Re: bush tax cut and small businesses

From: Robert Vienneau (rvien_at_see.sig.com)
Date: 10/05/04 

Date: Tue, 05 Oct 2004 17:14:38 -0400

In article <jjB8d.38596$N.36293@fe1.texas.rr.com>, Igor
<jjweatherby@houston.rr.com> wrote:

> 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.

The above is ignorant bull***, which I may explain elsewhere.

> 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.

I don't say such because the truth of the above statement is quite
questionable. Neoclassical theory is supposed to apply quite generally,
to models in which capital goods are use in production and in models
in which they are not, to models with discrete descriptions of
technology and to models with "smooth" descriptions. If the conclusions
that are generally thought to be conclusions of neoclassical
economics - for example, the erronenous beliefs that minimum wages
above "the" market-clearing wage lead to less employment - were
conclusions of neoclassical theory and if neoclassical theory
were logically valid, one could not create numeric examples
conforming to neoclassical assumptions without those conclusions. I
can and have created such examples. So some others in this thread have
made a logical mistake.

> It is not a smooth differentiable
> labor demand curve economist are used to.

Paul Samuelson, for example, says that the existence of, for
example, capital-reversing does not depend on discrete technologies
and non-differentiable production functions. I think he is
correct on this point.

> 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.

Incorrect. My favorite way of modeling production is very close
to a method widely used in empirical work. I refer to Leontief
input-output analysis.

I know of no reason why technology could not be such that either
reswithing or capital-reversing is possible. Nobody has ever
presented a valid argument otherwise that I know of.
 
> 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.

Mr. Weatherby is illiterate, as is clear from his posts. So I don't
take any offense at being told he finds my posts unintelligible.
On the other hand, one of my essays has been provisionly accepted,
assuming I address reviewer comments. The comments, although
useful, are not extensive.
 
> 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.

I also think the above article is worth reading.
 
> Unlike Vienneau the authors explain this argument clearly and correctly.

Notice that Mr. Weatherby does not say where he finds anything in
the following unclear or incorrect:

  <http://www.dreamscape.com/rvien/Economics/Essays/LaborDemand.pdf>

He is just babbling bull***.
 
> They also discuss if the arguments matter today.

And their conclusion is generally that they do. According to
Cohen and Harcourt, the American economists did not settle the
significance of the debate; they just stopped addressing the
Anglo-Italians, partly because some of the leading Anglo-Italians
died. Some are still around, and there is another generation or two.

> 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.

Since capital does not switch, Figure 2 does not show such. I doubt
Mr. Weatherby can find anywhere where Cohen and Harcourt use the
phrase "capital switching".

> 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.

For once, a statement that I can agree with.

> The problem Rob has is that he only reads Post-Keynesians who believe
> they are following Robinson.

The above is simply an ignorant ad hominem. Robinson's methodological
point is different than my usual points in my numeric examples.

And Mr. Weatherby simply cannot know what I read or do not read.

> 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.

It is true that the Anglo-Italians do not think that empirical
evidence can settle questions of logical validity. It is true
that certain American economists, who I do not think understand
the theory, complain about a lack of empirical evidence.

> 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.

One can only wonder what Mr. Weatherby is referring to as "the
Neo-Classical model". As a matter of fact, Franklin Fisher's
simulation results and Anwar Shaikh's "humbug production function"
paper show that much supposedly empirical and practical work
with Solovian growth theory, and perhaps with new growth theory,
doesn't provide any valid reason to accept the work's conclusions.
The theory, perhaps, hasn't passed any potentially falsifying
tests.

> They realize price Wicksel
> effects are possible yet that relative scarcity is empirically dominate
> even if price Wicksel effects exist (Cohen and Harcourt 2003).

I think it misleading to cite Cohen and Harcourt to support Mr.
Weatherby's view. Cohen and Harcourt are merely saying that that is
what certain American economists think.

> 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.

Untrue and a non sequitur. If I demonstrate your theory is logically
untenable, that does not imply that I don't think having a
theory, in some sense, that works well empirically is unimportant.

> 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.

Some think both coherence and empirical results matter. If a
model is logically invalid - because, say, its conclusions do
not follow from its assumptions - one might find it hard to
understand the point of using it empirically.

> The argument between the two is simply continuity versus discontituity.

As I noted, the above claim is simple incorrect.
 
> There has never been a consequences on the significance of results.
> (Cohen and Harcourt 2003).

What Mr. Weatherby means to say is that there has never been a
consensus about significance of the results.

There is no question about the validity, except by certain
ignoramouses on Usenet, of certain numeric examples.
 
> I think Rob and others interested in his post should read the article to
> get a clear view of both sides of the debate.

I already have some time ago.

> 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.

Nope.

> 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.

Nope. Consider:

   Albin, P. S. (1975). "Reswitching: An Empirical Observation",
   Kyklos. V. 28, p. 149-153.

   Han, Z. and Schefold, B. (2003). "An Empirical Investigation
   of Paradoxes (Reswitching and Reverse Capital Deepening) in
   Capital Theory. September. (On the web somewhere.)

   Ozanne, A. (1996). "Do Supply Curves Slope Up? The Empirical
   Relevance of the Sraffian Critique of Neoclassical Production
   Economics", Cambridge Journal of Economics. V. 20, p. 749-
   762.

   Prince, R. and Rosser, J. B., Jr. (1985). "Some Implications of
   Delayed Environmental Costs for Benefit Cost Analysis: A
   Study of Reswitching in the Western Coal Lands", Growth
   and Change. V. 16, p. 18-25.

   Zambelli, S. (2004). "The 40% Neoclassical Aggregate Theory of
   Production", Cambridge Journal of Economics. V. 28, Iss. 1, p.
   99-120, January.

> That is why he ignores
> all the literature afterward saying Card and Kreuger got it wrong.

I think there's been quite a number of bought-and-paid for hacks.
 
> The debate is not for naught in America however. The debate did lead to
> General Equilibrium analysis as a response to Samuelson's parables.

The last sentence is badly phrased. But let it pass. Samuelson's
parables are know to be generally false. 

-- 
Mostly economics:  <http://www.dreamscape.com/rvien/#PublicationsForFun>
r           c
 v         s a           Whether strength of body or of mind, or wisdom, or
  i       m   p          virtue, are found in proportion to the power or wealth
   e     a     e         of a man is a question fit perhaps to be discussed by
    n   e       .        slaves in the hearing of their masters, but highly
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