tag:blogger.com,1999:blog-267065642017-11-22T19:25:28.359-05:00Thoughts On EconomicsRobert Vienneauhttp://www.blogger.com/profile/14748118392842775431noreply@blogger.comBlogger1068125tag:blogger.com,1999:blog-26706564.post-1151835560707333482020-01-01T03:00:00.000-05:002017-01-03T06:51:08.056-05:00WelcomeI study economics as a hobby. My interests lie in Post Keynesianism, (Old) Institutionalism, and related paradigms. These seem to me to be approaches for understanding actually existing economies.<br /><br />The emphasis on this blog, however, is mainly critical of neoclassical and mainstream economics. I have been alternating numerical counter-examples with less mathematical posts. In any case, I have been documenting demonstrations of errors in mainstream economics. My chief inspiration here is the Cambridge-Italian economist Piero Sraffa.<br /><br />In general, this blog is abstract, and I think I steer clear of commenting on practical politics of the day.<br /><br />I've also started posting recipes for my own purposes. When I just follow a recipe in a cookbook, I'll only post a reminder that I like the recipe.<br /><br /><B>Comments Policy:</B> I'm quite lax on enforcing any comments policy. I prefer those who post as anonymous (that is, without logging in) to sign their posts at least with a pseudonym. This will make conversations easier to conduct.Robert Vienneauhttp://www.blogger.com/profile/14748118392842775431noreply@blogger.com64tag:blogger.com,1999:blog-26706564.post-64928392971394367112017-11-22T08:01:00.000-05:002017-11-22T08:01:20.281-05:00Bifurcation Analysis Applied to Structural Economic Dynamics with a Choice of Technique<table align="center" border="0" cellpadding="1" cellspacing="1"><tbody><TR><TD ALIGN="center"><a href="https://2.bp.blogspot.com/-AtamkpUUNA0/WhBpgI8jkuI/AAAAAAAABEE/cP-bPxT9Mp41Tuh3XNY_s8sDA_wmQuMIwCLcBGAs/s1600/BifurcationDiagram1.gif" imageanchor="1" ><img border="0" src="https://2.bp.blogspot.com/-AtamkpUUNA0/WhBpgI8jkuI/AAAAAAAABEE/cP-bPxT9Mp41Tuh3XNY_s8sDA_wmQuMIwCLcBGAs/s320/BifurcationDiagram1.gif" width="320" height="180" data-original-width="1440" data-original-height="810" /></a></td></tr><tr><td align="center"><b>Variation of Switch Points with Technical Progress in Two Industries</b></td></tr></tbody></table><P>I have a new <A HREF="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3073641">working paper</A> - basically an update of one I have previously described. <P><BLOCKQUOTE><B>Abstract:</B> This article illustrates the application of bifurcation analysis to structural economic dynamics with a choice of technique. A numerical example of the Samuelson-Garegnani model is presented in which technical progress is introduced. Examples of temporal paths through the parameter space illustrate variations of the wage frontier. A single technique is initially uniquely cost-minimizing for all feasible rates of profits. Eventually, the technique for which coefficients of production decrease at the fastest rate is always cost-minimizing. This example illustrates possible variations in the existence of Sraffa effects, which arise during the transition between these positions. </BLOCKQUOTE>Robert Vienneauhttp://www.blogger.com/profile/00872510108133281526noreply@blogger.com0tag:blogger.com,1999:blog-26706564.post-52023100473232308832017-11-16T15:24:00.000-05:002017-11-16T15:24:06.385-05:00Two Techniques, One Linear Wage Curve<table align="center" border="0" cellpadding="1" cellspacing="1"><tbody><TR><TD ALIGN="center"><a href="https://4.bp.blogspot.com/-vcfDhmi5flw/WgojU4TF8YI/AAAAAAAABDs/N1ZbmMcbRtwd8_pYOniy-woUu0KF8-9fACLcBGAs/s1600/TwoTechniquesParameterSpace.gif" imageanchor="1" ><img border="0" src="https://4.bp.blogspot.com/-vcfDhmi5flw/WgojU4TF8YI/AAAAAAAABDs/N1ZbmMcbRtwd8_pYOniy-woUu0KF8-9fACLcBGAs/s320/TwoTechniquesParameterSpace.gif" width="320" height="180" data-original-width="1440" data-original-height="810" /></a></td></tr><tr><td align="center"><b>Coefficients for Iron-Production in the Leontief Input-Output Matrix</b></td></tr></tbody></table><P>I have uploaded a <A HREF="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3070269">working paper</A> with the post title. </P><BLOCKQUOTE><B>Abstract:</B> This note demonstrates that the special case condition, needed for a simple labor theory of value, of equal organic compositions of capital does not suffice to determine technology. Prices do not vary across techniques for both techniques in a numeric example of a two-commodity linear model of production, and they are proportional to labor values. Both techniques yield the same wage curve, in which the wage is an affine function of the rate of profits. This indeterminancy generalizes to models with more than two produced commodities. </BLOCKQUOTE>Robert Vienneauhttp://www.blogger.com/profile/00872510108133281526noreply@blogger.com0tag:blogger.com,1999:blog-26706564.post-75354686596907786382017-11-10T08:38:00.000-05:002017-11-10T08:38:36.958-05:00An Example With Two Fluke Switch Points<table align="center" border="0" cellpadding="1" cellspacing="1"><tbody><TR><TD ALIGN="center"><a href="https://1.bp.blogspot.com/-io5EdtvPW8A/Wfm1W0qLIvI/AAAAAAAABC8/WnBCK9Hj9lgR-jeXWeA3gohOuVkd__VKgCLcBGAs/s1600/FlukeBifurcation2.gif" imageanchor="1" ><img border="0" src="https://1.bp.blogspot.com/-io5EdtvPW8A/Wfm1W0qLIvI/AAAAAAAABC8/WnBCK9Hj9lgR-jeXWeA3gohOuVkd__VKgCLcBGAs/s320/FlukeBifurcation2.gif" width="320" height="180" data-original-width="1440" data-original-height="810" /></a></td></tr><tr><td align="center"><b>Figure 1: Fluke Switch Points on Each Axis</b></td></tr></tbody></table><B>1.0 Introduction</B><P>I have developed an approach for finding examples in which either two fluke switch points exist on the wage frontier or a switch point is a fluke in more than one way. This post presents a numerical example with two fluke switch points on the frontier. Not all examples generated by this approach are necessarily interesting, although I find the approach of interest. I don't think the example in this approach is all that fascinating. I had thought that <A HREF="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3032428">examples</A> of real Wicksell effects of zero were somewhat interesting, but I have received disagreement. </P><P>Anyways, what I have been doing is drawing <A HREF="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3056379">bifurcation diagrams</A>for examples in which coefficients of production vary. The bifurcation diagram partitions a parameter space into regions in which the sequence of switch points does not vary, even though their specific locations on the wage frontier may. The loci dividing regions with topologically equivalent wage frontiers specify fluke cases. A point in the parameter space in which more than one such loci intersect specifies an example which is a fluke in more than one way. </P><B>2.0 Technology</B><P>The example is a numerical instantiation of the Samuelson-Garegnani model. A single consumption good, corn is produced from inputs of corn and one of three capital goods. Table 1 lists the coefficients of production for production processes for producing corn. Each production process in this example requires a year to complete and exhibits Constant Returns to Scale. A column in Table 1 lists the physical inputs for that process required per unit corn produced at the end of the year. Workers labor over the course of the year, and the inputs of the capital good are totally used up in the process. Managers of firms also know of a process for producing each capital good (Table 2). For a given capital good, the process for producing it requires inputs of labor and the services of that capital good. </P><TABLE CELLSPACING="1" CELLPADDING="1" BORDER="1" ALIGN="center"><CAPTION><B>Table 1: Processes For Producing Corn</B></CAPTION><TR><TD ALIGN="center" ROWSPAN="2"><B>Input</B></TD></TD><TD ALIGN="center" COLSPAN="3"><B>Corn Industry</B></TD></TR><TR><TD ALIGN="center"><B>Alpha</B></TD><TD ALIGN="center""><B>Beta</B></TD><TD ALIGN="center"><B>Gamma</B></TD></TR><TR><TD ALIGN="center">Labor</TD><TD ALIGN="center">1</TD><TD ALIGN="center">3.69174</TD><TD ALIGN="center">3.33574</TD></TR><TR><TD ALIGN="center">Iron</TD><TD ALIGN="center">3</TD><TD ALIGN="center">0</TD><TD ALIGN="center">1</TD></TR><TR><TD ALIGN="center">Copper</TD><TD ALIGN="center">0</TD><TD ALIGN="center">0.92850</TD><TD ALIGN="center">0</TD></TR><TR><TD ALIGN="center">Uranium</TD><TD ALIGN="center">0</TD><TD ALIGN="center">0</TD><TD ALIGN="center">1.79455</TD></TR><TR><TD ALIGN="center">Corn</TD><TD ALIGN="center">0</TD><TD ALIGN="center">0</TD><TD ALIGN="center">0</TD></TR></TABLE><P></P><TABLE CELLSPACING="1" CELLPADDING="1" BORDER="1" ALIGN="center"><CAPTION><B>Table 2: Processes For Manufacturing Capital Goods</B></CAPTION><TR><TD ALIGN="center" ROWSPAN="2"><B>Input</B></TD></TD><TD ALIGN="center" COLSPAN="3"><B>Industry</B></TD></TR><TR><TD ALIGN="center"><B>Iron</B></TD><TD ALIGN="center""><B>Copper</B></TD><TD ALIGN="center"><B>Uranium</B></TD></TR><TR><TD ALIGN="center">Labor</TD><TD ALIGN="center">1</TD><TD ALIGN="center">1.94290</TD><TD ALIGN="center">0.917647</TD></TR><TR><TD ALIGN="center">Iron</TD><TD ALIGN="center">0.5</TD><TD ALIGN="center">0</TD><TD ALIGN="center">1</TD></TR><TR><TD ALIGN="center">Copper</TD><TD ALIGN="center">0</TD><TD ALIGN="center">0.5</TD><TD ALIGN="center">0</TD></TR><TR><TD ALIGN="center">Uranium</TD><TD ALIGN="center">0</TD><TD ALIGN="center">0</TD><TD ALIGN="center">0.550588</TD></TR><TR><TD ALIGN="center">Corn</TD><TD ALIGN="center">0</TD><TD ALIGN="center">0</TD><TD ALIGN="center">0</TD></TR></TABLE><P>Any one of three techniques can be adopted to sustainably produce corn. The Alpha technique consists of the iron-producing process and the corresponding, labelled process for producing corn. The Beta technique consists of the copper-producing process and corresponding for producing corn. And similarly for the Gamma technique. </P><B>3.0 Prices and the Wage Frontier</B><P>For each technique, a system of two equations arises. I take corn as the numeraire and assume that labor is paid out of the surplus at the end of the year. The equations show the same rate of profits being earned for both processes comprising a technique. Given an externally specified rate of profits, the equations are a linear system. They can be solved for the wage and the price of the capital good, as functions of the rate of profits. For the wage, this function is known as the wage curve. All three wage curves, one for each technique, are graphed in Figure 1 above. </P><P>The wage frontier consists of the outer envelope of all wage curves. The curve(s) on the frontier at a given rate of profits correspond(s) to the cost-minimizing technique(s) at that rate of profits. The Gamma technique is cost-minimizing at low rates of profits, and the Beta technique is cost-minimizing at high rates of profits. These two techniques are tied - that is, both cost-minimizing - at the switch point dividing these two regions of the rate of profits. </P><P>The Alpha technique is only cost-minimizing at the switch points on the wage axis and on the axis for the rate of profits. And, it is tied, with the Gamma and Beta techniques, respectively, at these switch points. A switch point appearing on the wage axis or the axis for the rate of profits is a fluke case. So both switch points with the Alpha technique are flukes. Having Alpha participate in two fluke switch points is even more of a fluke case. For what it is worth, the fluke switch point on the axis for the rate of profits exhibits capital-reversing. </P>Robert Vienneauhttp://www.blogger.com/profile/00872510108133281526noreply@blogger.com0tag:blogger.com,1999:blog-26706564.post-39408655504549756622017-10-28T13:10:00.000-04:002017-10-28T13:13:05.680-04:00Braess' Paradox<table align="center" border="0" cellpadding="1" cellspacing="1"><tbody><TR><TD ALIGN="center"><a href="https://2.bp.blogspot.com/-VLGSGHb-N8o/WfSp4_UjEfI/AAAAAAAABCk/O4rFW1DnbqEidjXJPSyxWj1QlIEpE72OACLcBGAs/s1600/BraessParadox.gif" imageanchor="1" ><img border="0" src="https://2.bp.blogspot.com/-VLGSGHb-N8o/WfSp4_UjEfI/AAAAAAAABCk/O4rFW1DnbqEidjXJPSyxWj1QlIEpE72OACLcBGAs/s320/BraessParadox.gif" width="400" height="225" data-original-width="1440" data-original-height="810" /></a></td></tr><tr><td align="center"><b>Figure 1: An Example Of Braess' Paradox</b></td></tr></tbody></table><P>Braess' paradox arises in transport economics, a field for applied research in economics. I was inspired by the example in Fujishige et al. (2017) for the example in this post. Under Braess' paradox, an improvement to a transport network, and thus an increase in the number of choices available to users of the network, results in decrease performance. In reliability engineering, one says such a transport network is not a coherent system. </P><P>A transport network, for a single mode (for example, air, rail, road, or water) can be specified by: </P><UL><LI>A network, where a network consists of links between nodes. Links can be one-way or two way.</LI><LI>A cost for traversing each link. The cost can be a function of the demand (that is, the amount of traffic traversing that link). Cost can have a stochastic component, such as a (perceived) standard deviation for the distribution of the time to traverse a link.</LI><LI>Demands on the network, as specified by source nodes for users and the destination of each user.</LI><LI>Objective functions for the users, such as the minimization of trip time or the maximization of the probability that total trip time will not exceed a given maximization. The probability for the latter objective function is known as trip reliability.</LI></UL><P>In my example (Figure 1), two road networks are specified. The network on the right differs from the one on the left in that an additional road, between nodes A and B has been added. All links are two ways. The cost for each link is specified as the number of minutes needed to travel across the link, where two links have a cost that depends on the traffic, thus modeling the effect of congestion. The parameters <I>X</I><SUB>SA</SUB>and <I>X</I><SUB>SA</SUB> denote the number of vehicles traversing the respective links. Thus, the number of minutes to travel across these links is proportional to the amount of traffic, with a proportionality constant of unity. The demand is assumed to be unchanged by the addition of the new link. One hundred users want to drive their vehicles from the source node S to the node destination node D. Each driver wants to minimize their total trip time. </P><TABLE CELLSPACING="1" CELLPADDING="1" BORDER="1" ALIGN="center"><CAPTION><B>Table 1: Costs for Each Link</B></CAPTION><TR><TD ALIGN="center"><B>Link</B></TD><TD ALIGN="center"><B>Cost</B></TD></TR><TR><TD ALIGN="center">SA</TD><TD ALIGN="center"><I>X</I><SUB>SA</SUB> Minutes</TD></TR><TR><TD ALIGN="center">SB</TD><TD ALIGN="center">110 Minutes</TD></TR><TR><TD ALIGN="center">AD</TD><TD ALIGN="center">110 Minutes</TD></TR><TR><TD ALIGN="center">BD</TD><TD ALIGN="center"><I>X</I><SUB>BD</SUB> Minutes</TD></TR><TR><TD ALIGN="center">AB</TD><TD ALIGN="center">Either infinity or 5 Minutes</TD></TR></TABLE><P>Each user has a choice of two routes, ignoring purposeless cycles, in the network on the left. These routes pass through nodes S, A, and D, or through nodes S, B, and D. The addition of the "short-cut" provides two additional routes, through nodes S, A, B, and D, and through nodes S, B, A, and D. </P><P>My method of analysis is an equilibrium assignment of users to routes. <A HREF="https://en.wikipedia.org/wiki/John_Glen_Wardrop">John G. Waldrop</A> created this notion of equilibrium, as I understand it. It is an application of Nash equilibrium to transport economics. Bell and Iida call this equilibrium a Deterministic User Equilibrium. The equilibrium assignments in the example are shown as green lines in the figure. On the left, 50 drivers choose each of the two routes, and each driver's trip requires 160 minutes. On the right, all 100 drivers choose the route S, A, B, and D. Each driver takes 205 minutes to complete their trip. </P><P>To see why these are equilibria, consider what happens if a single driver deviates from the equilibrium assignment. For example, suppose a driver of the left who has previously chosen the route S, A, and D selects the route S, B, D. The cost for the congested link BD will rise from 50 minutes to 51 minutes, and his total trip time will now be 161 minutes, an increase from the previous 160 minutes. In this model, a driven will not choose to be worse off in this way. Symmetrically, a driver assigned to the route S, B, and D will not decide to switch to the route S, A, and D. </P><P>Once the shortcut, AB, has been added, the analysis requires tabulating a few more trips. Suppose a driver swithes from the equilibrium route on the right to the route: </P><UL><LI>S, A, and D or S, B, and D: In each case, the new route includes one congested link which all 100 drivers still traverse. The total trip time is 210 minutes, an undesirable increase over the equilibrium trip time of 205 minutes.</LI><LI>S, B, A, and D: All links in this route have a fixed cost. Total trip time is 225 minutes, also an increase over the equilibrium trip time.