Re: bush tax cut and small businesses

From: Igor (jjweatherby_at_houston.rr.com)
Date: 10/05/04 

Date: Tue, 05 Oct 2004 18:00:47 GMT

da pickle wrote:

> A discussion of the hiring of higher wage earners who are more productive
> does not "follow" from a mandated "minimum wage."
>
> You obviously do not understand what you are reading and pasting. Higher
> productivity is not a guarantee that comes with higher wages. An
> "artificial" wage (like all "price controls") floor is not a "good" thing in
> anyone's equations. It is only a misunderstood "fix" to satisfy the desire
> of social engineers to improve the lot of the poor.
>
Vienneau understands what he is reading. What he does not tell you is
this is a special case that is much different from the assumptions of a
labor demand curve generally used. It is not a smooth differentiable
labor demand curve economist are used to. It involves a
nondifferentiable function that has switch points due to wages. It is
purely theoretical and there is absolutely zero evidence that any
industry would operate under these assumptions.

It has been a while since I looked at what Veinneau writes. He is
completely unintelligible. He turns a bunch of equations down with no
explanation of the process or even what the equations fully mean then
writes QED.

If you want an intelligible distillation of Vienneau's argument see

Avi J. Cohen and G.C. Harcourt "Retrospectives: Whatever happened to the
Cambridge Capital Theory Controversy", The Journal of Economic
Perspectives Volume 17 No. 1 Winter 2003.

Unlike Vienneau the authors explain this argument clearly and correctly.
They also discuss if the arguments matter today. This article shows the
price Wicksell effect and Samuelson's model of capital switching. Figure
2 shows how capital switches and implies how labor demand would not be a
smooth function. He does not go as far as to apply this to a model of
labor but the figure shows where Vienneau's idea comes from.

The problem Rob has is that he only reads Post-Keynesians who believe
they are following Robinson. As Cohen and Harcourt point out the English
camp has some suffered from a lack of empirical evidence. The
Post-Keynesians and the Cambridge group spent a lot of time on models
but little to no time testing them. The Americans have rejected the
Cambridgians precisely because they have never proved things such as
Wicksel effects. This group thought empirically proving the model was
beside the point. American economist want to see empirical proof before
something is accepted not just a model.

American economist have pursued empirical proof of the neoclassical
assumptions that the Cambridgians reject. The Neo-Classical model has
been a fruitful endeavor for empirical work. They realize price Wicksel
effects are possible yet that relative scarcity is empirically dominate
even if price Wicksel effects exist (Cohen and Harcourt 2003). The
authors also note that Solow's justification has always been that the
model gives good empirical results. So the Cambridgians care mainly
concerned about pure theory and not the empirical evidence to support
the model. The Neo-Classical followers believe if it gets good estimates
it is a good model. It is more important for matters of analysis to have
a tractable model that can be estimated.
The argument between the two is simply continuity versus discontituity.
There has never been a consequences on the significance of results.
(Cohen and Harcourt 2003).

I think Rob and others interested in his post should read the article to
get a clear view of both sides of the debate. It also explains why
Americans have paid little attention to arguments such as the one's Rob
tends to post. The school is thought is completely different. We believe
that you should empirically prove that it exist before you say it
confuscates the model. The Cambridgians say make sure the model is
perfectly theoritically clear before you test it. In order to get Rob's
results you have to believe that functions are discontinous. The
discontinuity makes these models extermely hard to estimate and
therefore hard to prove. That is why Americans typically reject these
arguments the empirical proof is scant at best. Since Rob is a believer
in this school he hangs closely to Card and Kreuger because it is the
one piece of evidence that may say he is right. That is why he ignores
all the literature afterward saying Card and Kreuger got it wrong.

The debate is not for naught in America however. The debate did lead to
General Equilibrium analysis as a response to Samuelson's parables.

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