or at least
abandoned, by many economists. This leaves it arguable that the only
coherent long period theory is that of Ricardo and Marx's. (It may
also make one wonder what some contemporary mainstream growth
theorists think they are doing.)
> >In short, Chris has not met any reasonable standard of the burden
> >of proof. He has not shown how to construct long period labor
> >demand curves for *this* example. His claim that I "must show
> >why the problem he presents is not a special case of the
> >above" is an implicit admission, as I read it, that he has
> >not met the challenge.
> As I've said repeatedly, I am NOT going to drag out a calculator and
> work through Rob's pointlessly tedious and cumbersome presentation.
> [ More silliness deleted]
Chris needs a calculator to count inputs? To determine whether
the rate of interest is a price? To specify the elements of a
vector?
> >Chris is being silly. It would help his claim that economists
> >such as himself understood my point if he would show some grasp
> >of the analytical tools that I think useful for the analysis
> >of the choice of technique in long period positions. I don't
> >think he understands them.
> Oh, he got me! Turns out junior high school algrebra is far
> beyond me (don't tell, 'k? I'd get fired -- lucky I've been able
> to bluff thus far). Why Rob thinks that using cumbersome assumptions
> such as discontinuous technologies form an "analytical tool" which is
> mysterious or difficult to understand is quite an enigma.
There you go again. I do indeed find linear production models
elegant. Why Chris thinks I think the analysis of the choice of
technique through the construction of the factor price frontier
is mysterious or difficult to understand is quite an enigma. Of
course, I don't think he understands the analysis.
> [ Silliness deleted. ]
> >> I do dispute your insistence, over the span of years, that
> >> your result shows that factor demand curves can slope up -- that
> >> interpretation is not "well known," however, because it is dead
> >> wrong.
> > "However, as was argued in Section 3 with regard to 'perversely'
> > shaped, that is, upward sloping, factor-demand functions, this
> > possibility would question the validity of the entire economic
> > analysis in terms of demand and supply."
> > -- H. D. Kurz and N. Salvadori, _Theory of Production: A Long
> > Period Analysis_, Cambridge University Press, 1995.
> >I find Kurz and Salvadori quite credible. The above is near the
> >end of a long textbook. The analysis in that textbook, as should
> >be true of most textbooks, was built up over decades. Important
> >economists in developing this analysis include such obscure nonentities
> >as Paul Samuelson, Robert Solow, Franco Modigliani - not that
> >they would necessarily agree with Kurz and Salvadori's
> >conclusions.
> We have discussed this quote before. Either (1) Rob is quoting out
> of context or (2) Kurz and Salvadori are abusing standard terminology.
Chris repeats assertions. It would seem kind of stupid to make either
assertion above when one hasn't read the text from which the quote is
drawn, or hasn't read with any understanding.
> Rob's argument from authority when he thinks authority is on his side
> noted (if he can find Samuelson, Solow, or Modigliani talking about
> upward sloping labor demand curves, _that_ would be interesting).
Chris was making silly statements about what is well known. It is
no logical fallacy to quote a textbook in reply.
On the other hand, this is a logical fallacy:
"However, no one doubts that
large increases in the minimum wage would decrease employment,
and few believe that this policy is a good redistribution tool."
-- Chris Auld
> >Despite Chris' insistence that this interpretation is dead wrong,
> >I have yet to see him grapple much with the arguments I
> >report. His demonstrated resistance to such serious intellectual
> >work I find to be of most interest for psychology or the
> >sociology of knowledge.
> [ Silliness deleted.]
> I guess, given the self-aggrandization Rob indulges in above, he
> needs to rebuked again for taking himself and this forum far, far too
> seriously.
Only an authoritarian would think he "needs" to do such on this
forum. Some might find Chris' posts hilarious.
> [ Irrelevancy deleted. ]
> >I think he has a point that talking about upward sloping,
> >factor-demand functions in this context is metaphoric. That is
> >why I have moved to thinking it better to saying supply and
> >demand is not applicable to long period analysis.