</LI></UL><P>So here is a (long-established) case in which improvements to a transport network result in optimizing individuals becoming worse off. </P><B>References</B><UL><LI>Satoru Fujishige, Michel X. Goemans, Tobias Harks, Britta Peis, and Rico Zenklusen (2017). Matroids are immune to Braess' Paradox. <I>Mathematics of Operation Research</I>. V. 42, Iss. 3: 745-761.</LI><LI>M. G. H. Bell and Y. Iida (1997). <I>Transportation Network Analysis</I>. New York: John Wiley & Sons.</LI></UL>Robert Vienneauhttp://www.blogger.com/profile/00872510108133281526noreply@blogger.com0tag:blogger.com,1999:blog-26706564.post-49114609070897655002017-10-24T15:15:00.000-04:002017-10-24T15:15:12.745-04:00Structural Economic Dynamics with a Choice of Technique: A Numerical Example<table align="center" border="0" cellpadding="1" cellspacing="1"><tbody><TR><TD ALIGN="center"><a href="https://1.bp.blogspot.com/-hld1sOGqVTY/WezqIxSRBuI/AAAAAAAABCI/LYwJJxhpd7s3UGfOEHP-feMKzKeNOOKwQCLcBGAs/s1600/BifurcationDiagram.gif" imageanchor="1" ><img border="0" src="https://1.bp.blogspot.com/-hld1sOGqVTY/WezqIxSRBuI/AAAAAAAABCI/LYwJJxhpd7s3UGfOEHP-feMKzKeNOOKwQCLcBGAs/s320/BifurcationDiagram.gif" width="320" height="180" data-original-width="1440" data-original-height="810" /></a></td></tr><tr><td align="center"><b>A Bifurcation Diagram with Two Temporal Paths</b></td></tr></tbody></table>I have a <A HREF="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3056379">working paper</A> with the post title. Here's the abstract: <BLOCKQUOTE>This article illustrates the application of bifurcation analysis to structural economic dynamics with a choice of technique. A numerical example of the Samuelson-Garegnani model is presented in which technical change is introduced. Examples of temporal paths through the parameter space illustrate variations of the wage frontier. A single technique is initially uniquely cost-minimizing for all feasible rates of profits. Eventually, the technique for which coefficients of production decrease at the fastest rates is always cost-minimizing. During the transition between these positions, reswitching, the recurrence of techniques, and capital-reversing can arise. This example emphasizes the importance of fluke switch points and illustrates possible variations in the existence of Sraffa effects. </BLOCKQUOTE>Robert Vienneauhttp://www.blogger.com/profile/00872510108133281526noreply@blogger.com0tag:blogger.com,1999:blog-26706564.post-88925875530030796052017-10-17T08:15:00.000-04:002017-10-17T08:15:13.850-04:00Elsewhere<UL><LI>A July 24 Jonathan Schlefer <A HREF="https://www.foreignaffairs.com/articles/world/2017-07-24/market-parables-and-economics-populism?cid=int-now&pgtype=hpg®ion=br2">article</A>, "Market Parables and the Economics of Populism: When Experts are Wrong, People Revolt", in <I>Foreign Affairs</I>. Schlefer cites the Cambridge Capital Controversy as a demonstration that the neoliberal political project of remaking the world around unembedded markets is doomed to failure. </LI><LI>A September 11 <A HREF="http://knowledge.ckgsb.edu.cn/2017/09/11/the-thinker-interview/daniel-kahneman-interview-myopically-rational/">interview</A>with Daniel Kahneman in which he basically credits Richard Thaler with inventing behavioral economics. (In his memoirs, <I>Misbehaving</I>, Thaler is also explicit about the disciplinary boundaries between economics and psychology.)</LI><LI>Richard Thaler's anomaly <A HREF="https://www.aeaweb.org/journals/jep/search-results?within%5Btitle%5D=on&journal=3&q=Anomalies">columns</A>in the <I>Journal of Economic Perspectives</I></LI><LI>I have not read Nancy Maclean's <A HREF="https://www.amazon.com/Democracy-Chains-History-Radical-Stealth/dp/1101980966"><I>Democracy in Chains</I></A>. Marshall Steinbaum <A HREF="http://bostonreview.net/class-inequality/marshall-steinbaum-book-explains-charlottesville">reviews</A>this book in <I>Boston Review</I>. Henry Farrell & Steven Teles <A HREF="http://bostonreview.net/class-inequality/henry-farrell-steven-m-teles-when-politics-drives-scholarship">respond</A>. </LI></UL><P>Another ongoing brouhaha is about Alice and Wu's undergraduate paper documenting the sexism on Economic Job Market Rumors. </P>Robert Vienneauhttp://www.blogger.com/profile/00872510108133281526noreply@blogger.com2tag:blogger.com,1999:blog-26706564.post-81803132054904572572017-10-11T15:41:00.000-04:002017-10-13T07:01:38.403-04:00Others With Points Of View Like Sraffa's<P>In <I>Production of Commodities by Means of Commodities</I>, Sraffa writes: </P><BLOCKQUOTE>"others have from time to time independently taken up points of view which are similar to one or other of those adopted in this paper and have developed them further or in different directions from those proposed here." -- P. Sraffa (1960): pp. vi - vii. </BLOCKQUOTE><P>Who is Sraffa talking about? I suggest the following, and their works, at least: </P><UL><LI>Tjalling C. Koopmans (1957). <I>Three Essays on the State of Economic Science</I>. New York: McGraw-Hill</LI><LI>Wassily W. Leontief (1941). <I>Structure of the American Economy, 1919-1929</I>.</LI><LI><A HREF="http://robertvienneau.blogspot.com/2010/08/jacob-schwartz-9-january-1930-2-march.html"> Jacob T. Schwartz</A>(1961). <I>Lectures on the Mathematical Method in Economics</I>. New York: Gordon & Breach.</LI><LI>John Von Neumann (1945-1946). A Model of General Economic Equilibrium, <I>A Model of General Economic Equilibrium</I>. V. 13, No. 1: pp. 1-9.</LI></UL><P>I thought about listing David Hawkins and Herbert Simon, given how frequently the Hawkins-Simon condition is cited in expositions of Leontief input-output analysis. I might also mention Nicholas Georgescu-Roegen, the creator of the non-substitution theorem. The work of Ladislaus Bortkiewicz, Georg von Charasoff, Vladimir K. Dmitriev, and Robert Remak, as I understand it, mostly predates Sraffa's long period of preparation of his masterpiece. </P>Robert Vienneauhttp://www.blogger.com/profile/00872510108133281526noreply@blogger.com0tag:blogger.com,1999:blog-26706564.post-17531639579462750852017-10-08T16:04:00.001-04:002017-10-08T16:04:39.910-04:00Economic Impact Of Regional Disasters: A Job For Input-Output Analysis?<P>This post, unfortunately, is inspired by current events. </P><P>Economists can provide guidance on disaster recovery - for example, from earthquakes and hurricanes. </P><P>Economists, for a long time, have been developing input-output models of local economies and interactions between them. I think of <A HREF="https://en.wikipedia.org/wiki/Walter_Isard">Walter Isard</A>as a pioneer here. Such models are of practical importance to my post topic. </P><P>Regional input-output models can describe disasters with either a supply-side or demand-side approach. In a supply-side approach, the output of an industry is reduced because the inputs into that industry are not available at the pre-disaster level. Some of the outputs of that industry are inputs into other industries. Other outputs satisfy final demands, for example, for household consumption. Input-output modeling can help trace these consequences. </P><P>In a demand-side approach, an industry's output is constrained because those who purchase its outputs cannot do so at the pre-disaster level. If those industries who purchase your products are suddenly reduced in size, you must need cut back your output, too. </P><P>Some issues arise here. Can supply-side and demand-side approaches be combined without double counting? How should one model the effects of external infusions of aid? Multiplier effects seem to sit comfortably with the demand side approach. The assumption of fixed coefficients in the Leontief input-output approach seems to be an important restriction here. When it comes to modeling resiliency, I think of the work of <A HREF="https://priceschool.usc.edu/adam-rose/">Adam Rose</A>. Apparently, some use Computational General Equilibrium (CGE) models for this reason. </P><P>I do not know enough to have a firm opinion of CGE models. I have the impression that "Computational" is a misnomer; it does not relate to computational theory and Turing machines, as studied in computer science. I am also not sure that the GE in CGE is what I understand as GE. Anyways, practical considerations interact here with the ideological demands impacting economic theory. I like to think that economists are useful in the hard problem of what to do when disaster strikes. </P><B>Reference</B><UL><LI>Walter Isard. 1951. Interregional and Regional Input-Output Analysis: A Model of a Space-Economy. <I>Review of Economics and Statistics</I>. Vol. 33, No. 4: pp. 318-328. </LI></UL>Robert Vienneauhttp://www.blogger.com/profile/00872510108133281526noreply@blogger.com0tag:blogger.com,1999:blog-26706564.post-47048050125248786632017-09-30T12:16:00.001-04:002017-10-13T07:05:48.745-04:00Dean Baker's Rigged And Robert Reich's Saving Capitalism<P>Dean Baker has a new <A HREF="https://deanbaker.net/books/rigged.htm">book</A> out: <A HREF="https://www.amazon.com/Rigged-Globalization-Modern-Economy-Structured/dp/0692793364"><I>Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer</I></A>. It recounts how laws that define property, markets, and so on have been rewritten, over the last fifty years, to accomplish an upward redistribution of income. This bias for the rich contrasts with the effects of the rules of the game in the half-century golden age following World War II. This is the same theme as Robert Reich's <A HREF="https://www.amazon.com/Saving-Capitalism-Many-Not-Few/dp/0345806220"><I>Saving Capitalism: For the Many, Not the Few</I></A>. And both books are targeted for the common reader. Thus, a review of Baker's book can usefully compare and contrast it with Reich's book. (I have previously <A HREF="http://robertvienneau.blogspot.com/2016/01/krugman-on-robert-reichs-new-book.html">reviewed</A> Reich's book.) </P><P>Both books focus on a few areas in which the rules have been rewritten to distribute income upward. For example, consider intellectual property rights, especially the extension of patents and copyrights to last longer and to cover more. Baker, I think, discusses the international dimension more than Reich. The United States has been trying to ensure that patent laws are consistent throughout the world. The largest impact of this attempt, perhaps, is on the price of drugs in developing countries, and the subsequent consequences for health and life. </P><P>Both discuss how changes in laws have provided companies with more market power and have protected monopolies and oligopolies. Baker has more of a focus on upper-class professionals, such as doctors, dentists, and lawyers. Baker especially emphasizes how they are protected from international competition. So called free trade treaties, like the North America Free Trade Agreement (NAFTA) are selective in who they subject to the rigors of international competition. </P><P>Both discuss corporate governance and the impact on the pay of Corporate Executive Officers (CEOs) and top managers. CEO pay went from 20 times averages wages in the 1960s to over 250 times average wage nowadays. In general, CEO pay is set by a committee appointed by the board of directors who, in turn, are appointed by the CEO. Stockholders have little say, even after the Dodd-Frank bill gives stockholders the right to have an up-or-down non-binding vote on pay packages. Baker extends his critique of CEO pay to heads of foundations and to university presidents, for example. </P><P>Reich writes more about contracts, bankruptcy, and enforcement. Baker, on the other hand, writes more about the macroeconomic setting. For example, the Federal Reserve is overly focused on the threat of inflation and not so much on unemployment. I know something of the importance of macroeconomic policy from James Galbraith, who has been <A HREF="https://www.amazon.com/Created-Unequal-Crisis-American-Pay/dp/B0000645WG/ref=asap_bc?ie=UTF8">writing</A>on this theme for a long time. Baker follows his chapter on macroeconomics with a chapter on the financial sector. </P><P>I find Baker more analytical and less polemical than Reich. Baker adopts an interesting trope for putting in context large numbers. He frequently converts dollar flows into multiples of the yearly cost of welfare, that is, the yearly outlay on the Supplemental Nutrition Assistance Program (SNAP). He doesn't always carry through this conversion. I suppose a comparison of doctors' incomes among specialities is only one illustration of health care costs and may not require this contextualization. </P><P>I think both books contain a similar tension. Part of their point is that a contrast between non-government intervention in markets and more regulation is a false choice. I think Reich is better on ideological critique of, say, marginal productivity theory or the exploded theory of skills-biased technological change. Baker seems less interested in abstract economic theory, although he does ask whether one can really believe CEOs have gotten so much more productive since the 1950s so as to justify the increased inequality in their pay. But Baker keeps on contrasting legislated barriers to competition with what a free market would produce, that is, less rent. He is too accepting, at least for rhetorical purposes, of traditional economic theory for my tastes. Reich is more consistent with emphasizing that no such thing as a free market can ever exist, absent laws defining markets. Baker does start and conclude with this point. </P><P>Baker proposes any number of innovative policies throughout the book, and gathers them together in the second-to-last chapter. For example, Baker suggests that corporations be given an option of issuing non-voting stock to the government, instead of paying corporate income tax. Inventors could be given the option of competing for contest prizes, where a requirement of signing up is that they cannot receive patents over a number of years. (As far as I am aware, <A HREF="http://www.loebner.net/Prizef/loebner-prize.html">existing</A><A HREF="">prize</A>contests have no such connection to the patent system.) He also suggests that governments can pay for medical tourism, where those needing operations travel to other countries in search of cheaper prices. Baker has thought about how some of his policy proposals could first be implemented on a small scale. In general, I find both Baker and Reich too voluntaristic in policy proposals. But I do not know how to avoid that in today's general dismal climate. </P><P>I guess my conclusion is that Reich's book is broader, but that Baker's book is generally better in areas of Baker's focus. </P> Robert Vienneauhttp://www.blogger.com/profile/00872510108133281526noreply@blogger.com3tag:blogger.com,1999:blog-26706564.post-26410899462117504162017-09-18T07:19:00.001-04:002017-09-20T08:13:41.389-04:00Another Example Of A Real Wicksell Effect Of Zero<table align="center" border="0" cellpadding="1" cellspacing="1"><tbody><TR><TD ALIGN="center"><a href="https://2.bp.blogspot.com/-8QBEotZprSk/WcJZaAJ8cTI/AAAAAAAABBY/ll-tcKCFQjUusgFkezQeT2z0W7L6tbNQACLcBGAs/s1600/WageCurves2.gif" imageanchor="1" ><img border="0" src="https://2.bp.blogspot.com/-8QBEotZprSk/WcJZaAJ8cTI/AAAAAAAABBY/ll-tcKCFQjUusgFkezQeT2z0W7L6tbNQACLcBGAs/s320/WageCurves2.gif" width="320" height="180" data-original-width="1440" data-original-height="810" /></a></td></tr><tr><td align="center"><b>Figure 1: A Reswitching Example with a Fluke Switch Point</b></td></tr></tbody></table><B>1.0 Introduction</B><P>A switch point that occurs at a rate of profits of zero is a fluke. This post presents a two-commodity example with a choice between two techniques, in which restitching occurs, and one switch point is such a fluke. Total employment per unit of net output is unaffected by the choice of technique. Furthermore, the numeraire-value of capital per unit net output is also unaffected by the mix of techniques adopted at a switch point with a positive rate of profits. This is not the first example I present in a draft <A HREF="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3032428">paper</A>. </P><B>2.0 Technology</B><P>Consider the technology illustrated in Table 1. The managers of firms know of three processes of production. These processes exhibit Constant Returns to Scale. The column for the iron industry specifies the inputs needed to produce a ton of iron. Two processes are known for producing corn, and their coefficients of production are specified in the last two columns in the table. Each process is assumed to require a year to complete and uses up all of its commodity inputs. (The coefficients were "nicer" fractions before I started perturbing it. Octave code was useful.) </P><TABLE CELLSPACING="1" CELLPADDING="1" BORDER="1" ALIGN="center"><CAPTION><B>Table 1: The Technology</B></CAPTION><TR><TD ALIGN="center" ROWSPAN="3"><B>Input</B></TD><TD ALIGN="center" COLSPAN="3"><B>Industry</B></TD></TR><TR><TD ALIGN="center" ROWSPAN="2"><B>Iron</B></TD><TD ALIGN="center" COLSPAN="2"><B>Corn</B></TD></TR><TR><TD ALIGN="center"><B>Alpha</B></TD><TD ALIGN="center"><B>Beta</B></TD></TD><TR><TD ALIGN="center">Labor</TD><TD ALIGN="center">1</TD><TD ALIGN="center">5,191/5,770</TD><TD ALIGN="center">305/494</TD></TR><TR><TD ALIGN="center">Iron</TD><TD ALIGN="center">9/20</TD><TD ALIGN="center">1/40</TD><TD ALIGN="center">3/1976</TD></TR><TR><TD ALIGN="center">Corn</TD><TD ALIGN="center">2</TD><TD ALIGN="center">1/10</TD><TD ALIGN="center">229/494</TD></TR></TABLE><P>This technology presents a problem of the choice of technique. The Alpha technique consists of the iron-producing process and the corn-producing process labeled Alpha. Similarly, the Beta technique consists of the iron-producing process and the corn-producing process labeled Beta. </P><B>3.0 Quantity Flows</B><P>Quantity flows can be analyzed independently of prices. Suppose the economy is in a self-replacing state, with a net output consisting only of corn. Table 2 displays quantity flows for the Alpha technique, when the net output consists of a bushel of corn. The last row shows gross outputs, for each industry. The entries in the three previous rows are found by scaling the coefficients of production in Table 1 by these gross outputs. Table 3 displays corresponding quantity flows for the Beta technique. </P><P>Consider the quantity flows for the Alpha technique. The row for iron shows that each year, the sum (9/356) + (11/356) = 5/89 tons are used as iron inputs in the iron and corn industries. These inputs are replaced at the end of the year by the output of the iron industry, with no surplus iron left over. In the corn industry, the sum 10/89 + 11/89 = 21/89 bushels are used as corn inputs in the two industries. When these inputs are replaced out of the output of the corn industry, a surplus of one bushel of corn remains. The net output of the economy, when these processes are operated in these proportions, is one bushel corn. The table allows one to calculate, for each technique, the labor aggregated over all industries per net unit output of the corn industry. Likewise, one can find the aggregate physical quantities of capital goods per net unit output of corn. </P><TABLE CELLSPACING="1" CELLPADDING="1" BORDER="1" ALIGN="center"><CAPTION><B>Table 2: Quantity Flows for Alpha Technique</B></CAPTION><TR><TD ALIGN="center" ROWSPAN="2"><B>Input</B></TD><TD ALIGN="center" COLSPAN="2"><B>Industry</B></TD></TR><TR><TD ALIGN="center"><B>Iron</B></TD><TD ALIGN="center"><B>Corn</B></TD></TR><TR><TD ALIGN="center">Labor</TD><TD ALIGN="center">5/89 ≈ 0.0562 Person-Yrs.