Re: bush tax cut and small businesses

From: Robert Vienneau (rvien_at_see.sig.com)
Date: 10/09/04 

Date: Sat, 09 Oct 2004 07:50:27 -0400

In article <G5w9d.4767$%e7.4736@fe1.texas.rr.com>, Igor
<jjweatherby@houston.rr.com> wrote:

> Robert Vienneau wrote:
 
> > In article <eK09d.1600$sY3.802@fe2.texas.rr.com>, Igor
> > <jjweatherby@houston.rr.com> wrote:

> >>>>In article <h2G8d.38931$N.19879@fe1.texas.rr.com>, Igor
> >>>><jjweatherby@houston.rr.com> wrote:

> >>>>>To an economist will the minimum wage lower
> >>>>>employment is an equivalent statement to will a price control on pet
> >>>>>rocks create a shortage of pet rocks.

> >>For an economist it is exactly the same question. What is the effect on
> >>the market when the government sets a minimum price for a good. In one
> >>case it is labor which people care about. In the other it is pet rocks
> >>which most people do not care about. Intellectually the questions are
> >>identical. The same tools and identical analysis apply. Well at least
> >>once demand curves and supply curves have been estimated.

> > The above is significantly question-begging.
> >
> > It is also simply wrong...
> >
> > p A (1 + r) + a0 w = p
> >
> > Wages (w) and the prices of consumer goods (some of the elements
> > of p) enter the equation differently.
> >
> > Furthermore, there is William Coleman's point about when income
> > effects are important.

> >>Politically
> >>the questions differ greatly.

> > Mr. Weatherby is free to continue to insist that his refusal to
> > accept arithmetic is a matter of politics. I will not argue.

> Mr. Vienneau misses the point here. I never said demand curves for a
> final good and demand curves for labor are identical. I am quite aware
> labor demands are derived from the demand for final goods. This does not
> change the fact that the question is identical. It is a question of what
> the effect of a price control is on the market. Yes the demand curves
> are dervived differently. This does not mean that market works
> fundemental differently.

The above is significantly question-begging. If Mr. Weatherby understood
Cohen and Harcourt (2003), he would know the applicability of supply
curves to consumer markets and the applicability of demand curves to
labor markets are in dispute. As Harcurt has said elsewhere:

  "...price as an index of scarcity cannot be made coherent in the
  supply-and-demand framework, which I think is the principal Sraffian
  critique... you might as well give up neoclassical economics as a
  conceptual illumination because the results aren't robust enough to
  go through, though you can pretend that they do. All these one-sector
  models pretend that there's a well-behaved demand curve for capital.
    -- J. E. King, _Converstions with Post Keynesians_, St. Martin's
       Press, 1995

(By the way, as for when I first read Cohen and Harcourt, look at
footnote 1 in:

  <http://www.dreamscape.com/rvien/Economics/Essays/Sraffa3.pdf>

The date and time stamp on this file can be seen at:

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

The file is dated 28-Aug-2004. I actually produced that PDF
file sometime before that.)

I know of no reason technology cannot be such that
capital-reversing and related effects are manifested in long-run
models with technology specified to match the technology in, say,
selected vertically integrated markets in the U.S. economy. Mr.
Weatherby, like all other economists, cannot even specify assumptions
on technology needed to rule out capital-reversing. So the
following seems to me to be a non sequitur:
 
> Rob insist that the law of demand does not apply to labor. There is no
> evidence to show this.

Nope. As empirical evidence of Sraffa effects and my favorite framework
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.

I have pointed these references out to Mr. Weatherby before on this
thread. He deleted them with no comment. Now he is repeating his
error. This does not seem like honest behavior.

> Not even Card and Kreuger necessarily shows this.
> The point that the demand curve is derived differently or perhaps
> different properties does not change the fact a minimum wage is a price
> floor. The analysis of the effect of a price control is identical under
> both settings. The difference is how you estimate demand and supply.

Nope. Still question-begging.

I think the typical mainstream economist's dogma about the effects
of rent controls is balderdash. But I don't argue that because
models with rent in my favorite framework are considerably more
complex than the models I usually present here. That is, the
analysis of the effect of a price control is different for
different types of commodities.

> Rob could have easily argued that the determinates of Labor supply are
> different as well.

Nope. The utility-maximizing framework that models consumers trading
off goods and leisure also yields consumer demand.

> It does not disprove the argument. Once the Demand
> and Supply curves are derived and estimated the analysis of a price
> control is the same.

Still question-begging.
 
> Yes economic analysis does play a role in forming normative statements
> about what SHOULD be done. It does not tell us what SHOULD be done. It
> predicts the effect of what WAS done or what WILL be done.

The above is irrelevant to any point I've made. It is Mr. Weatherby
that is rejecting any discussion of substantial points and who is
holding on to an exploded economic theory, perhaps because of
political ideology.

> There are
> many economist who support the minimum wage who will tell you an
> employment lost exist. They argue it is small and they argue who it
> hits. In this case mostly high schoolers and not people who support
> families. A good percentage of minimum wage workers are high school and
> college students not heads of householder. Even "minimum wage jobs" pay
> moare than minimum wages to anyone who has worked there for some time.

I am aware that many mainstream economists often thought highly of
by their peers cling to exploded theory, whatever their politics. These
claims rely on a mistaken belief which way the effects must go,
whether they are large or small. Here is an economist who knows
that this belief is mistaken:

  <http://www.econ.usyd.edu.au/drawingboard/journal/0111/white.pdf>

Here's an argument about this point:

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

(I've updated that file this morning.)

Cohen and Harcourt (2003) write:

  "The fight was far from over because THERE WAS NO AGREEMENT ON
  THE SIGNIFICANCE OF ALL OF THESE RESULTS. The two sides used
  different criteria to judge the agreed upon outcomes of the
  controversy."

Perhaps Mr. Weatherby, like any specialist in growth theory
conforming to what should be good scholarly ethics, should learn
what the "agreed upon outcomes" are. 

-- 
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
     @ r         c m     unbecoming to reasonable and free men in search of
      d           o      the truth.    -- Rousseau

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