> ...when general equilibrium considerations
> are important (and, of course, in the common situation when outcomes
> other than prices and quantities are of interest)...
But my example is not of neoclassical general equilibrium.
> And _exactly_
> what are you saying that any second year economics major isn't
> already aware of?
Well, one constructs the factor price frontier in determining the
choice of technique in long period equilibrium. Cambridge Capital
models show that factor demand curves do not exist in long run
models of prices and production.
Chris will misread the latter statement as not being about logic.
> [...]
> >But many economists think the stuff taught in "mainstream" intermediate
> >microeconomics classes is ideology, incoherent as theory. I am indeed
> >arguing about those incoherences.
> When Rob is railing against "neoliberal advocates," he is not, of course,
> talking about microeconomic theory.
Chris' complaint was that I don't do enough "railing" against neoliberal
advocates.
> I would be interested if he could
> name one economist who would label "the stuff" in intermediate micro
> "incoherent ideology." ...
> Question: can one understand neo-Marxist, or
> neo-Institutional,
> or any other "school" of economic thought absent any understanding of the
> concepts presented in mainstream undergraduate microeconomics?
I don't know what "neo-Marxist" means.
From some discussion list or another:
====================================================================
> michael et al
> i've also been following the thread with interest. i am a bit surprised
> no one
> has brought up the work of fred lee who i think is doing the best "price
> theory"
> out there--consistent with an institutional approach.
> i do not believe that neoclassical principles should be taught in intro
> or
> intermediate econ theory courses. i realize that some argue that students
> have
> to be taught this because otherwise they will be at a disadvantage later
> on
> since students who do not happen to have the "pleasure" of receiving
> their
> economics from institutionalists will have been well versed in
> neoclassical
> econ. i also used to hold that view. however, the majority of students
> will not
> go on to grad programs. for those who will, the neoclassical principles
> can be
> learned fairly quickly and far less painfully after learning economics. i
> think
> it best to offer neoclassical principles in a separate, non-economics,
> course
> where it is taught as an aberrant, apologetic ideology, carefully and
> dispationately dissected in veblenian manner. altho the kansas school
> board
> would like to have creationism taught in science classes, most reasonable
> people
> agree that creationism has no place in a science course. it is better
> taught and
> examined in religious studies or elsewhere. similarly, i think
> neoclassicism as
> a belief system is extremely interesting and certainly has a place in the
> curriculum. but it is probably better placed within religious studies or
> deviant
> psychology. seriously, at denver we had a one-quarter upper division
> course set
> aside to teach the neoclassical micro and macro (what little there is of
> that).
> we encouraged all those who would continue studies in grad programs to
> take that
> course. that then freed up the intro courses for economics. i have no
> evidence
> that our students were dis-served by this. many went on to good grad
> programs
> and seem to have had above-average success at jumping thru the necessary
> hoops.
> i know that dan uses neoclassical principles as a means to teach
> analytical
> skills. but i think students would be better-served, if necessary, by
> applying
> higher-order math to analysis of the acrobatics of angels on pinheads.
> this way,
> they would never become confused and suppose that those math skills are
> useful
> in analysis of the economy.
> yes, this is an extreme view. but if not you, who? if not now, when? dump
> the
> texts; dump ideology. teach economics (in an interdisciplinary manner, of
> course).
> randy
========================================================================
One could also look at Tony Lawson's response to Daniel Haussman in
the current(?) issue of the journal _Economics and Philosophy_. Lawson
assumes that it is common knowledge among some of his intended
audience that many think mainstream economics intellectually bankrupt,
for the most part.
> [ Strawman deleted.
Chris Auld
>> This is nonresponsive. How precisely does your problem not fit into
>> the general framework given, Rob?
>
>Chris seems to forget that he was claiming to have met the
>challenge in the thread title. It is his task, if he wants to
>address the challenge, to show how the problem maps into his
>formalism, a task he refuses to even indicate the start of.
Rob, you have profit-maximizing firms in perfectly competitive markets
(I guess, it's hard to tell from the muddled and incomplete exposition).