</TD><TD ALIGN="center">57,101/51,353 ≈ 1.11 Person-Yrs.</TD></TR><TR><TD ALIGN="center">Iron</TD><TD ALIGN="center">9/356 ≈ 0.0253 Tons</TD><TD ALIGN="center">11/356 ≈ 0.0309 Tons</TD></TR><TR><TD ALIGN="center">Corn</TD><TD ALIGN="center">10/89 ≈ 0.112 Bushels</TD><TD ALIGN="center">11/89 ≈ 0.124 Bushels</TD></TR><TR><TD ALIGN="center"><B>Output</B></TD><TD ALIGN="center">5/89 ≈ 0.0562 Tons</TD><TD ALIGN="center">110/89 ≈ 1.24 Bushels</TD></TR></TABLE><P></P><TABLE CELLSPACING="1" CELLPADDING="1" BORDER="1" ALIGN="center"><CAPTION><B>Table 3: Quantity Flows for Beta Technique</B></CAPTION><TR><TD ALIGN="center" ROWSPAN="2"><B>Input</B></TD><TD ALIGN="center" COLSPAN="2"><B>Industry</B></TD></TR><TR><TD ALIGN="center"><B>Iron</B></TD><TD ALIGN="center"><B>Corn</B></TD></TR><TR><TD ALIGN="center">Labor</TD><TD ALIGN="center">3/577 ≈ 0.00520 Person-Yrs.</TD><TD ALIGN="center">671/577 ≈ 1.16 Person-Yrs.</TD></TR><TR><TD ALIGN="center">Iron</TD><TD ALIGN="center">27/11,540 ≈ 0.00234 Tons</TD><TD ALIGN="center">33/11,540 ≈ 0.00286 Tons</TD></TR><TR><TD ALIGN="center">Corn</TD><TD ALIGN="center">6/577 ≈ 0.0104 Bushels</TD><TD ALIGN="center">2,519/2885 ≈ 0.873 Bushels</TD></TR><TR><TD ALIGN="center"><B>Output</B></TD><TD ALIGN="center">3/577 ≈ 0.00520 Tons</TD><TD ALIGN="center">5,434/2,885 ≈ 1.88 Bushels</TD></TR></TABLE><P></P><B>4.0 Prices and the Choice of Technique</B><P>The choice of technique is analyzed based on prices of production and cost-minimization. Labor is assumed to be advanced, and wages are paid out of the surplus product at the end of the year. Corn is taken as the numeraire. Figure 1 graphs the wage curve for the two techniques. The cost-minimizing technique, at a given rate of profits, maximizes the wage. That is, the cost-minimizing techniques form the outer envelope, also known as, the wage frontier, from the wage curves. In the example, the Beta technique is cost minimizing for high rates of profits, while the Alpha technique is cost-minimizing between the two switch points. At the switch points, any linear combination of the two techniques is cost-minimizing. </P><P>One switch point is a fluke; it occurs for a rate of profits of zero. Any infinitesimal variation in the coefficients of production would result in the switch point no longer being on the wage axis. This intersection between the wage curves would then either occur at a negative or positive rate of profits. In the former case, the example would be one with a single switch point with a non-negative, feasible rate of profits, and the real Wicksell effect would be negative at that switch point. In the latter case, it would be a reswitching example, with the Beta technique uniquely cost-minimizing for low and high rates of profits. The real Wicksell effect would be negative at the first switch point and positive at the second. </P><B>5.0 Aggregates</B><P>In calculating wage curves, one can also find prices for each rate of profits. Table 5 shows certain aggregates, as obtained from Tables 2 and 3 and the price of iron at the switch point with a positive rate of profits. (Table 4 shows this price.) The numeraire value of capital per person-year, for a given technique and a given rate of profits, is the additive inverse of the slope of a line joining the intercept of the technique's wage curve with the wage axis to a point on the wage curve at the specified rate of profits. The capital-labor ratio, for a given technique, varies with the rate of profits, unless the wage curve is a straight line. Since a switch point occurs on the wage axis, the capital-labor ratio for both techniques at the other switch point is identical. As seen in Table 5, it does not vary among the two cost-minimizing techniques at the switch point with a positive rate of profits. The real Wicksell effect is zero at this switch point. </P><TABLE CELLSPACING="1" CELLPADDING="1" BORDER="1" ALIGN="center"><CAPTION><B>Table 4: Price Variables at Switch Point with Real Wicksell Effect of Zero</B></CAPTION><TR><TD ALIGN="center"><B>Variable</B></TD><TD ALIGN="center"><B>Value</B></TD></TR><TR><TD ALIGN="center">Rate of Profits</TD><TD ALIGN="center">125,483/209,727 ≈ 59.8 Percent</TD></TR><TR><TD ALIGN="center">Wage</TD><TD ALIGN="center">9,226,807/24,957,513 ≈ 0.370 Bushels per Person-Yr.</TD></TR><TR><TD ALIGN="center">Wage</TD><TD ALIGN="center">7,558/595 ≈ 12.7 Bushels per Ton</TD></TR></TABLE><P></P><TABLE CELLSPACING="1" CELLPADDING="1" BORDER="1" ALIGN="center"><CAPTION><B>Table 5: Aggregates at Switch Point with Real Wicksell Effect of Zero</B></CAPTION><TR><TD ALIGN="center"></TD><TD ALIGN="center" COLSPAN="2"><B>Technique</B></TD></TR><TR><TD ALIGN="center"></TD><TD ALIGN="center"><B>Alpha</B></TD><TD ALIGN="center"><B>Beta</B></TD></TR><TR><TD ALIGN="center">Net Output</TD><TD ALIGN="center" COLSPAN="2">1 Bushel Corn</TD></TR><TR><TD ALIGN="center">Labor</TD><TD ALIGN="center" COLSPAN="2">674/577 ≈ 1.17 Person-Years</TD></TR><TR><TD ALIGN="center" ROWSPAN="2">Physical Capital</TD><TD ALIGN="center">5/89 Tons Iron</TD><TD ALIGN="center">3/577 Tons Iron</TD></TR><TR><TD ALIGN="center">21/89 Bushels Corn</TD><TD ALIGN="center">2,549/2,885 Bushels Corn</TD></TR><TR><TD ALIGN="center">Financial Capitl</TD><TD ALIGN="center" COLSPAN="2">113/119 ≈ 0.945 Bushels Corn</TD></TR><TR><TD ALIGN="center">Capital-Labor Ratio</TD><TD ALIGN="center" COLSPAN="2">65,201/80,206 ≈ 0.813 Bushels per Person-Yr.</TD></TR></TABLE><P></P><B>6.0 Implications</B><P>A certain sort of indeterminacy arises in the example. For a given quantity of corn produced net, the ratio of labor employed in corn production to labor employed in iron production varies, at the switch point with a positive rate of profits, from around 1/5 to just over 223 to one. A change in technique leaves total employment unchanged, given net output, even as it alters the allocation of labor among industries. At the switch point, a change in technique, given net output, leaves the total value of capital unchanged, while, once again, altering its allocation among industries. </P><P>Suppose the economy is in a stationary state with the wage slightly below the wage at the switch point with a real Wicksell effect of zero. The Beta technique is in use. Consider what happens if a positive shock to wages result in a wage permanently higher than the wage at the switch point. The shock might be, for example, from an unanticipated increase in the minimum wage. Prices and outputs will be out of proportion, and a perhaps long disequilibrium adjustment process begins. Suppose that, eventually, after all this folderol, the economy, once more, attains another stationary state. The Alpha technique will now be in use. Labor hired per unit net output will be unchanged. The only variation in the value of capital goods per unit labor is a result of price changes, independent of the change in technique. </P>Robert Vienneauhttp://www.blogger.com/profile/00872510108133281526noreply@blogger.com0tag:blogger.com,1999:blog-26706564.post-78853806004563151862017-09-14T07:47:00.000-04:002017-09-14T07:47:46.304-04:00Bifurcation Diagram for Fluke Switch Point<table align="center" border="0" cellpadding="1" cellspacing="1"><tbody><TR><TD ALIGN="center"><a href="https://4.bp.blogspot.com/-ZyQsjhSgX-Y/WbVvrVILd2I/AAAAAAAABAc/7KcV9Axq3mUrscAWUJGvRVmd5zIoL8pMACLcBGAs/s1600/Coefficients.gif" imageanchor="1" ><img border="0" src="https://4.bp.blogspot.com/-ZyQsjhSgX-Y/WbVvrVILd2I/AAAAAAAABAc/7KcV9Axq3mUrscAWUJGvRVmd5zIoL8pMACLcBGAs/s320/Coefficients.gif" width="320" height="180" data-original-width="1440" data-original-height="810" /></a></td></tr><tr><td align="center"><b>Figure 1: A Bifurcation Diagram</b></td></tr></tbody></table><P>I have previously <A HREF="http://robertvienneau.blogspot.com/2017/08/a-fluke-switch-point-with-real-wicksell.html">illustrated</A>a case in which real Wicksell effects are zero. I wrote this post to present an argument that that example is not a matter of round-off error confusing me. </P><P>Consider the technology illustrated in Table 1. The managers of firms know of three processes of production. These processes exhibit Constant Returns to Scale. The column for the iron industry specifies the inputs needed to produce a ton of iron. Two processes are known for producing corn, and their coefficients of production are specified in the last two columns in the table. Each process is assumed to require a year to complete and uses up all of its commodity inputs. </P><TABLE CELLSPACING="1" CELLPADDING="1" BORDER="1" ALIGN="center"><CAPTION><B>Table 1: The Technology</B></CAPTION><TR><TD ALIGN="center" ROWSPAN="3"><B>Input</B></TD></TD><TD ALIGN="center" COLSPAN="3"><B>Industry</B></TD></TR><TR><TD ALIGN="center" ROWSPAN="2"><B>Iron</B></TD><TD ALIGN="center" COLSPAN="2"><B>Corn</B></TD></TR><TR><TD ALIGN="center"><B>Alpha</B></TD><TD ALIGN="center"><B>Beta</B></TD></TD><TR><TD ALIGN="center">Labor</TD><TD ALIGN="center">1</TD><TD ALIGN="center"><I>a</I><SUB>0,2</SUB><SUP>α</SUP></TD><TD ALIGN="center">305/494</TD></TR><TR><TD ALIGN="center">Iron</TD><TD ALIGN="center">9/20</TD><TD ALIGN="center">1/40</TD><TD ALIGN="center">3/1976</TD></TR><TR><TD ALIGN="center">Corn</TD><TD ALIGN="center"><I>a</I><SUB>2,1</SUB></TD><TD ALIGN="center">1/10</TD><TD ALIGN="center">229/494</TD></TR></TABLE><P>Figure 1 shows two loci in the parameter space defined by the two coefficients of production <I>a</I><SUB>0,2</SUB><SUP>α</SUP> and <I>a</I><SUB>2,1</SUB>. The solid line represents coefficients of production for which the wage curves for the two techniques are tangent at a point of intersection. The dashed line represents parameters for which a switch point exists on the wage axis. The point at which these two loci are tangent specifies the parameters for this <A HREF="http://robertvienneau.blogspot.com/2017/08/a-fluke-switch-point-with-real-wicksell.html">example</A>. Figure 2 repeats the graph of the wage curves for that example. </P><table align="center" border="0" cellpadding="1" cellspacing="1"><tbody><TR><TD ALIGN="center"><a href="https://4.bp.blogspot.com/-n6d2X0d3NH4/WaMWguoBpSI/AAAAAAAAA_o/YZ6enqLv8RcG551uNcfAlAIShEykccqMgCLcBGAs/s1600/WageCurves.gif" imageanchor="1" ><img border="0" src="https://4.bp.blogspot.com/-n6d2X0d3NH4/WaMWguoBpSI/AAAAAAAAA_o/YZ6enqLv8RcG551uNcfAlAIShEykccqMgCLcBGAs/s320/WageCurves.gif" width="320" height="180" data-original-width="1440" data-original-height="810" /></a></td></tr><tr><td align="center"><b>Figure 2: A Fluke Switch Point</b></td></tr></tbody></table><P>Suppose coefficients are as in the example in the main text, but <I>a</I><SUB>0,2</SUB><SUP>α</SUP> is somewhat greater. Then the wage curve for the Alpha technique lies below the wage curve for Beta for all non-negative rates of profits not exceeding the maximum rate of profits. For all feasible rate of profits, Beta is cost-minimizing. On the other hand, if <I>a</I><SUB>0,2</SUB><SUP>α</SUP> is somewhat less than in the example, the wage curve for Alpha is somewhat higher than in Figure 2. The wage curve for Alpha will intersect the wage curve for Beta at two points, one with a negative rate of profits exceeding one hundred percent and one for a switch point with a positive rate of profit. As indicated in Figure 1, this combination of parameters is an example of the reserve substitution of labor </P><P>In the region graphed in Figure 1, if the coefficient of production <I>a</I><SUB>0,2</SUB><SUP>α</SUP> falls below the loci at which the two wage curves are tangent, the wage curves will have two intersections. Suppose <I>a</I><SUB>2,1</SUB> is greater than in the example in the main text. In the corresponding region between the two loci in Figure 1, the rate of profits at both intersections of the wage curves are negative. In this region of the parameter space, Beta remains cost-minimizing for all feasible non-negative rates of profits. If <I>a</I><SUB>2,1</SUB> is less than in the example, the rate of profits for both intersections are positive in the region between the two loci. The example is one of reswitching. In effect, which intersection of the wage curves is a switch point on the wage axis changes along the locus for the switch point on the wage axis. </P><P>Consider the rate of profits at which the wage curves have a repeated intersection, that is, are tangent, for the corresponding locus in Figure 1. Toward the left of the figure, this rate of profits is positive, while it is negative toward the right. By continuity, this rate of profits is zero for a single point in the graphed part of the parameter space. The two loci must be tangent for this set of parameters. The appearance of a switch point with a real Wicksell effect of zero in this <A HREF="http://robertvienneau.blogspot.com/2017/08/a-fluke-switch-point-with-real-wicksell.html">post</A>is not a result of round-off error or finite precision arithmetic. Such a point exists for exactly specified coefficients of production. </P>Robert Vienneauhttp://www.blogger.com/profile/00872510108133281526noreply@blogger.com0tag:blogger.com,1999:blog-26706564.post-57494715302082077682017-09-07T07:55:00.001-04:002017-09-07T07:55:46.073-04:00Fluke Switch Points and a Real Wicksell Effect of Zero<P>I have put up a <A HREF="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3032428">draft paper</A>with the post title on my SSRN site. </P><BLOCKQUOTE><B>Abstract:</B> This note presents two numerical examples, in a model with two techniques of production, of a switch point with a real Wicksell effect of zero. The variation in the technique adopted, at the switch point, leaves employment and the value of capital per unit net output unchanged. This invariant generalizes to switch points with a real Wicksell effect of zero for steady states with a positive rate of growth. </BLOCKQUOTE>Robert Vienneauhttp://www.blogger.com/profile/00872510108133281526noreply@blogger.com0tag:blogger.com,1999:blog-26706564.post-29942417852908152932017-08-31T07:56:00.000-04:002017-09-10T12:57:31.547-04:00A Fluke Switch Point With A Real Wicksell Effect Of Zero<table align="center" border="0" cellpadding="1" cellspacing="1"><tbody><TR><TD ALIGN="center"><a href="https://4.bp.blogspot.com/-n6d2X0d3NH4/WaMWguoBpSI/AAAAAAAAA_o/YZ6enqLv8RcG551uNcfAlAIShEykccqMgCLcBGAs/s1600/WageCurves.gif" imageanchor="1" ><img border="0" src="https://4.bp.blogspot.com/-n6d2X0d3NH4/WaMWguoBpSI/AAAAAAAAA_o/YZ6enqLv8RcG551uNcfAlAIShEykccqMgCLcBGAs/s320/WageCurves.gif" width="320" height="180" data-original-width="1440" data-original-height="810" /></a></td></tr><tr><td align="center"><b>Figure 1: A Fluke Switch Point</b></td></tr></tbody></table><B>1.0 Introduction</B><P>A switch point in which the wage curves for two techniques are tangent to one another at the switch point is a fluke. Likewise, a switch point that occurs at a rate of profits of zero is a fluke. This post presents a two-commodity example with a choice between two techniques, in which the single switch point is simultaneously both types of flukes. The wage curves are tangent at the switch point, and the switch point occurs at a rate of profits of zero. </P><B>2.0 Technology</B><P>Consider the technology illustrated in Table 1. The managers of firms know of three processes of production. These processes exhibit Constant Returns to Scale. The column for the iron industry specifies the inputs needed to produce a ton of iron. Two processes are known for producing corn, and their coefficients of production are specified in the last two columns in the table. Each process is assumed to require a year to complete and uses up all of its commodity inputs. (The coefficients were found by first creating an example with two wage curves tangent at a switch point. Selected coefficients were then varied to move the switch point to the wage axis. A binary search improved the approximation. Octave code was useful.) </P><TABLE CELLSPACING="1" CELLPADDING="1" BORDER="1" ALIGN="center"><CAPTION><B>Table 1: The Technology</B></CAPTION><TR><TD ALIGN="center" ROWSPAN="3"><B>Input</B></TD></TD><TD ALIGN="center" COLSPAN="3"><B>Industry</B></TD></TR><TR><TD ALIGN="center" ROWSPAN="2"><B>Iron</B></TD><TD ALIGN="center" COLSPAN="2"><B>Corn</B></TD></TR><TR><TD ALIGN="center"><B>Alpha</B></TD><TD ALIGN="center"><B>Beta</B></TD></TD><TR><TD ALIGN="center">Labor</TD><TD ALIGN="center">1</TD><TD ALIGN="center">0.802403</TD><TD ALIGN="center">305/494</TD></TR><TR><TD ALIGN="center">Iron</TD><TD ALIGN="center">9/20</TD><TD ALIGN="center">1/40</TD><TD ALIGN="center">3/1976</TD></TR><TR><TD ALIGN="center">Corn</TD><TD ALIGN="center">3.9973702</TD><TD ALIGN="center">1/10</TD><TD ALIGN="center">229/494</TD></TR></TABLE><P>This technology presents a problem of the choice of technique. The Alpha technique consists of the iron-producing process and the corn-producing process labeled Alpha. Similarly, the Beta technique consists of the iron-producing process and the corn-producing process labeled Beta. </P><B>3.0 Quantity Flows</B><P>Quantity flows can be analyzed independently of prices. Suppose the economy is in a self-replacing state, with a net output consisting only of corn. Table 2 displays (approximate) quantity flows for the Alpha technique, when the net output consists of a bushel of corn. The last row shows gross outputs, for each industry. The entries in the three previous rows are found by scaling the coefficients of production in Table 1 for Alpha by these gross outputs. The row for iron shows that each year, the sum 0.02848 + 0.3480 = 0.6328 tons are used as inputs in the iron and corn industries. These inputs are replaced at the end of the year by the output of the iron industry, with no surplus iron left over. Similarly, the output of the corn industry replaces the inputs of corn for the two industries, leaving a net output of one bushel corn. </P><P></P><TABLE CELLSPACING="1" CELLPADDING="1" BORDER="1" ALIGN="center"><CAPTION><B>Table 2: Quantity Flows for Alpha Technique</B></CAPTION><TR><TD ALIGN="center" ROWSPAN="2"><B>Input</B></TD><TD ALIGN="center" COLSPAN="2"><B>Industries</B></TD></TR><TR><TD ALIGN="center"><B>Iron</B></TD><TD ALIGN="center"><B>Corn</B></TD></TR><TR><TD ALIGN="center">Labor</TD><TD ALIGN="center">0.06328</TD><TD ALIGN="center">1.11708</TD></TR><TR><TD ALIGN="center">Iron</TD><TD ALIGN="center">0.02848</TD><TD ALIGN="center">0.03480</TD></TR><TR><TD ALIGN="center">Corn</TD><TD ALIGN="center">0.25296</TD><TD ALIGN="center">0.13922</TD></TR><TR><TD ALIGN="center"><B>Outputs</B></TD><TD ALIGN="center">0.06328</TD><TD ALIGN="center">1.39217</TD></TR></TABLE><P>Table 3 shows corresponding quantity flows for the Beta technique. As above, the net output is one bushel corn. These tables allow one to calculate, for each technique, the labor aggregated over all industries per net unit output of the corn industry. Likewise, one can find the aggregate physical quantities of capital goods per net unit output of corn. </P><TABLE CELLSPACING="1" CELLPADDING="1" BORDER="1" ALIGN="center"><CAPTION><B>Table 3: Quantity Flows for Beta Technique</B></CAPTION><TR><TD ALIGN="center" ROWSPAN="2"><B>Input</B></TD><TD ALIGN="center" COLSPAN="2"><B>Industries</B></TD></TR><TR><TD ALIGN="center"><B>Iron</B></TD><TD ALIGN="center"><B>Corn</B></TD></TR><TR><TD ALIGN="center">Labor</TD><TD ALIGN="center">0.00525</TD><TD ALIGN="center">1.17512</TD></TR><TR><TD ALIGN="center">Iron</TD><TD ALIGN="center">0.00236</TD><TD ALIGN="center">0.00289</TD></TR><TR><TD ALIGN="center">Corn</TD><TD ALIGN="center">0.02100</TD><TD ALIGN="center">0.88230</TD></TR><TR><TD ALIGN="center"><B>Outputs</B></TD><TD ALIGN="center">0.00525</TD><TD ALIGN="center">1.90330</TD></TR></TABLE><P></P><B>4.0 Prices</B><P>The choice of technique is analyzed based on prices of production and cost-minimization. Labor is assumed to be advanced, and wages are paid out of the surplus product at the end of the year. Corn is taken as the numeraire. Figure 1 graphs the wage-rate of profits for the two techniques. The cost-minimizing technique, at a given rate of profits, maximizes the wage. That is, the cost-minimizing techniques form the outer envelope, also known as, the wage frontier, from the wage curves. The Beta technique is cost-minimizing at all feasible rates of profits. At the switch point, the Alpha technique is also cost-minimizing. Furthermore, at the switch point, any linear combination of the techniques is cost-minimizing. </P><P>In calculating wage curves, one can also find prices for each rate of profits. Table 4 shows certain aggregates, as obtained from Tables 2 and 3 and the price of iron at the switch point. </P><TABLE CELLSPACING="1" CELLPADDING="1" BORDER="1" ALIGN="center"><CAPTION><B>Table 4: Aggregates at the Switch Point</B></CAPTION><TR><TD ALIGN="center" ROWSPAN="2"><B>Aggregate</B></TD><TD ALIGN="center" COLSPAN="2"><B>Technique</B></TD></TR><TR><TD ALIGN="center"><B>Alpha</B></TD><TD ALIGN="center"><B>Beta</B></TD></TR><TR><TD ALIGN="center">Net Output</TD><TD ALIGN="center" COLSPAN="2">1 Bushel Corn</TD></TR><TR><TD ALIGN="center">Labor</TD><TD ALIGN="center" COLSPAN="2">1.18036 Person-Years</TD></TR><TR><TD ALIGN="center">Physical Capital</TD><TD ALIGN="center">0.06328 Tons<BR>0.39217 Bushels</TD><TD ALIGN="center">0.00525 Tons,<BR>0.90330 Bushels</TD></TR><TR><TD ALIGN="center">Financial Capital</TD><TD ALIGN="center" COLSPAN="2">0.94957 Bushels</TD></TR></TABLE><P>A certain sort of indeterminancy arises in the example. For a given quantity of corn produced net, the ratio of labor employed in corn production to labor employed in iron production varies at the switch point from approximately 17.7 to 223.7. A change in technique leaves total employment unchanged, given net output, even as it alters the allocation of labor between industries. It is also the case that, at the switch point, a change in technique, given net output, leaves the total value of capital unchanged, while, once again, altering its allocation between industries. </P><P>For non-fluke switch points, aggregate employment and the aggregate value of capital, per unit net output, vary with the technique. If the technique that is cost minimizing at an infinitesimally greater rate of profits than associated with the switch point has a greater value of capital per net output at the switch point, the real Wicksell effect is positive. If that technique has a smaller value of capital per net output, still using the prices at the switch point to value capital goods, is negative. (Edwin Burmeister argues that a negative real Wicksell effect is the appropriate formalization of the neoclassical idea of capital-deepening.) The fluke switch point presented here has a zero real Wicksell effect. </P><P>The indeterminacy at the switch point is related to both fluke properties of the switch point. Net output per worker, for a given technique, is shown by the intersection of the wage curve for the technique with the wage axis. Since both curves intersect the wage axis at the same point, they produce the same net output per worker. Thus, both techniques result in the same overall employment, per bushel corn produced net. </P><P>The wage curve also shows the value of capital per worker. For a given technique and rate of profits, the numeraire value of capital per person-year is the absolute value of the slope of the secant connecting the point on the wage curve specified by the rate of profits and the intercept with the wage axis. In the limit, when the rate of profits is zero, the value of capital per person-year is the absolute value of the slope of the tangent. The tangency of the wage curves at the switch point on the wage axis implies that both techniques have the same value of capital per person-year. </P><P><B>Update (10 Sept. 2017):</B> Fixed transcription error in coefficients of production. </P>Robert Vienneauhttp://www.blogger.com/profile/00872510108133281526noreply@blogger.com2tag:blogger.com,1999:blog-26706564.post-25373864681599987392017-08-27T14:51:00.000-04:002017-08-27T14:51:57.638-04:00Example With Four Normal Forms For Bifurcations Of Switch Points<table align="center" border="0" cellpadding="1" cellspacing="1"><tbody><TR><TD ALIGN="center"><a href="https://4.bp.blogspot.com/-42fNOmXNIuw/WZCnyCwK5tI/AAAAAAAAA-s/ebPxqZDKhRAn4XDouANQ7G8GO0QHGviuQCLcBGAs/s1600/BifurcationBlowup.jpg" imageanchor="1" ><img border="0" src="https://4.bp.blogspot.com/-42fNOmXNIuw/WZCnyCwK5tI/AAAAAAAAA-s/ebPxqZDKhRAn4XDouANQ7G8GO0QHGviuQCLcBGAs/s320/BifurcationBlowup.jpg" width="320" height="180" data-original-width="1440" data-original-height="810" /></a></td></tr><tr><td align="center"><b>Figure 1: A Blowup of a Bifurcation Diagram</b></td></tr></tbody></table><B>1.0 Introduction</B><P>I have been working on an <A HREF="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3011850">analysis</A> of structural economic dynamics with a choice of technique. Technical progress can result in a variation in the switch points and the succession of techniques with wage curves on the outer wage frontier. I call such a variation a bifurcation, and I have identified normal forms for four generic bifurcations. This post prevents an example in which all four generic bifurcations appear. </P><B>2.0 Technology</B><P>The example in is one of an economy in which four commodities can be produced. These commodities are called iron, copper, uranium, and corn. The managers of firms know of one process for producing each of the first three commodities. They know of three processes for producing corn. Table 1 specifies the inputs required for a unit output for each of these six processes. Each column specifies the inputs needed for the process to produce a unit output of the designated industry. Variations in the parameters <I>a</I><SUB>11, β</SUB> and <I>a</I><SUB>11, γ</SUB>can result in different switch points appearing on the frontier. </P><TABLE CELLSPACING="1" CELLPADDING="1" BORDER="1" ALIGN="center"><CAPTION><B>Table 1: The Technology for Three of Four Industries</B></CAPTION><TR><TD ALIGN="center" ROWSPAN="2"><B>Input</B></TD><TD ALIGN="center" COLSPAN="3"><B>Industry</B></TD></TR><TR><TD ALIGN="center"><B>Iron</B></TD><TD ALIGN="center"><B>Copper</B></TD><TD ALIGN="center"><B>Uranium</B></TD></TR><TR><TD ALIGN="center">Labor</TD><TD ALIGN="center">1</TD><TD ALIGN="center">17,328/8,281</TD><TD ALIGN="center">1</TD></TR><TR><TD ALIGN="center">Iron</TD><TD ALIGN="center">1/2</TD><TD ALIGN="center">0</TD><TD ALIGN="center">0</TD></TR><TR><TD ALIGN="center">Copper</TD><TD ALIGN="center">0</TD><TD ALIGN="center"><I>a</I><SUB>11, β</SUB></TD><TD ALIGN="center">0</TD></TR><TR><TD ALIGN="center">Uranium</TD><TD ALIGN="center">0</TD><TD ALIGN="center">0</TD><TD ALIGN="center"><I>a</I><SUB>11, γ</SUB></TD></TR><TR><TD ALIGN="center">Corn</TD><TD ALIGN="center">0</TD><TD ALIGN="center">0</TD><TD ALIGN="center">0</TD></TR></TABLE><P>Three processes are known for producing corn (Table 2). As usual, these processes exhibit CRS. And each column specifies inputs needed to produce a unit of corn with that process. </P><TABLE CELLSPACING="1" CELLPADDING="1" BORDER="1" ALIGN="center"><CAPTION><B>Table 2: The Technology the Corn Industry</B></CAPTION><TR><TD ALIGN="center" ROWSPAN="2"><B>Input</B></TD><TD ALIGN="center" COLSPAN="3"><B>Process</B></TD></TR><TR><TD ALIGN="center"><B>Alpha</B></TD><TD ALIGN="center"><B>Beta</B></TD><TD ALIGN="center"><B>Gamma</B></TD></TR><TR><TD ALIGN="center">Labor</TD><TD ALIGN="center">1</TD><TD ALIGN="center">361/91</TD><TD ALIGN="center">3.63505</TD></TR><TR><TD ALIGN="center">Iron</TD><TD ALIGN="center">3</TD><TD ALIGN="center">0</TD><TD ALIGN="center">0</TD></TR><TR><TD ALIGN="center">Copper</TD><TD ALIGN="center">0</TD><TD ALIGN="center">1</TD><TD ALIGN="center">0</TD></TR><TR><TD ALIGN="center">Uranium</TD><TD ALIGN="center">0</TD><TD ALIGN="center">0</TD><TD ALIGN="center">1.95561</TD></TR><TR><TD ALIGN="center">Corn</TD><TD ALIGN="center">0</TD><TD ALIGN="center">0</TD><TD ALIGN="center">0</TD></TR></TABLE><P></P><B>3.0 Technical Progress</B><P></P><B>3.1 Progress in Copper Production</B><P>Consider the variation in the number and location of switch points as the coefficient of production for the input of copper per unit copper produced, <I>a</I><SUB>11, β</SUB>, falls from over 48/91 to around 1/4. In this analysis, the coefficient of production for the input of uranium per unit uranium produced, <I>a</I><SUB>11, γ</SUB>, is set to 3/5. This variation in <I>a</I><SUB>11, β</SUB>, while all other coefficients of production are fixed, describes a type of technical progress in the copper industry. </P><P>Figure 2 shows the configuration of wage curves near the start of this story. The Gamma technique is never cost-minimizing. For all feasible rates of profits, the wage curve for the Gamma technique falls within the wage frontier. For a parameter value of <I>a</I><SUB>11, β</SUB> of 48/91, the Alpha technique is always cost-minimizing. A single switch point exists, at which the wage curve for the Beta technique is tangent to the wage curve for the Alpha technique, and the Beta technique is also cost-minimizing. I call a configuration of wage curves like that in Figure 2 a <I>reswitching bifurcation</I>. For a slightly lower value of <I>a</I><SUB>11, β</SUB>, two switch points would emerge. The Alpha technique would be cost-minimizing for low and high rates of profits, with the Beta technique cost-minimizing at intermediate rates of profits. </P><table align="center" border="0" cellpadding="1" cellspacing="1"><tbody><TR><TD ALIGN="center"><a href="https://1.bp.blogspot.com/-o4N3lRo4LeM/WYhauXRcIEI/AAAAAAAAA94/OuwH9xGy3GEJdTBZmPdLhplhJqVrzlGfgCLcBGAs/s1600/Slide2.jpg" imageanchor="1" ><img border="0" src="https://1.bp.blogspot.com/-o4N3lRo4LeM/WYhauXRcIEI/AAAAAAAAA94/OuwH9xGy3GEJdTBZmPdLhplhJqVrzlGfgCLcBGAs/s320/Slide2.jpg" width="320" height="180" data-original-width="1440" data-original-height="810" /></a></td></tr><tr><td align="center"><b>Figure 2: A Reswitching Bifurcation</b></td></tr></tbody></table><P>Figure 3 shows the configuration of wage curves when <I>a</I><SUB>11, β</SUB> has fallen to one half. The interval with high rates of profits where the Alpha technique is uniquely cost-minimizing has vanished. The switch point between Alpha and Beta at high rates of profits occurs at a wage of zero. I call Figure 3 an example of a <I>bifurcation around the axis for the rate of profits</I>. For a slightly smaller value of <I>a</I><SUB>11, β</SUB>, the switch point on the axis would vanish, and only one switch point would exist, in this example, for a non-negative wage. </P><table align="center" border="0" cellpadding="1" cellspacing="1"><tbody><TR><TD ALIGN="center"><a href="https://3.bp.blogspot.com/-hMsfDNF3u7A/WYhao5QW-vI/AAAAAAAAA90/G4yhynU-kUIwk9xdvEN2c8sYI-98XEJBACLcBGAs/s1600/Slide3.jpg" imageanchor="1" ><img border="0" src="https://3.bp.blogspot.com/-hMsfDNF3u7A/WYhao5QW-vI/AAAAAAAAA90/G4yhynU-kUIwk9xdvEN2c8sYI-98XEJBACLcBGAs/s320/Slide3.jpg" width="320" height="180" data-original-width="1440" data-original-height="810" /></a></td></tr><tr><td align="center"><b>Figure 3: A Bifurcation around the Axis for the Rate of Profits</b></td></tr></tbody></table><P>Suppose the coefficient of production <I>a</I><SUB>11, β</SUB> were to fall to approximately 0.31008. Figure 4 shows the resulting configuration of wage curves. The Beta technique is cost-minimizing for all feasible positive rates of profit. A single switch point exists, between Alpha and Beta, on the wage axis. If <I>a</I><SUB>11, β</SUB> were to fall even further, no switch points would exist, and Beta would also be cost-minimizing for a rate of profits of zero. I call this an example of a <I>bifurcation around the wage axis</I>. </P><table align="center" border="0" cellpadding="1" cellspacing="1"><tbody><TR><TD ALIGN="center"><a href="https://4.bp.blogspot.com/-5O4580Ggyew/WYhajDWiw3I/AAAAAAAAA9w/3TjfWzukDrQlQH8EhaLhM5YrEebMmce6gCLcBGAs/s1600/Slide4.jpg" imageanchor="1" ><img border="0" src="https://4.bp.blogspot.com/-5O4580Ggyew/WYhajDWiw3I/AAAAAAAAA9w/3TjfWzukDrQlQH8EhaLhM5YrEebMmce6gCLcBGAs/s320/Slide4.jpg" width="320" height="180" data-original-width="1440" data-original-height="810" /></a></td></tr><tr><td align="center"><b>Figure 4: A