In any case, you at least have perfectly competive factor markets for
the two types of labor. Let the vector of whatever inputs the firms
hire in competive markets be x. Now, how exactly does my general
exposition not conform to the problem faced by firms in your model?
>I don't know what "at time t" is doing there, considering I asked
>about long period curves and Chris refuses to discuss how many inputs
>of unskilled labor are in my example.
Rob has firms operating in a discrete-time economy. Inputs hired at
every point in time are then different. How many inputs does he
have? Infinite. (I suppose -- it would help if Rob wrote down the
firms' objective functions.) In any case, since there are really no
dynamics in this model, I suppose one could ask how much of one of
the labor inputs would be hired in every period given a constant
set of prices for all time. The answer is the the same, I think, in
this economy as if firms were born, solved a one-shot static problem,
and were destroyed every period. So "at time t" is irrelevant in this
simple economy I guess.
>> Consider again a simpler presentation of the basic ideas in Rob's
>> posts. Let z(w,r)=0 denote an aggregate zero profit condition.
>> Suppose it is monotone such that we can write r=r(w) in equilibrium...
>
>Suddenly, Chris seems to be talking about homogeneous labor again,
>unlike me in this thread.
"... of the basic ideas in Rob's posts." Read it again and think of
"r" as the wage of unskilled labor and "w" as the price of skilled labor
if you want.
>Consider Chris' thought experiment of varying the wage of unskilled
>labor,
[ That is, deriving a demand curve for unskilled labor. Rob never seems
to know what I'm talking about when I bring up this obscure concept. ]
> while leaving all other prices and the interest
>rate constant. This will move the firm off the factor price frontier,
>assuming it was on it to begin with. The vertically integrated firm
>will not be profit maximizing if it continues to manufacture both steel
>and corn.
No, Rob, this will move *the economy* off the factor price frontier. Get
it? As I already explained, it is *irrelevant* when deriving a firm's factor
price schedule if moving along that schedule places *the economy* in
disequilibrium. I can still ask, "all else equal, suppose the firm faces
a unskilled wage increase of a dollare. How will this affect its behavior?"
If, of course, your firms are in competitive factor markets (again, it's
hard to tell what's going on exactly because of the hopelessly inadequate
presentation). If they aren't, then of course factor demand curves don't
exist -- see any Econ 101 textbook for an explanation.
>in the notion of equilibrium was, in fact, a common response among
>some mainstream economists to this sort of challenge. Thus, the
>extension by Marshall and others of supply and demand explanations
>to all runs has been acknowledged to be mistaken, or at least
>abandoned, by many economists. This leaves it arguable that the only
No kidding. How many years have I been telling Rob that the models he
likes to take jabs at were largely abandoned before I was born? Why does
Rob think that criticising the way economics was done up to around the
Second World War is an attack on modern economic thought? Why does Rob
think replacing an unsatisfactory framework with a better model is bad?
Isn't that the way science is supposed to progress?
>There you go again. I do indeed find linear production models
>elegant.
Why? It makes the analysis cumbersome and opaque. Extraordinarily
inelagant.
>> We have discussed this quote before. Either (1) Rob is quoting out
>> of context or (2) Kurz and Salvadori are abusing standard terminology.
>
>Chris repeats assertions. It would seem kind of stupid to make either
>assertion above when one hasn't read the text from which the quote is
>drawn, or hasn't read with any understanding.
No, I haven't read the text (this book would not make the top 1000 on my
list of stuff I'd like to read) but my statement stands.
>> Rob's argument from authority when he thinks authority is on his side
>> noted (if he can find Samuelson, Solow, or Modigliani talking about
>> upward sloping labor demand curves, _that_ would be interesting).
>
>Chris was making silly statements about what is well known. It is
>no logical fallacy to quote a textbook in reply.
Damnit, Rob, it is NOT "well known" that factor demand curves can slope
up because factor demand curves CANNOT slope up. All of your examples of
upward-sloping relationships between an input and its price violate the
ceteris paribus *definition* of factor demand curves. The book you quote
is *wrong*.