Bifurcation around the Wage Axis</b></td></tr></tbody></table><P>Figures 5 and 6 summarize the above discussion. The coefficient of production <I>a</I><SUB>11, β</SUB> is plotted on the abscissa in each figure. The rates of profits and the wage, respectively, are plotted on the ordinate. Switch points are graphed. The maximum rates of profits for the Alpha and Beta technique are plotted in Figure 5. In Figure 6, the maximum wages for Alpha and Beta are plotted. Each of the three bifurcations in Figure 2, 3, and 4 is shown as a thin vertical line in Figures 5 and 6. The wage curve for the Beta techniques moves outward as one passes from the right to the left in the figures. One can see the single switch point becoming two, and the distance between the two, in terms of either the rate of profits of the wage, becoming greater. The rate of profits for one switch point eventually exceeds the maximum rate of profits and disappears. The rate of profits for the other switch point falls below zero, leaving Beta cost-minimizing for all feasible rates of profits and wages. In short, structural economic dynamics, for the case examined here, can be summarized in either one of these two graphs. </P><table align="center" border="0" cellpadding="1" cellspacing="1"><tbody><TR><TD ALIGN="center"><a href="https://1.bp.blogspot.com/-eXuxTmNFXrk/WYhaW_zIqWI/AAAAAAAAA9s/BkTB4Jd0Ep4SL3H0AzHU8pOXO6j2ZxgoQCLcBGAs/s1600/Slide5.jpg" imageanchor="1" ><img border="0" src="https://1.bp.blogspot.com/-eXuxTmNFXrk/WYhaW_zIqWI/AAAAAAAAA9s/BkTB4Jd0Ep4SL3H0AzHU8pOXO6j2ZxgoQCLcBGAs/s320/Slide5.jpg" width="320" height="180" data-original-width="1440" data-original-height="810" /></a></td></tr><tr><td align="center"><b>Figure 5: A Bifurcation Diagram for Technical Progress in the Copper Industry</b></td></tr></tbody></table><P></P><table align="center" border="0" cellpadding="1" cellspacing="1"><tbody><TR><TD ALIGN="center"><a href="https://1.bp.blogspot.com/-XcPizWH9fZE/WYhaHsbfiSI/AAAAAAAAA9o/99ysT5Ka93cimCPE5UyMIxVxTiBIeCx1QCLcBGAs/s1600/Slide6.jpg" imageanchor="1" ><img border="0" src="https://1.bp.blogspot.com/-XcPizWH9fZE/WYhaHsbfiSI/AAAAAAAAA9o/99ysT5Ka93cimCPE5UyMIxVxTiBIeCx1QCLcBGAs/s320/Slide6.jpg" width="320" height="180" data-original-width="1440" data-original-height="810" /></a></td></tr><tr><td align="center"><b>Figure 6: A Bifurcation Diagram for Technical Progress in the Copper Industry</b></td></tr></tbody></table><P></P><B>3.2 Progress in Uranium Production</B><P>An analysis of technical progress in the uranium industry illustrates another type of bifurcation. Let <I>a</I><SUB>11, β</SUB> be set to 51/100, and let the coefficient of production for the input of uranium per unit uranium produced, <I>a</I><SUB>11, γ</SUB>, fall from around 0.55 to 0.4. Figure 7 shows the configuration of wage curves when <I>a</I><SUB>11, γ</SUB> is approximately 0.537986. The wage curves for Alpha and Beta exhibit reswitching. The wage curve for the Gamma technique also intersects the switch point at the lower rate of profits. I call such a configuration of wage curves a <I>three-technique bifurcation</I>. Aside from the switch point, the Gamma technique is never cost-minimizing. </P><table align="center" border="0" cellpadding="1" cellspacing="1"><tbody><TR><TD ALIGN="center"><a href="https://1.bp.blogspot.com/-VrIKvDkNNZA/WYhZ6r2mPPI/AAAAAAAAA9k/KfqiA8DJ9JExd-B4uDoHxMi5TWj2Bq5dACLcBGAs/s1600/Slide7.jpg" imageanchor="1" ><img border="0" src="https://1.bp.blogspot.com/-VrIKvDkNNZA/WYhZ6r2mPPI/AAAAAAAAA9k/KfqiA8DJ9JExd-B4uDoHxMi5TWj2Bq5dACLcBGAs/s320/Slide7.jpg" width="320" height="180" data-original-width="1440" data-original-height="810" /></a></td></tr><tr><td align="center"><b>Figure 7: A Three Technique Bifurcation</b></td></tr></tbody></table><P>As <I>a</I><SUB>11, γ</SUB> decreases, the wage curve for the Gamma technique moves outward. At an intermediate value, the wage curve for Gamma intersects the wage curves for Alpha and Beta at different switch points. The reswitching example is transformed into one of capital reversing without reswitching. </P><P>Figure 8 displays a case where the wage curve for Gamma has moved outwards until it intersects the other switch point for the reswitching example. Other than at the switch point, the Beta technique is not cost minimizing for any feasible rate of profits. Figure 8 is also a case of a three-technique bifurcation. </P><table align="center" border="0" cellpadding="1" cellspacing="1"><tbody><TR><TD ALIGN="center"><a href="https://2.bp.blogspot.com/-1gfpmRLsktM/WYhZxQyGguI/AAAAAAAAA9g/oSuI4YQLegQKsCNBMGIjEuiqRZQ402DiQCLcBGAs/s1600/Slide8.jpg" imageanchor="1" ><img border="0" src="https://2.bp.blogspot.com/-1gfpmRLsktM/WYhZxQyGguI/AAAAAAAAA9g/oSuI4YQLegQKsCNBMGIjEuiqRZQ402DiQCLcBGAs/s320/Slide8.jpg" width="320" height="180" data-original-width="1440" data-original-height="810" /></a></td></tr><tr><td align="center"><b>Figure 8: Another Three Technique Bifurcation</b></td></tr></tbody></table><P>Figure 9 is a bifurcation diagram illustrating this analysis of technical progress in the uranium industry. It graphs the rate of profits against the coefficient of production <I>a</I><SUB>11, γ</SUB>. Switch points on the wage frontier, as well as the maximum rates of profits for the Alpha and Gamma technique, are graphed. The two thin vertical lines toward the right side of the graph are the two three-technique bifurcations. For a slightly lower value of <I>a</I><SUB>11, γ</SUB> than used in Figure 8, this is a reswitching example between Alpha and Gamma. As <I>a</I><SUB>11, γ</SUB> falls even lower, both switch points disappear over the axis for the rate of profits and the wage, respectively, in a graph of wage curves. That is, this example exhibits another illustration of both a bifurcation around the axis for the rate of profits and a bifurcation around the wage axis. </P><table align="center" border="0" cellpadding="1" cellspacing="1"><tbody><TR><TD ALIGN="center"><a href="https://4.bp.blogspot.com/-txYi4bhkWLc/WYhWLbH1K_I/AAAAAAAAA9M/d27adJ6Q0GQOLqo3o7aECUmihWX0_dy6wCLcBGAs/s1600/Slide9.jpg" imageanchor="1" ><img border="0" src="https://4.bp.blogspot.com/-txYi4bhkWLc/WYhWLbH1K_I/AAAAAAAAA9M/d27adJ6Q0GQOLqo3o7aECUmihWX0_dy6wCLcBGAs/s320/Slide9.jpg" width="320" height="180" data-original-width="1440" data-original-height="810" /></a></td></tr><tr><td align="center"><b>Figure 9: A Bifurcation Diagram for Technical Progress in the Uranium Industry</b></td></tr></tbody></table><P></P><B>3.3 Another Bifurcation Diagram</B><P>Sections 3.1 and 3.2 each graph switch points against a parameter in the numerical example. A more comprehensive analysis would consider all possible combinations of valid parameter values. One would need to draw a twelve-dimensional space. A part of the space defined by feasible combinations of positive values of <I>a</I><SUB>11, β</SUB> and <I>a</I><SUB>11, γ</SUB> is illustrated in Figure 10, instead Eleven regions are numbered in the figure. Figure 1 enlarges part of Figure 10 and labels the loci dividing regions with specific types of bifurcations. </P><table align="center" border="0" cellpadding="1" cellspacing="1"><tbody><TR><TD ALIGN="center"><a href="https://1.bp.blogspot.com/-l7mL3ApQ198/WZCn53MGdPI/AAAAAAAAA-w/SSN9nO3FQH8WpXzF3_Bs5jioyV0sxmfBACLcBGAs/s1600/BifurcationDiagram.jpg" imageanchor="1" ><img border="0" src="https://1.bp.blogspot.com/-l7mL3ApQ198/WZCn53MGdPI/AAAAAAAAA-w/SSN9nO3FQH8WpXzF3_Bs5jioyV0sxmfBACLcBGAs/s320/BifurcationDiagram.jpg" width="320" height="180" data-original-width="1440" data-original-height="810" /></a></td></tr><tr><td align="center"><b>Figure 10: A Bifurcation Diagram for the Parameter Space</b></td></tr></tbody></table><P>Each numbered region contains an interior. For points in the interior of a region, a sufficiently small perturbation of the coefficients of production <I>a</I><SUB>11, β</SUB> and <I>a</I><SUB>11, γ</SUB> leaves unchanged the number and pattern of switch points. The sequence of cost-minimizing techniques along the wage frontier between switch points is also invariant within regions. Accordingly, Table 3 lists switch points and cost-minimizing techniques for each region. The techniques are specified in order, from a rate of profits of zero to the maximum rate of profits. In several regions, such as region 2, the same technique is listed more than once, since it appears on the wage frontier in two disjoint intervals. Each locus dividing a pair of regions is a bifurcation. The reader can check that the labels for bifurcations in Figure 1 are consistent with Table 3. </P><TABLE CELLSPACING="1" CELLPADDING="1" BORDER="1" ALIGN="center"><CAPTION><B>Table 3: Techniques on the Wage Frontier</B></CAPTION><TR><TD ALIGN="center"><B>Region</B></TD><TD ALIGN="center" COLSPAN="3"><B>Techniques</B></TD></TR><TR><TD ALIGN="center">1</TD><TD ALIGN="center">Alpha throughout</TD></TR><TR><TD ALIGN="center">2</TD><TD ALIGN="center">Alpha, Beta, Alpha</TD></TR><TR><TD ALIGN="center">3</TD><TD ALIGN="center">Alpha, Beta</TD></TR><TR><TD ALIGN="center">4</TD><TD ALIGN="center">Beta throughout</TD></TR><TR><TD ALIGN="center">5</TD><TD ALIGN="center">Alpha, Gamma, Alpha</TD></TR><TR><TD ALIGN="center">6</TD><TD ALIGN="center">Alpha, Gamma, Alpha, Beta, Alpha</TD></TR><TR><TD ALIGN="center">7</TD><TD ALIGN="center">Alpha, Gamma, Beta, Alpha</TD></TR><TR><TD ALIGN="center">8</TD><TD ALIGN="center">Alpha, Gamma, Beta</TD></TR><TR><TD ALIGN="center">9</TD><TD ALIGN="center">Alpha, Gamma</TD></TR><TR><TD ALIGN="center">10</TD><TD ALIGN="center">Gamma</TD></TR><TR><TD ALIGN="center">11</TD><TD ALIGN="center">Gamma, Beta</TD></TR></TABLE><P>To aid in visualization, Figures 11, 12, and 13 graph wage curves and switch points on the wage frontier for each of the eleven regions. Within a region, the number of and characteristics of intersections of wage curves not on the frontier can vary. For example, the graph for region 8 in the lower right of Figure 12 shows an intersection between the wage curves for the Alpha and Gamma techniques at a high rate of profits. That second intersection between these wage curves can disappear over the axis for the rate of profits while leaving the sequence, if not the location, of cost-minimizing techniques and switch points on the frontier unchanged. </P><P></P><table align="center" border="0" cellpadding="1" cellspacing="1"><tbody><TR><TD ALIGN="center"><a href="https://3.bp.blogspot.com/-37I2eQULV5A/WZWQ2MvPLKI/AAAAAAAAA_Q/cgAnYh8NZhMcGpjK1x-5aZ56q64_7TdtQCLcBGAs/s1600/TypicalWageCurves14.jpg" imageanchor="1" ><img border="0" src="https://3.bp.blogspot.com/-37I2eQULV5A/WZWQ2MvPLKI/AAAAAAAAA_Q/cgAnYh8NZhMcGpjK1x-5aZ56q64_7TdtQCLcBGAs/s320/TypicalWageCurves14.jpg" width="320" height="180" data-original-width="1440" data-original-height="810" /></a></td></tr><tr><td align="center"><b>Figure 11: Wage Curves for Regions 1 through 4</b></td></tr></tbody></table><P></P><table align="center" border="0" cellpadding="1" cellspacing="1"><tbody><TR><TD ALIGN="center"><a href="https://1.bp.blogspot.com/-Lv9U-vsWHsE/WZWQwc_BX8I/AAAAAAAAA_M/MW_EMp6amo8uUaAUvIXfS4ePxuhg8P3mwCLcBGAs/s1600/TypicalWageCurves58.jpg" imageanchor="1" ><img border="0" src="https://1.bp.blogspot.com/-Lv9U-vsWHsE/WZWQwc_BX8I/AAAAAAAAA_M/MW_EMp6amo8uUaAUvIXfS4ePxuhg8P3mwCLcBGAs/s320/TypicalWageCurves58.jpg" width="320" height="180" data-original-width="1440" data-original-height="810" /></a></td></tr><tr><td align="center"><b>Figure 12: Wage Curves for Regions 5 through 8</b></td></tr></tbody></table><P></P><table align="center" border="0" cellpadding="1" cellspacing="1"><tbody><TR><TD ALIGN="center"><a href="https://2.bp.blogspot.com/-xtnOsS126OQ/WZWQoGLESzI/AAAAAAAAA_I/J4D6bLXvLhsiqfnqHoLqpVxOXnY0qvjqgCLcBGAs/s1600/TypicalWageCurve911.jpg" imageanchor="1" ><img border="0" src="https://2.bp.blogspot.com/-xtnOsS126OQ/WZWQoGLESzI/AAAAAAAAA_I/J4D6bLXvLhsiqfnqHoLqpVxOXnY0qvjqgCLcBGAs/s320/TypicalWageCurve911.jpg" width="320" height="180" data-original-width="1440" data-original-height="810" /></a></td></tr><tr><td align="center"><b>Figure 13: Wage Curves for Regions 9 through 11</b></td></tr></tbody></table><P>The numerical example is an instance of the Samuelson-Garegnani model. Variations in the two coefficients of production for the copper industry have no effect on the location of intersections between wage curves for Alpha and Gamma. Thus, one obtains the horizontal lines in Figures 1 and 10. Likewise, variations in <I>a</I><SUB>11, γ</SUB> do not affect intersections between the wages curves for Alpha and Beta. This property results in the vertical lines in the bifurcation diagram. Bifurcations in which wage curves for both Beta and Gamma are involved result in the more or less diagonal curves in Figures 1 and 10. </P><P>Section 3.1 tells a tale of technical progress in the copper industry. This story is illustrated by the bifurcation diagrams in Figures 1 and 10. The chosen values for <I>a</I><SUB>11, β</SUB> divide regions 1, 2, 3, and 4. Figure 2 lies along the vertical line dividing regions 1 and 2. Figure 3 illustrates the division between regions 2 and 3, and Figure 4 illustrates the corresponding division between regions 3 and 4. The vertical line towards the left side of Figure 10 is a bifurcation across the wage axis. </P><P>Similarly, Section 3.2 illustrates bifurcations along a movement downward in Figures 1 and 10. Such a downward movement would pass through regions 2, 7, 5, 9, and 10. Figure 7 illustrates parameters on the locus dividing regions 2 and 7. Figure 8 illustrates the division between regions 7 and 5. The line dividing regions 5 and 9 is a bifurcation around the axis for the rate of profits, and the line dividing regions 9 and 10 is a bifurcation around the wage axis. All four bifurcations are illustrated in Figure 9. </P><P>The above partitioning of the parameter space formed by coefficients of production suggests the existence of bifurcations not yet illustrated. For example, a three-technique bifurcation is located anywhere along the locus dividing regions 6 and 7. This bifurcation differs from the three-technique bifurcations illustrated by Figures 7 and 8. Or consider the point that separates regions 1, 2, 5, and 6. The Alpha technique is cost minimizing for all feasible rates of profits for these coefficients of production. Two switch points exist, and at each one of these switch points another technique is tied with the Alpha technique. The wage curve for the Gamma technique is tangent to the wage curve for the Alpha technique at the switch point with the lower rate of profits. The wage curve for the Beta technique is tangent to the wage curve for the alpha technique at the other switch point. The point on the intersection between the loci dividing regions 2, 6, and 7 is interesting. The coefficients of production specified by this point characterize a three-technique bifurcation in which the wage curves for the Alpha and Gamma techniques are tangent at the appropriate switch point. This discussion has not exhausted the possibilities. </P>Robert Vienneauhttp://www.blogger.com/profile/00872510108133281526noreply@blogger.com0tag:blogger.com,1999:blog-26706564.post-82657717299210478712017-08-22T09:30:00.000-04:002017-08-22T09:30:17.599-04:00The Concept Of Totality<P>This post is inspired by <A HREF="https://www.nasa.gov/feature/2017-solar-eclipse-highlights">current events</A></P><BLOCKQUOTE><P>"It is not the primacy of economic motives in historical explanation that constitutes the decisive difference between Marxism and bourgeois thought, but the point of view of totality. The category of totality, the all-pervasive supremacy of the whole over the parts is the essence of the method which Marx took over from Hegel and brilliantly transformed into the foundations of a wholly new science. The capitalist separation of the producer from the total process of production, the division of the process of labour into parts at the cost of the individual humanity of the worker, the atomisation of society into individuals who simply go on producing without rhyme or reason, must all have a profound influence on the thought, the science and the philosophy of capitalism. Proletarian science is revolutionary not just by virtue of its revolutionary ideas which it opposes to bourgeois society, but above all because of its method. <I>The primacy of the category of totality is the bearer of the principle of revolution in science</I>. </P><P>The revolutionary nature of Hegelian dialectics had often been recognised as such before Marx, notwithstanding Hegel's own conservative applications of the method. But no one had converted this knowledge into a science of revolution. It was Marx who transformed the Hegelian method into what Herzen described as the 'algebra of revolution'. It was not enough, however, to give it a materialist twist. The revolutionary principle inherent in Hegel's dialectic was able to come to the surface less because of that than because of the validity of the method itself, viz. the concept of totality, the subordination of every part to the whole unity of history and thought. In Marx the dialectical method aims at understanding society as a whole. Bourgeois thought concerns itself with objects the arise either from the process of studying phenomena in isolation, or from the division of labour and specialisation in the different disciplines. It holds abstractions to 'real' if it is naively realistic, and 'autonomous' if it is critical." </P>-- Georg Lukács, <I>History and Class Consciousness</I> (trans. by Rodney Livingstone), MIT Press (1971): pp. 27-28. </BLOCKQUOTE>Robert Vienneauhttp://www.blogger.com/profile/00872510108133281526noreply@blogger.com0tag:blogger.com,1999:blog-26706564.post-37570942394108243272017-08-20T15:33:00.000-04:002017-08-20T15:33:10.178-04:00A Reswitching Bifurcation, Reflected<table align="center" border="0" cellpadding="1" cellspacing="1"><tbody><TR><TD ALIGN="center"><a href="https://3.bp.blogspot.com/-N5BknkS80o4/WX48qYaRWnI/AAAAAAAAA8Q/BIcAY8MUCtMQO-US9kq9d89pdg_ZaetuQCLcBGAs/s1600/ReswitchingBifurcations.jpg" imageanchor="1" ><img border="0" src="https://3.bp.blogspot.com/-N5BknkS80o4/WX48qYaRWnI/AAAAAAAAA8Q/BIcAY8MUCtMQO-US9kq9d89pdg_ZaetuQCLcBGAs/s320/ReswitchingBifurcations.jpg" width="320" height="180" data-original-width="1440" data-original-height="810" /></a></td></tr><tr><td align="center"><b>Figure 1: Two Bifurcation Diagrams Horizontally Reflecting</b></td></tr></tbody></table><B>1.0 Introduction</B><P>This post continues my investigation of structural economic dynamics. I am interested in how technological progress can change the analysis of the choice of technique. I have <A HREF="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3011850">four normal forms</A>for how switch points can appear on or disappear from the wage frontier, as a result of changes in coefficients of production. This post concentrates on what I call a <A HREF="https://robertvienneau.blogspot.com/2016/12/tangency-of-wage-rate-of-profits-curves.html">reswitching bifurcation</A>. </P><P>Each bifurcation can be described by how wages curves look around the bifurcation before, at, and after the bifurcation. I claim that, in some sense, order does not matter. For each normal form, bifurcations can exist in either order. I have proven this, for three of the bifurcations, by constructing the normal forms in both orders. This post completes the proof by exhibiting both orders for the reswitching bifurcation. </P><B>2.0 Technology</B><P>Consider the technology illustrated in Table 1. The managers of firms know of four processes of production. And these processes exhibit Constant Returns to Scale. The column for the iron industry specifies the inputs needed to produce a ton of iron. The column for the copper industry likewise specifies the inputs needed to produce a ton of copper. Two processes are known for producing corn, and their coefficients of production are specified in the last two columns in the table. Each process is assumed to require a year to complete and uses up all of its commodity inputs. Technology is defined in terms of two parameters, <I>u</I> and <I>v</I>. <I>u</I> denotes the quantity of labor needed to produce a unit iron in the iron industry. <I>v</I> is the quantity of labor needed to produce a unit copper. </P><TABLE CELLSPACING="1" CELLPADDING="1" BORDER="1" ALIGN="center"><CAPTION><B>Table 1: The Technology for a Three-Commodity Example</B></CAPTION><TR><TD ALIGN="center" ROWSPAN="3"><B>Input</B></TD><TD ALIGN="center" COLSPAN="4"><B>Industry</B></TD></TR><TR><TD ALIGN="center" ROWSPAN="2"><B>Iron</B></TD><TD ALIGN="center" ROWSPAN="2"><B>Copper</B></TD><TD ALIGN="center" COLSPAN="2"><B>Corn</B></TD></TR><TR><TD ALIGN="center"><B>Alpha</B></TD><TD ALIGN="center"><B>Beta</B></TD></TR><TR><TD ALIGN="center">Labor</TD><TD ALIGN="center"><I>u</I></TD><TD ALIGN="center"><I>v</I></TD><TD ALIGN="center">1</TD><TD ALIGN="center">361/91</TD></TR><TR><TD ALIGN="center">Iron</TD><TD ALIGN="center">1/2</TD><TD ALIGN="center">0</TD><TD ALIGN="center">3</TD><TD ALIGN="center">0</TD></TR><TR><TD ALIGN="center">Copper</TD><TD ALIGN="center">0</TD><TD ALIGN="center">48/91</TD><TD ALIGN="center">0</TD><TD ALIGN="center">1</TD></TR><TR><TD ALIGN="center">Corn</TD><TD ALIGN="center">0</TD><TD ALIGN="center">0</TD><TD ALIGN="center">0</TD><TD ALIGN="center">0</TD></TR></TABLE><P>As usual, this technology presents a problem of the choice of technique. The Alpha technique consists of the iron-producing process and the corn-producing process labeled Alpha. Similarly, the Beta technique consists of the copper-producing process and the corn-producing process labeled Beta. </P><B>3.0 Selected Configurations of Wage Curves</B><P></P><B>3.1 A Reswitching Bifurcation</B><P>Consider certain specified parameter values for the coefficients of production denoting the amount of labor needed to produce one unit of iron and one unit of copper. In particular, let <I>u</I> be 1, and let <I>v</I> be 17,328/8,281. Figure 2 graphs the wage curves for the two techniques in this case. </P><table align="center" border="0" cellpadding="1" cellspacing="1"><tbody><TR><TD ALIGN="center"><a href="https://3.bp.blogspot.com/-PueU0IaB3BM/WX48fmVycjI/AAAAAAAAA8M/UTgo9yaj1LglakbW3jEAZRR3A3cCEjo8wCLcBGAs/s1600/WageCurvesAtBifurcation.jpg" imageanchor="1" ><img border="0" src="https://3.bp.blogspot.com/-PueU0IaB3BM/WX48fmVycjI/AAAAAAAAA8M/UTgo9yaj1LglakbW3jEAZRR3A3cCEjo8wCLcBGAs/s320/WageCurvesAtBifurcation.jpg" width="320" height="180" data-original-width="1440" data-original-height="810" /></a></td></tr><tr><td align="center"><b>Figure 2: Wage Curves at the Bifurcation</b></td></tr></tbody></table><P>I call this case a reswitching bifurcation. Like all bifurcations, it is a fluke case. </P><B>3.2 Improvements in Iron Production Around The Reswitching Bifurcation</B><P>Consider variations in <I>u</I>, from some parameter larger than its value in the above reswitching bifurcation to some lower value. In this part of the story, the value of <I>v</I> is assumed to be fixed at its value for the bifurcation. The right half of Figure 1, at the top of this post, illustrates this story. </P><P>For a high value of <I>u</I>, to the right of the right of Figure 1, the wage curve for Alpha is moved inside its location in Figure 2. The wage curves for the Alpha and Beta techniques intersect at two points. It is a reswitching example. A fall in <I>u</I> is illustrated by a movement to the left on the right side of Figure 1. The two switch points become closer and closer along the wage frontier. The reswitching bifurcation is illustrated by the thin vertical line in Figure 1. For any smaller value of <I>u</I>, the Alpha technique is cost minimizing for all feasible rates of profits or wages. </P><B>3.3 Improvements in Copper Production Around The Reswitching Bifurcation</B><P>Now consider variations in <I>v</I>, with <I>u</I> fixed at the value for the bifurcation illustrated in Figure 2. Technical progress in the copper industry is illustrated by a movement to the left on the left side of Figure 1. For a high value of <I>v</I>, the wage curve for the Beta technique is inside the wage curve for the Alpha technique. The Alpha technique is cost-minimizing for all feasible rates of profits. As <I>v</I> decreases, the wage curve for the Beta technique moves outward, until it reaches the reswitching bifurcation. For smaller values of <I>v</I>, the example becomes, once again, a reswitching example. A second bifurcation is illustrated on the left side of Figure 1, when the switch point at the higher rate of profits moves across the axis for the wage. The labor input for copper has become so small that the Beta technique is cost-minimizing for any sufficiently large enough wage and small rate of profits. </P><B>4.0 Conclusion</B><P>The bifurcation depends on a certain relative configuration of wage curves, in which one is tangent to the other at a switch point. Whether technical progress around the bifurcation results in reswitching appearing or disappearing depends on which wage curve is moving outwards faster around the switch point(s). Either order is possible. </P>Robert Vienneauhttp://www.blogger.com/profile/00872510108133281526noreply@blogger.com2tag:blogger.com,1999:blog-26706564.post-68011461112604833242017-08-15T08:20:00.000-04:002017-08-15T08:20:35.062-04:00Elsewhere<UL><LI>Nick Hanauer <A HREF="http://www.politico.com/magazine/story/2017/07/18/to-my-fellow-plutocrats-you-can-cure-trumpism-215347">argues</A> for some policies that postulate:</LI><UL><LI>Income distribution is not a matter of supply and demand or any other sort of economic natural laws.</LI><LI>That a more egalitarian distribution of income leads to an increased demand and generalized shared prosperity.</LI></UL><LI>Tom Palley <A HREF="http://fpif.org/from_keynesianism_to_neoliberalism_shifting_paradigms_in_economics/">contrasts</A>neoliberalism with an economic theory with an approach with another "theory of income distribution and its theory of aggregate employment determination".</LI><LI>Elizabeth Bruenig <A HREF="https://medium.com/@ebruenig/understanding-liberals-versus-the-left-5cff7ea41fd8">contrasts</A> liberalism with the the left.</LI><LI>Paul Blest <A HREF="https://theoutline.com/post/1925/why-are-neoliberals-such-big-babies">laughs</A> at whining neoliberals</LI><LI>Chris Lehmann <A HREF="https://thebaffler.com/the-jaundiced-eyeball/sail-trimmers">considers</A>how the turn of the US's Democratic Party to neoliberalism lowers its electoral prospects.</LI></UL><P>Is the distinction between democratic socialism and social democracy of no practical importance at the moment in any nation's politics? I think of the difference in two ways. First, in the United States in the 1970s, leftists had an argument. Self-defined social democrats became Neoconservatives, while democratic socialists found the Democratic Socialists of America (DSA). Second, both are reformists approaches to capitalism, advocating tweaks to, as Karl Popper argued for, prevent unnecessary pain. But social democrats have no ultimate goal of replacing capitalism, while democratic socialists want to end up with a transformed system. </P>Robert Vienneauhttp://www.blogger.com/profile/00872510108133281526noreply@blogger.com0tag:blogger.com,1999:blog-26706564.post-20630596584189686202017-08-12T12:54:00.000-04:002017-08-14T07:39:29.321-04:00A Fluke Of A Fluke Switch Point<table align="center" border="0" cellpadding="1" cellspacing="1"><tbody><TR><TD ALIGN="center"><a href="https://2.bp.blogspot.com/-iyPam6EQJ4o/WY8h6WCIQaI/AAAAAAAAA-U/j1Lk0HveZYMCBP_6lTwYVbuDB-nrhtghwCLcBGAs/s1600/FlukeWageCurves.jpg" imageanchor="1" ><img border="0" src="https://2.bp.blogspot.com/-iyPam6EQJ4o/WY8h6WCIQaI/AAAAAAAAA-U/j1Lk0HveZYMCBP_6lTwYVbuDB-nrhtghwCLcBGAs/s320/FlukeWageCurves.jpg" width="320" height="180" data-original-width="1440" data-original-height="810" /></a></td></tr><tr><td align="center"><b>Figure 1: Wage Curves</b></td></tr></tbody></table><B>1.0 Introduction</B><P>This post presents an example of the analysis of the choice of technique in competitive markets. The example is one with three techniques and two switch points. The wage curves for the Alpha and Beta techniques are tangent at one of the switch points. This is a <A HREF="http://robertvienneau.blogspot.com/2016/12/tangency-of-wage-rate-of-profits-curves.html">fluke</A>. And the wage curves for all three techniques all pass through that same switch point. This, too, is a fluke. </P><P>I suppose that the example is one of reswitching and capital-reversing is the least interesting property of the example. Paul Samuelson was simply wrong in labeling such phenomena as perverse. A non-generic bifurcation, like the illustrated one, falls out of a comprehensive analysis of possible configurations of wage curves. </P><B>2.0 Technology</B><P>The technology in the example has a particularly simple structure. Firms can produce one of three capital goods, which I am arbitrarily labeling iron, copper, and uranium. Table 1 shows the production processes known for producing each metal. One process is known for producing each, and each metal is produced out of inputs of labor and that metal. Each process requires a year to complete, uses up all its material inputs, and exhibits Constant Returns to Scale. </P><TABLE CELLSPACING="1" CELLPADDING="1" BORDER="1" ALIGN="center"><CAPTION><B>Table 1: The Technology for Three of Four Industries</B></CAPTION><TR><TD ALIGN="center" ROWSPAN="2"><B>Input</B></TD><TD ALIGN="center" COLSPAN="3"><B>Industry</B></TD></TR><TR><TD ALIGN="center"><B>Iron</B></TD><TD ALIGN="center"><B>Copper</B></TD><TD ALIGN="center"><B>Uranium</B></TD></TR><TR><TD ALIGN="center">Labor</TD><TD ALIGN="center">1</TD><TD ALIGN="center">17,328/8,281</TD><TD ALIGN="center">1</TD></TR><TR><TD ALIGN="center">Iron</TD><TD ALIGN="center">1/2</TD><TD ALIGN="center">0</TD><TD ALIGN="center">0</TD></TR><TR><TD ALIGN="center">Copper</TD><TD ALIGN="center">0</TD><TD ALIGN="center">48/91</TD><TD ALIGN="center">0</TD></TR><TR><TD ALIGN="center">Uranium</TD><TD ALIGN="center">0</TD><TD ALIGN="center">0</TD><TD ALIGN="center">0.53939</TD></TR><TR><TD ALIGN="center">Corn</TD><TD ALIGN="center">0</TD><TD ALIGN="center">0</TD><TD ALIGN="center">0</TD></TR></TABLE><P>Three processes are known for producing corn (Table 2), which is the consumption good. This economy can be sustained by adopting one of three techniques. The Alpha technique consists of the iron-producing process and the corn-producing process labeled Alpha. Similarly, the Beta technique consists of the copper-producing process and the corn-producing process labeled Beta. Finally, the Gamma technique consists of the remaining two processes. </P><TABLE CELLSPACING="1" CELLPADDING="1" BORDER="1" ALIGN="center"><CAPTION><B>Table 2: The Technology the Corn Industry</B></CAPTION><TR><TD ALIGN="center" ROWSPAN="2"><B>Input</B></TD><TD ALIGN="center" COLSPAN="3"><B>Process</B></TD></TR><TR><TD ALIGN="center"><B>Alpha</B></TD><TD ALIGN="center"><B>Beta</B></TD><TD ALIGN="center"><B>Gamma</B></TD></TR><TR><TD ALIGN="center">Labor</TD><TD ALIGN="center">1</TD><TD ALIGN="center">361/91</TD><TD ALIGN="center">3.63505</TD></TR><TR><TD ALIGN="center">Iron</TD><TD ALIGN="center">3</TD><TD ALIGN="center">0</TD><TD ALIGN="center">0</TD></TR><TR><TD ALIGN="center">Copper</TD><TD ALIGN="center">0</TD><TD ALIGN="center">1</TD><TD ALIGN="center">0</TD></TR><TR><TD ALIGN="center">Uranium</TD><TD ALIGN="center">0</TD><TD ALIGN="center">0</TD><TD ALIGN="center">1.95561</TD></TR><TR><TD ALIGN="center">Corn</TD><TD ALIGN="center">0</TD><TD ALIGN="center">0</TD><TD ALIGN="center">0</TD></TR></TABLE><B>3.0 The Choice of Technique</B><P>The choice of technique is analyzed based on prices of production and cost-minimization. Labor is assumed to be advanced, and wages are paid out of the surplus product at the end of the year. Corn is taken as the numeraire. Figure 1 graphs the wage-rate of profits for the three techniques. The cost-minimizing technique, at a given rate of profits, maximizes the wage. That is, the cost-minimizing techniques form the outer envelope, also known as, the wage frontier, from the wage curves. Aside from switch points, the Alpha technique is cost-minimizing at low and high rates of profits, with the Gamma technique cost-minimizing between the switch points. At switch points, any linear combination of the techniques with wage curves going through that switch point are cost-minimizing. </P><P>The wage curve for the Beta technique is a straight line. This affine property results from the Organic Composition of Capital being the same in copper production and in corn production, when the Beta technique is adopted. To help visualization, I also graph the difference between the wage curves (Figure 2). The Beta technique is only cost-minimizing at the switch point at the higher rate of profits. The tangency of the wage curves for the Alpha and Beta techniques is manifested in Figure 2 by the non-negativity of the difference in these curves. </P><table align="center" border="0" cellpadding="1" cellspacing="1"><tbody><TR><TD ALIGN="center"><a href="https://2.bp.blogspot.com/-v4F3AJuNhy4/WY8h0WMgNBI/AAAAAAAAA-Q/H_JrI5WSz7k5KKgz9skYdwNnNerqJqrFQCLcBGAs/s1600/FlukeDifferences.jpg" imageanchor="1" ><img border="0" src="https://2.bp.blogspot.com/-v4F3AJuNhy4/WY8h0WMgNBI/AAAAAAAAA-Q/H_JrI5WSz7k5KKgz9skYdwNnNerqJqrFQCLcBGAs/s320/FlukeDifferences.jpg" width="320" height="180" data-original-width="1440" data-original-height="810" /></a></td></tr><tr><td align="center"><b>Figure 2: Distance Between Wage Curves</b></td></tr></tbody></table><P></P><B>4. Conclusion</B><P>I'm sort of proud of this example. I suppose I could, at least, submit it for publication somewhere. But it is only a side effect of a larger <A HREF="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3011850">project</A> I guess I am pursuing. </P><P>I want to introduce a distinction among fluke switch points. Every bifurcation (that is, a change in the sequence of switch points and cost-minimizing techniques along the wage frontier) is a fluke. Some perturbation of a coefficient of production from a bifurcation value will change that sequence. Suppose a perturbation of a coefficient of production not involved in a bifurcation, in some sense, leaves the qualitative story unchanged. One can use the same bifurcation to tell a story about, say, technological progress. This is a generic bifurcation. </P><P>Accept, for the sake of argument, that prices of production tell