>On the other hand, this is a logical fallacy:
>
> "However, no one doubts that
> large increases in the minimum wage would decrease employment,
> and few believe that this policy is a good redistribution tool."
> -- Chris Auld
It is? It seems to me its a remark about beliefs and cannot be a "logical
falacy," although it could be mistaken. Rob, can you name some economists
who think that, say, a $100 an hour minimum wage wouldn't reduce employment?
And can you name some who think that minimum wages are good redistribution
tools? Many, including myself, are more or less ambivalent as long as the
minimum remains low, but I can't recall reading anyone who really thinks
raising the minimum is the best, or even a really good, way to redistribute.
Do you? What advantages do you think minimum wages have over, say, EITC
type programs?
>> I guess, given the self-aggrandization Rob indulges in above, he
>> needs to rebuked again for taking himself and this forum far, far too
>> seriously.
>
>Only an authoritarian would think he "needs" to do such on this
>forum. Some might find Chris' posts hilarious.
I hope so -- I do try to slip in some wit once in a while. Rob, on the
other hand, is dour enough to make the economics profession look like a
pack of wild, carefree optimists. Anyways, Rob, I think your egotistical
ramblings about your "serious intellectual work" and its inexplicable
failure to sway the world through repeated spamming to the internet puts
you on the same august plane as other great thinkers such as Archimedes
Plutonium. Lighten up.
>> ...when general equilibrium considerations
>> are important (and, of course, in the common situation when outcomes
>> other than prices and quantities are of interest)...
>
>But my example is not of neoclassical general equilibrium.
So? Nice quoting job. I was explaining when supply and demand is
used in response to the charge that it "isn't applicable," ever. Do
you have a relevant comment to make in response, Rob?
>> When Rob is railing against "neoliberal advocates," he is not, of course,
>> talking about microeconomic theory.
>
>Chris' complaint was that I don't do enough "railing" against neoliberal
>advocates.
No, my complaint was that you talk about politics while pretending to be
talking about economic theory. I would be more interested in what you have
to say if you would explicitly talk about your opinions on various policies.
How about it?
>> I would be interested if he could
>> name one economist who would label "the stuff" in intermediate micro
>> "incoherent ideology." ...
>> Question: can one understand neo-Marxist, or
>> neo-Institutional,
>> or any other "school" of economic thought absent any understanding of the
>> concepts presented in mainstream undergraduate microeconomics?
>
>I don't know what "neo-Marxist" means.
Then perhaps you should read more.
[ unattributed quote deleted ]
It isn't clear from the quote what the author thinks should be taught in
undergraduate micro, Rob, but I would still be shocked if he thought that
all of "the stuff" in most intermediate micro course is "incoherent
ideology." I do think that the program discussed does students a grave
disservice: I think a prime goal of an undergraduate program is to raise
students to a level where they can at least make a stab at understanding
the primary literature. That certainly can't happen if the basic tools
and terminology given in most intermediate micro courses is never taught.
>One could also look at Tony Lawson's response to Daniel Haussman in
>the current(?) issue of the journal _Economics and Philosophy_. Lawson
>assumes that it is common knowledge among some of his intended
>audience that many think mainstream economics intellectually bankrupt,
>for the most part.
< yawn >
Rob, why don't you just program a bot to roam around the net looking for
insulting remarks about economists? You could then have it automatically
post what it finds here, which would free up a lot of your time to toil
away on Sraffa4.ps: the Next Generation.
SUSUPPLY
>>Only an authoritarian would think he "needs" to do such on this
>>forum. Some might find Chris' posts hilarious.
Oh many do, trust me.
It's probably ripostes like the following we enjoy:
>>I don't know what "neo-Marxist" means.
>
>Then perhaps you should read more.
And his question about funding the Sraffa memorial, that's been keeping me
laughing for a couple months. How about you?
BTW, Robert, if it's elegance you crave I suggest renting a few Fred
Astaire-Ginger Rodgers videos.
Patrick