us something about actual prices. The economy is never in an equilibrium, but owners of firms are always interested in increasing their profits. One can never expect observed technology to meet the fluke conditions of a generic bifurcation. But it can tell us something about how the dynamics of income distribution, for example, vary with technological progress. </P><P>Suppose one perturbs, in the example, the coefficient of production for the amount of iron needed to produce iron. (I denote this coefficient, in a fairly standard notation, as <I>a</I><SUB>1,1</SUB><SUP>β</SUP>.) Then, either the wage curves for the. Alpha and Beta techniques will not intersect at all or they will intersect twice. In the latter case, one can vary <I>a</I><SUB>1,1</SUB><SUP>γ</SUP> to find an example in which all three wage curves intersect at one or another of the switch points. But the tangency will be lost. So I consider the fluke point illustrated to be a non-generic bifurcation. </P><P>Non-generic bifurcations arise in a complete bifurcation analysis. The model illustrated remains open. Income distribution is not specified. Nevertheless, I think this theoretical analysis can say something to those who are attempting to empirically apply the Leontief-Sraffa model. </P>Robert Vienneauhttp://www.blogger.com/profile/00872510108133281526noreply@blogger.com0tag:blogger.com,1999:blog-26706564.post-9742915843064861432017-08-07T18:41:00.002-04:002017-08-08T06:35:08.898-04:00Some Unresolved Issues In Multiple Interest Rate Analysis<B>1.0 Introduction</B><P>Come October, as I understand it, the <I>Review of Political Economy</I> will publish, in hardcopy, my article <A HREF="http://www.tandfonline.com/doi/abs/10.1080/09538259.2017.1346039">The Choice of Technique with Multiple and Complex Interest Rates</A>. I discuss in this post questions I do not understand. </P><B>2.0 Non-Standard Investments and Fixed Capital</B><P>Consider a point-input, flow-output model. In the first year, unassisted labor produces a long-lived machine. In successive years, labor and a machine of a specific history are used to produce outputs of a consumption good and a one-year older machine. The efficiency of the machine may vary over the course of its physical lifetime. When the machine should be junked is a choice variable in some economic models. </P><P>I am aware that in this, or closely related models, the price of a machine of a specific date can be <A HREF="http://robertvienneau.blogspot.com/2017/01/reswitching-in-example-of-one-commodity.html">negative</A>. The total value of outputs at such a year in which the price of the machine of the machine is negative, however, is the difference between the sum of the price of the machine & the consumption good and the price of any inputs, like labor, that are hired in that year. Can one create a numerical example of such a case in which the net value, in a given year, is negative, where that negative value is preceded and followed by years with a positive net value? </P><P>If so, this would an example of a <I>non-standard investment</I>. A standard investment is one in which all negative cash flows precede all positive cash flows. In a non-standard investment at least one positive cash flow precedes a negative cash flow, and vice-versa. Non-standard investments create the possibility that all roots of the polynomial used to define the Internal Rate of Return (IRR) are complex. Can one create an example with fixed capital or, more generally, joint production in which this possibility arises? </P><P>Does corporate finance theory reach the same conclusions about the economic life of a machine as Sraffian analysis in such a case? Can one express Net Present Value (NPV) as a function combining the difference between the interest rate and each IRR in this case, even though all IRRs are complex? (I call such a function an <A HREF="http://robertvienneau.blogspot.com/2017/04/nonstandard-investments-as-challenge.html">Osborne expression</A>for the NPV.) </P><B>3.0 Generalizing the Composite Interest Rate to the Production of Commodities by Means of Commodities</B><P>In my article, I follow Michael Osborne in deriving what he calls a composite interest rate, that combines all roots of the polynomial defining the IRR. I disagree with him, in that I do not think this composite interest rate is useful in analyzing the choice of technique. But we both obtain, in a flow-input, point output model, an equation I find interesting. </P><P>This equation states that the difference between the labor commanded by a commodity and the labor embodied in that commodity is the product of the first input of labor per unit output and the composite interest rate. Can you give an intuitive, theoretical explanation of this result? (I am aware that Osborne and Davidson give an explanation, that I can sort of understand when concentrating, in terms of the Austrian average period of production.) </P><P>A model of the production of commodities by means of commodities can be approximated by a model of a finite sequence of labor inputs. The model becomes exact as the number of dated labor inputs increases without bound. In the limit, the labor command by each commodity is a finite value. So is the labor embodied. And the quantity for the first labor input decrease to zero. Thus, the composite interest rate increases without bound. How, then, can the concept of the composite interest rate be extended to a model of the production of commodities by means of commodities? </P><B>4.0 Further Comments on Multiple Interest Rates with the Production of Commodities by Means of Commodities</B><P>In models of the production of commodities by means of commodities, various polynomials arise in which one root is the rate of profits. I have <A HREF="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2885821">considered</A>, for example, the characteristic equation for a certain matrix related to real wages, labor inputs, and the Leontief input-output matrix associated with a technique of production. Are all roots of such polynomials useful for some analysis? How so? </P><P>Luigi Pasinetti, in the context of a theory of <A HREF="https://www.cambridge.org/core/books/structural-economic-dynamics/913CC279161B6C13E4819FB9DF05D4D3"><I>Structural Economic Dynamics</I></A>, has described what he calls the <I>natural system</I>. In the price system associated with the natural system, multiple interest rates arise, one for each produced commodity. Can these multiple interest rates be connected to Osborne's <STRIKE>natural</STRIKE> multiple interest rates? </P><B>5.0 Conclusion</B><P>I would not mind reading attempts to answer the above questions. </P>Robert Vienneauhttp://www.blogger.com/profile/00872510108133281526noreply@blogger.com0tag:blogger.com,1999:blog-26706564.post-55276848321999878632017-08-04T13:11:00.000-04:002017-08-04T13:11:42.087-04:00Switch Points and Normal Forms for Bifurcations<P>I have put up a <A HREF="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3011850">working paper</A>, with the post title, on my Social Sciences Research Network (SSRN) site. </P><BLOCKQUOTE><B>Abstract:</B> The choice of technique can be analyzed, in a circulating capital model of prices of production, by constructing the wage frontier. Switch points arise when more than one technique is cost-minimizing for a specified rate of profits. This article defines four normal forms for structural bifurcations, in which the number and sequence of switch points varies with a variation in one model parameter, such as a coefficient of production. The 'perversity' of switch points that appear on and disappear from the wage frontier is analyzed. The conjecture is made that no other normal forms exist of codimension one. </BLOCKQUOTE>Robert Vienneauhttp://www.blogger.com/profile/00872510108133281526noreply@blogger.com0tag:blogger.com,1999:blog-26706564.post-85252528502757713382017-08-01T08:27:00.000-04:002017-08-01T08:27:41.804-04:00Switch Points Disappearing Or Appearing Over The Axis For The Rate Of Profits<table align="center" border="0" cellpadding="1" cellspacing="1"><tbody><TR><TD ALIGN="center"><a href="https://3.bp.blogspot.com/-XO58F4cKxqA/WXy_vteMcaI/AAAAAAAAA7Q/f1rVBOG_MMAltGDM_RVkLn46Xl3r-qQPwCLcBGAs/s1600/Slide1.jpg" imageanchor="1" ><img border="0" src="https://3.bp.blogspot.com/-XO58F4cKxqA/WXy_vteMcaI/AAAAAAAAA7Q/f1rVBOG_MMAltGDM_RVkLn46Xl3r-qQPwCLcBGAs/s320/Slide1.jpg" width="320" height="180" data-original-width="1440" data-original-height="810" /></a></td></tr><tr><td align="center"><b>Figure 1: Two Bifurcation Diagrams Horizontally Reflecting</b></td></tr></tbody></table><B>1.0 Introduction</B><P>This post continues my investigation of structural economic dynamics. I am interested in how technological progress can change the analysis of the choice of technique. In this case, I explore how a decrease in a coefficient of production can cause a switch point to appear or disappear over the axis for the rate of profits. </P><B>2.0 Technology</B><P>Consider the technology illustrated in Table 1. The managers of firms know of four processes of production. And these processes exhibit Constant Returns to Scale. The column for the iron industry specifies the inputs needed to produce a ton of iron. The column for the copper industry likewise specifies the inputs needed to produce a ton of copper. Two processes are known for producing corn, and their coefficients of production are specified in the last two columns in the table. Each process is assumed to require a year to complete and uses up all of its commodity inputs. Technology is defined in terms of two parameters, <I>u</I> and <I>v</I>. <I>u</I> denotes the quantity of iron needed to produce a unit iron in the iron industry. <I>v</I> is the quantity of copper needed to produce a unit copper. </P><TABLE CELLSPACING="1" CELLPADDING="1" BORDER="1" ALIGN="center"><CAPTION><B>Table 1: The Technology for a Three-Commodity Example</B></CAPTION><TR><TD ALIGN="center" ROWSPAN="3"><B>Input</B></TD><TD ALIGN="center" COLSPAN="4"><B>Industry</B></TD></TR><TR><TD ALIGN="center" ROWSPAN="2"><B>Iron</B></TD><TD ALIGN="center" ROWSPAN="2"><B>Copper</B></TD><TD ALIGN="center" COLSPAN="2"><B>Corn</B></TD></TR><TR><TD ALIGN="center"><B>Alpha</B></TD><TD ALIGN="center"><B>Beta</B></TD></TR><TR><TD ALIGN="center">Labor</TD><TD ALIGN="center">1</TD><TD ALIGN="center">2/3</TD><TD ALIGN="center">1</TD><TD ALIGN="center">2/3</TD></TR><TR><TD ALIGN="center">Iron</TD><TD ALIGN="center"><I>u</I></TD><TD ALIGN="center">0</TD><TD ALIGN="center">1/3</TD><TD ALIGN="center">0</TD></TR><TR><TD ALIGN="center">Copper</TD><TD ALIGN="center">0</TD><TD ALIGN="center"><I>v</I></TD><TD ALIGN="center">0</TD><TD ALIGN="center">1/3</TD></TR><TR><TD ALIGN="center">Corn</TD><TD ALIGN="center">0</TD><TD ALIGN="center">0</TD><TD ALIGN="center">0</TD><TD ALIGN="center">0</TD></TR></TABLE><P>As usual, this technology presents a problem of the choice of technique. The Alpha technique consists of the iron-producing process and the corn-producing process labeled Alpha. Similarly, the Beta technique consists of the copper-producing process and the corn-producing process labeled Beta. </P><P>I make all my standard assumptions. The choice of technique is based on cost-minimization. Consider prices of production, which are stationary prices that allow the economy to be reproduced. A wage curve, showing a tradeoff between wages and the rate of profits, is associated with each technique. In drawing such a curve, I assume that a bushel corn is the numeraire and that labor is advanced. Hence, wages are paid out of the surplus product at the end of the year. The chosen technique, for, say, a given wage, maximizes the rate of profits. The wage curve for the cost-minizing technique at the given wage lies on the outer frontier formed from all wage curves. </P><B>3.0 Innovations</B><P>I have two stories of technical innovation. In one, improvements are made in the process for producing copper. As a consequence, the wage curve for the Beta technique moves outward. In the other story, improvements are made in the iron industry, and the wage curve for the Alpha technique moves outwards. The bifurcations that occur in the two stories are mirror reflections of one another, in some sense. </P><B>3.1 Improvements in Copper Production</B><P>Let <I>u</I> be fixed at 1/3 tons per ton. The wage curve for the Alpha technique is a downward sloping straight line. Let <I>v</I> decrease from 1/2 to 3/10. When <I>v</I> is 1/3, the wage curve for the Beta technique is also a straight line. I created the example to have linear (actually, affine) wage curves at the bifurcation for convenience. The bifurcation does not require such. </P><P>Figure 2 shows the wage curves when the copper coefficient for copper production is a high value, in the range under consideration. A single switch point exists, and the Alpha technique is cost-minimizing if the rate of profits is high. As <I>v</I> decreases, the switch point moves to a higher and higher rate of profits. (These statements are about the shapes of mathematical functions. They are not about historical processes set in time.) Figure 3 shows the wage curves when <I>v</I> is 1/3. The switch point is now on the axis for the rate of profits. For any non-negative rate of profits below the maximum, the Beta technique is cost-minimizing. Finally, Figure 4 shows the wage curves for an even lower copper coefficient in copper production. Now, there is no switch point, and the Beta technique is always cost-minimizing, for all possible prices of production. </P><table align="center" border="0" cellpadding="1" cellspacing="1"><tbody><TR><TD ALIGN="center"><a href="https://3.bp.blogspot.com/-rqnCE2JoFLg/WXy_5E0-QWI/AAAAAAAAA7U/ruf-rjNGHX86fv4lw_4KqWR9O1QbMAhJgCLcBGAs/s1600/Slide2.jpg" imageanchor="1" ><img border="0" src="https://3.bp.blogspot.com/-rqnCE2JoFLg/WXy_5E0-QWI/AAAAAAAAA7U/ruf-rjNGHX86fv4lw_4KqWR9O1QbMAhJgCLcBGAs/s320/Slide2.jpg" width="320" height="180" data-original-width="1440" data-original-height="810" /></a></td></tr><tr><td align="center"><b>Figure 2: Wage Curves Without Improvement in Copper Production</b></td></tr></tbody></table><P></P><table align="center" border="0" cellpadding="1" cellspacing="1"><tbody><TR><TD ALIGN="center"><a href="https://3.bp.blogspot.com/-sB54DM-D_9g/WXy_9lrf3NI/AAAAAAAAA7Y/GuFr4rIhWLYc3U1EJdhc_mh0vCpOpMUYwCLcBGAs/s1600/Slide3.jpg" imageanchor="1" ><img border="0" src="https://3.bp.blogspot.com/-sB54DM-D_9g/WXy_9lrf3NI/AAAAAAAAA7Y/GuFr4rIhWLYc3U1EJdhc_mh0vCpOpMUYwCLcBGAs/s320/Slide3.jpg" width="320" height="180" data-original-width="1440" data-original-height="810" /></a></td></tr><tr><td align="center"><b>Figure 3: Wage Curves For A Bifurcation</b></td></tr></tbody></table><P></P><table align="center" border="0" cellpadding="1" cellspacing="1"><tbody><TR><TD ALIGN="center"><a href="https://4.bp.blogspot.com/-zLrRZJEoIvo/WXzACRpufXI/AAAAAAAAA7c/1r0113dH3BMA5WzIt-RNIxiCKJWjtWengCLcBGAs/s1600/Slide4.jpg" imageanchor="1" ><img border="0" src="https://4.bp.blogspot.com/-zLrRZJEoIvo/WXzACRpufXI/AAAAAAAAA7c/1r0113dH3BMA5WzIt-RNIxiCKJWjtWengCLcBGAs/s320/Slide4.jpg" width="320" height="180" data-original-width="1440" data-original-height="810" /></a></td></tr><tr><td align="center"><b>Figure 4: Wage Curves After Improvements in Copper Production</b></td></tr></tbody></table><P></P><B>3.2 Improvements in Iron Production</B><P>Now let <I>v</I> be set at 1/3. Let <I>u</I> decrease from 1/2 to 3/10. Figure 5 shows the wage curves at the high end for the iron coefficient in iron production. No switch point exists, and the Beta technique is always cost-minimizing. I thought about repeating Figure 3, for <I>v</I> decreased to 1/3. The same configuration of wage curves, with a bifurcation, appears in this story. Figure 6, shows that the switch point appears for an even lower value of the iron coefficient. </P><P></P><table align="center" border="0" cellpadding="1" cellspacing="1"><tbody><TR><TD ALIGN="center"><a href="https://2.bp.blogspot.com/-_mObjYdOP4Q/WXzANPoXqXI/AAAAAAAAA7g/Q6JY5O1mLC8VoW-my3WGQ6plYXFjPpKTACLcBGAs/s1600/Slide6.jpg" imageanchor="1" ><img border="0" src="https://2.bp.blogspot.com/-_mObjYdOP4Q/WXzANPoXqXI/AAAAAAAAA7g/Q6JY5O1mLC8VoW-my3WGQ6plYXFjPpKTACLcBGAs/s320/Slide6.jpg" width="320" height="180" data-original-width="1440" data-original-height="810" /></a></td></tr><tr><td align="center"><b>Figure 5: Wage Curves Without Improvement in Iron Production</b></td></tr></tbody></table><P></P><table align="center" border="0" cellpadding="1" cellspacing="1"><tbody><TR><TD ALIGN="center"><a href="https://2.bp.blogspot.com/-Fx-1LJ1JN1g/WXzAUWzyA2I/AAAAAAAAA7k/Yl3e-Vtgw90VOf-VCbJ8KOFJN0iIkPyhQCLcBGAs/s1600/Slide7.jpg" imageanchor="1" ><img border="0" src="https://2.bp.blogspot.com/-Fx-1LJ1JN1g/WXzAUWzyA2I/AAAAAAAAA7k/Yl3e-Vtgw90VOf-VCbJ8KOFJN0iIkPyhQCLcBGAs/s320/Slide7.jpg" width="320" height="180" data-original-width="1440" data-original-height="810" /></a></td></tr><tr><td align="center"><b>Figure 6: Wage Curves After Improvements in Iron Production</b></td></tr></tbody></table><P></P><B>3.3 Improvements in Both Iron and Copper Industries</B><P>I might as well graph (Figure 7) the copper coefficient in copper production against the iron coefficient in iron production. The bifurcation occurs when the maximum rates of profits are identical in the Alpha and Beta technique. In a model with the simple structure of the example, this occurs when <I>u</I> = <I>v</I>. Representative illustrations of wage curves are shown in the regions in the parameter space. A switch point below the maximum rate of profits exists only above the line in parameter space representing the bifurcation. </P><table align="center" border="0" cellpadding="1" cellspacing="1"><tbody><TR><TD ALIGN="center"><a href="https://3.bp.blogspot.com/-xj1ono_l6NY/WXzQb80p7zI/AAAAAAAAA74/S6XyulDd09IBhqom4q22toxwvXKqmrhAACLcBGAs/s1600/RateOfProfitsBifurcation.jpg" imageanchor="1" ><img border="0" src="https://3.bp.blogspot.com/-xj1ono_l6NY/WXzQb80p7zI/AAAAAAAAA74/S6XyulDd09IBhqom4q22toxwvXKqmrhAACLcBGAs/s320/RateOfProfitsBifurcation.jpg" width="320" height="180" data-original-width="1440" data-original-height="810" /></a></td></tr><tr><td align="center"><b>Figure 7: Bifurcation Diagram for Two Coefficients of Production</b></td></tr></tbody></table><P>The story in Section 3.1 corresponds to moving downwards on a vertical line in Figure 7. The left-hand side of Figure 1, at the top of this post, is another way of illustrating this story. On the other hand, Section 3.2 tells a story of moving leftwards on a horizontal line in Figure 7. The right-hand side of Figure 1 illustrates this story. </P><P>Focus on the intersections, in the two sides of Figure 1 of the blue, red, and purple loci. Can you see that, in some sense, they are reflections, up to a topological equivalence? </P><B>4.0 Discussion</B><P>I have a <A HREF="http://robertvienneau.blogspot.com/2017/03/bifurcations-in-reswitching-example.html">reswitching example</A>with a switch point disappearing over the axis for the rate of profits. In that example, the disappearing switch point is 'perverse', that is, it has a positive real Wicksell effect. In the examples in Section 3 above, the disappearing or appearing switch point is 'normal', with a negative real Wicksell effect. </P><P></P>Robert Vienneauhttp://www.blogger.com/profile/00872510108133281526noreply@blogger.com0tag:blogger.com,1999:blog-26706564.post-34597860015312180132017-07-28T08:13:00.000-04:002017-07-28T08:13:22.244-04:00Bifurcations Along Wage Frontier, Reflected<table align="center" border="0" cellpadding="1" cellspacing="1"><tbody><TR><TD ALIGN="center"><a href="https://3.bp.blogspot.com/-Lg-UtFCXgmQ/WXnWFp6roJI/AAAAAAAAA6k/vcNe1eIMvPIkWiJcLK54pN3nNzGLN-opACLcBGAs/s1600/Slide5.jpg" imageanchor="1" ><img border="0" src="https://3.bp.blogspot.com/-Lg-UtFCXgmQ/WXnWFp6roJI/AAAAAAAAA6k/vcNe1eIMvPIkWiJcLK54pN3nNzGLN-opACLcBGAs/s320/Slide5.jpg" width="320" height="180" data-original-width="1440" data-original-height="810" /></a></td></tr><tr><td align="center"><b>Figure 1: Bifurcation Diagram</b></td></tr></tbody></table><B>1.0 Introduction</B><P>This post continues a series investigating structural economic dynamics. I think most of those who understand prices of production - say, after working through Kurz and Salvadori (1995) - understand that technical innovation can change the appearance of the wage frontier. (The wage frontier is also called the wage-rate of profits frontier and the factor-price frontier.) Changes in coefficients of production can create or destroy a reswitching example. But, as far as I know, nobody has systematically explored how this happens in theory. </P><P>I claim that when switch points appear on or disappear off of the wage frontier, these bifurcations follow a few normal forms. I have been describing each normal form as a story of a coefficient of production being reduced by technical innovation. I further claim that, in some sense, the order of changes along the wage frontier is not specified. One can find an example with a decreasing coefficient of production in which the order is the opposite of some other example of technical innovation with the same normal form. </P><P>This post is one of a series providing the proof that order does not matter. The example in this post relates to this previous <A HREF="http://robertvienneau.blogspot.com/2017/07/bifurcations-along-wage-frontier.html">example</A>. </P><B>2.0 Technology</B><P>The example in this post is one of an economy in which four commodities can be produced. These commodities are called iron, steel, copper, and corn. The managers of firms know (Table 1) of one process for producing each of the first three commodities. These processes exhibit Constant Returns to Scale. Each column specifies the inputs required to produce a unit output for the corresponding industry. Variations in the parameter <I>v</I>can result in different switch points appearing on the frontier. Each process requires a year to complete and uses up all of its inputs in that year. There is no fixed capital. </P><TABLE CELLSPACING="1" CELLPADDING="1" BORDER="1" ALIGN="center"><CAPTION><B>Table 1: The Technology for Three of Four Industries</B></CAPTION><TR><TD ALIGN="center" ROWSPAN="2"><B>Input</B></TD><TD ALIGN="center" COLSPAN="3"><B>Industry</B></TD></TR><TR><TD ALIGN="center"><B>Iron</B></TD><TD ALIGN="center"><B>Steel</B></TD><TD ALIGN="center"><B>Copper</B></TD></TR><TR><TD ALIGN="center">Labor</TD><TD ALIGN="center">1/2</TD><TD ALIGN="center">1</TD><TD ALIGN="center">3/2</TD></TR><TR><TD ALIGN="center">Iron</TD><TD ALIGN="center">53/180</TD><TD ALIGN="center">0</TD><TD ALIGN="center">0</TD></TR><TR><TD ALIGN="center">Steel</TD><TD ALIGN="center">0</TD><TD ALIGN="center"><I>v</I></TD><TD ALIGN="center">0</TD></TR><TR><TD ALIGN="center">Copper</TD><TD ALIGN="center">0</TD><TD ALIGN="center">0</TD><TD ALIGN="center">1/5</TD></TR><TR><TD ALIGN="center">Corn</TD><TD ALIGN="center">0</TD><TD ALIGN="center">0</TD><TD ALIGN="center">0</TD></TR></TABLE><P>Three processes are known for producing corn (Table 2). As usual, these processes exhibit CRS. And each column specifies inputs needed to produce a unit of corn with that process. </P><TABLE CELLSPACING="1" CELLPADDING="1" BORDER="1" ALIGN="center"><CAPTION><B>Table 2: The Technology the Corn Industry</B></CAPTION><TR><TD ALIGN="center" ROWSPAN="2"><B>Input</B></TD><TD ALIGN="center" COLSPAN="3"><B>Process</B></TD></TR><TR><TD ALIGN="center"><B>Alpha</B></TD><TD ALIGN="center"><B>Beta</B></TD><TD ALIGN="center"><B>Gamma</B></TD></TR><TR><TD ALIGN="center">Labor</TD><TD ALIGN="center">1/2</TD><TD ALIGN="center">1</TD><TD ALIGN="center">3/2</TD></TR><TR><TD ALIGN="center">Iron</TD><TD ALIGN="center">1/3</TD><TD ALIGN="center">0</TD><TD ALIGN="center">0</TD></TR><TR><TD ALIGN="center">Steel</TD><TD ALIGN="center">0</TD><TD ALIGN="center">1/4</TD><TD ALIGN="center">0</TD></TR><TR><TD ALIGN="center">Copper</TD><TD ALIGN="center">0</TD><TD ALIGN="center">0</TD><TD ALIGN="center">1/5</TD></TR><TR><TD ALIGN="center">Corn</TD><TD ALIGN="center">0</TD><TD ALIGN="center">0</TD><TD ALIGN="center">0</TD></TR></TABLE><P>Four techniques are available for producing a net output of a unit of corn. The Alpha technique consists of the iron-producing process and the Alpha corn-producing process. The Beta technique consists of the steel-producing process and the Beta process. The Gamma technique consists of the remaining two processes. </P><P>As usual, the choice of technique is based on cost-minimization. Consider prices of production, which are stationary prices that allow the economy to be reproduced. A wage curve, showing a tradeoff between wages and the rate of profits, is associated with each technique. In drawing such a curve, I assume that a bushel corn is the numeraire and that labor is advanced. Wages are paid out of the surplus product at the end of the year. The chosen technique, for, say, a given wage, maximizes the rate of profits. The wage curve for the cost-minizing technique at the given wage lies on the outer frontier formed from all wage curves. </P><B>3.0 Technical Progress</B><P>Figures 2 through 5 illustrate wage curves for different levels of the coefficient of production denoted <I>v</I> in the table. Figure 2 shows that for a relatively high parameter value, the switch point between the Alpha and Gamma techniques is the only switch point on the outer frontier. For continuously lower parameter values of <I>v</I>, the wage curve moves outward. Figure 3 illustration the bifurcation value, a fluke case in which the wage curves for all three techniques intersect in a single switch point. Other than at the switch point, the wage curve for the Beta technique is not on the frontier. But, for a slightly lower parameter value (Figure 4), the wage curve for the Beta technique, along with switch points between the Alpha and the Beta techniques and between the Beta and Gamma techniques, is on the frontier. The intersection between the wage curves for the Alpha and Gamma techniques is no longer on the frontier. Figure 5 illustrates another bifurcation in the example. The focus of this post is not on this bifurcation, in which a switch point disappears over the axis for the rate of profits. </P><table align="center" border="0" cellpadding="1" cellspacing="1"><tbody><TR><TD ALIGN="center"><a href="https://2.bp.blogspot.com/-IXCXNQ-Of0o/WXnW3dJTVmI/AAAAAAAAA6s/sJMdtQwiexgYtDQt6FtpmjJofWgo1QfPACLcBGAs/s1600/Slide1.jpg" imageanchor="1" ><img border="0" src="https://2.bp.blogspot.com/-IXCXNQ-Of0o/WXnW3dJTVmI/AAAAAAAAA6s/sJMdtQwiexgYtDQt6FtpmjJofWgo1QfPACLcBGAs/s320/Slide1.jpg" width="320" height="180" data-original-width="1440" data-original-height="810" /></a></td></tr><tr><td align="center"><b>Figure 2: Wage Curves with High Steel Inputs in Steel Production</b></td></tr></tbody></table><P></P><table align="center" border="0" cellpadding="1" cellspacing="1"><tbody><TR><TD ALIGN="center"><a href="https://2.bp.blogspot.com/-lyvbP22THBY/WXnXAiq_OVI/AAAAAAAAA6w/wFt0k3HB0JAC9QvuceWyEXBfIjgmmzpvQCLcBGAs/s1600/Slide2.jpg" imageanchor="1" ><img border="0" src="https://2.bp.blogspot.com/-lyvbP22THBY/WXnXAiq_OVI/AAAAAAAAA6w/wFt0k3HB0JAC9QvuceWyEXBfIjgmmzpvQCLcBGAs/s320/Slide2.jpg" width="320" height="180" data-original-width="1440" data-original-height="810" /></a></td></tr><tr><td align="center"><b>Figure 3: Wage Curves with Medium Steel Inputs in Steel Production</b></td></tr></tbody></table><P></P><table align="center" border="0" cellpadding="1" cellspacing="1"><tbody><TR><TD ALIGN="center"><a href="https://3.bp.blogspot.com/-pNZ1JjcKzXE/WXnXLnCMCQI/AAAAAAAAA60/rGM31DaJ8DQx0KhDPJlZxDPn09mRAL3xACLcBGAs/s1600/Slide3.jpg" imageanchor="1" ><img border="0" src="https://3.bp.blogspot.com/-pNZ1JjcKzXE/WXnXLnCMCQI/AAAAAAAAA60/rGM31DaJ8DQx0KhDPJlZxDPn09mRAL3xACLcBGAs/s320/Slide3.jpg" width="320" height="180" data-original-width="1440" data-original-height="810" /></a></td></tr><tr><td align="center"><b>Figure 4: Wage Curves with Low Steel Inputs in Steel Production</b></td></tr></tbody></table><P></P><table align="center" border="0" cellpadding="1" cellspacing="1"><tbody><TR><TD ALIGN="center"><a href="https://2.bp.blogspot.com/-Wm4_0ozNm9c/WXnXUdbsodI/AAAAAAAAA64/tAzvhOrNKUgGPHTanb18ql7dLFvJ_D3OACLcBGAs/s1600/Slide4.jpg" imageanchor="1" ><img border="0" src="https://2.bp.blogspot.com/-Wm4_0ozNm9c/WXnXUdbsodI/AAAAAAAAA64/tAzvhOrNKUgGPHTanb18ql7dLFvJ_D3OACLcBGAs/s320/Slide4.jpg" width="320" height="180" data-original-width="1440" data-original-height="810" /></a></td></tr><tr><td align="center"><b>Figure 5: Wage Curves with Lowest Steel Inputs in Steel Production</b></td></tr></tbody></table><P></P><B>4.0 Discussion</B><P>The bifurcation on the right in Figure 1, at the top of this post, is topologically equivalent to the horizontal reflection of the bifurcation on the right in the equivalent figure in this previous <A HREF="http://robertvienneau.blogspot.com/2017/07/bifurcations-along-wage-frontier.html">post</A>. (On the other hand, the bifurcations on the upper left in both diagrams are the same normal form, in the same order.) </P><P>The bifurcation described in this post is a local bifurcation. To characterize this bifurcation, one need only look at small range of rates of profits and coefficients of production around a critical value. Accordingly, then wage curves involved in the bifurcations could intercept any number of times, in some other example of this normal form, at positive rates of profits. Each of the three switch points involved in the bifurcation could have any direction for real Wicksell effects, positive or negative. </P><P>The bifurcation, as depicted in this post, replaces one switch point on the wage curve with two switch points. It could be that the switch point disappearing exhibits capital-reversing, and both of the two new switch points appearing also exhibit capital-reversing. But any of five other other combinations are possible. </P>Robert Vienneauhttp://www.blogger.com/profile/00872510108133281526noreply@blogger.com0tag:blogger.com,1999:blog-26706564.post-84171763654792866622017-07-26T08:12:00.000-04:002017-07-26T08:12:54.356-04:00The Choice Of Technique With Multiple And Complex Interest Rates<table align="center" border="0" cellpadding="1" cellspacing="1"><tbody><TR><TD ALIGN="center"><a href="https://1.bp.blogspot.com/-GeTgo7HCmDM/WW5ekc668iI/AAAAAAAAA5w/SG87ymluykkXwsCzp7LHafiZI3512On3gCLcBGAs/s1600/WordCountAll.jpg" imageanchor="1" ><img border="0" src="https://1.bp.blogspot.com/-GeTgo7HCmDM/WW5ekc668iI/AAAAAAAAA5w/SG87ymluykkXwsCzp7LHafiZI3512On3gCLcBGAs/s320/WordCountAll.jpg" width="320" height="180" data-original-width="1440" data-original-height="810" /></a></td></tr></tbody></table><P>My article with the post title is now <A HREF="http://www.tandfonline.com/doi/full/10.1080/09538259.2017.1346039">available</A> on the website for the <I>Review of Political Economy</I>. It will be, I gather, in the October 2017 hardcopy issue. The abstract follows. </P><P><B>Abstract:</B>This article clarifies the relations between internal rates of return (IRR), net present value (NPV), and the analysis of the choice of technique in models of production analyzed during the Cambridge capital controversy. Multiple and possibly complex roots of polynomial equations defining the IRR are considered. An algorithm, using these multiple roots to calculate the NPV, justifies the traditional analysis of reswitching. </P>Robert Vienneauhttp://www.blogger.com/profile/00872510108133281526noreply@blogger.com0tag:blogger.com,1999:blog-26706564.post-14199268449551024122017-07-23T15:35:00.000-04:002017-07-23T15:35:55.744-04:00A Switch Point Disappearing Over The Wage Axis<table align="center" border="0" cellpadding="1" cellspacing="1"><tbody><TR><TD ALIGN="center"><a href="https://3.bp.blogspot.com/-dHecGTK9hpg/WXTxR6Uh3hI/AAAAAAAAA6M/6UAQ9DHTdMwhyw2o3iXtC-DfjGGM4l2dQCLcBGAs/s1600/BifurcationOnWageAxis4.jpg" imageanchor="1" ><img border="0" src="https://3.bp.blogspot.com/-dHecGTK9hpg/WXTxR6Uh3hI/AAAAAAAAA6M/6UAQ9DHTdMwhyw2o3iXtC-DfjGGM4l2dQCLcBGAs/s320/BifurcationOnWageAxis4.jpg" width="320" height="180" data-original-width="1440" data-original-height="810" /></a></td></tr><tr><td align="center"><b>Figure 1: Bifurcation Diagram</b></td></tr></tbody></table><B>1.0 Introduction</B><P>In a series of posts, I have been exploring structural economic dynamics. Innovation reduces coefficients of production. Such reductions can vary the number and sequence of switch points on the wage frontier. I call such a variation a <I>bifurcation</I>. And I think such bifurcations, at least if only one coefficient decreases, fall into a small number of normal forms. </P><P>One possibility is that a decrease in a coefficient of production results in a switch point appearing over the wage axis, as illustrated <A HREF="http://robertvienneau.blogspot.com/2017/07/a-switch-point-on-wage-axis.html">here</A>. This post modifies that example such that the switch point disappears over the wage axis with a decrease in a coefficient of production. </P><B>2.0 Technology</B><P>Accordingly, consider the technology illustrated in Table 1. The managers of firms know of four processes of production. And these processes exhibit Constant Returns to Scale. The column for the iron industry specifies the inputs needed to produce a ton of iron. The column for the copper industry likewise specifies the inputs needed to produce a ton of copper. In this post, I consider how variations in the parameter <I>u</I> affect the number of switch points. Two processes are known for producing corn, and their coefficients of production are specified in the last two columns in the table. Each process is assumed to require a year to complete and uses up all of its commodity inputs. </P><TABLE CELLSPACING="1" CELLPADDING="1" BORDER="1" ALIGN="center"><CAPTION><B>Table 1: The Technology for a Three-Commodity Example</B></CAPTION><TR><TD ALIGN="center" ROWSPAN="3"><B>Input</B></TD><TD ALIGN="center" COLSPAN="4"><B>Industry</B></TD></TR><TR><TD ALIGN="center" ROWSPAN="2"><B>Iron</B></TD><TD ALIGN="center" ROWSPAN="2"><B>Copper</B></TD><TD ALIGN="center" COLSPAN="2"><B>Corn</B></TD></TR><TR><TD ALIGN="center"><B>Alpha</B></TD><TD ALIGN="center"><B>Beta</B></TD></TR><TR><TD ALIGN="center">Labor</TD><TD ALIGN="center">21/8</TD><TD ALIGN="center"><I>u</I></TD><TD ALIGN="center">1</TD><TD ALIGN="center">3/2</TD></TR><TR><TD ALIGN="center">Iron</TD><TD ALIGN="center">1/4</TD><TD ALIGN="center">0</TD><TD ALIGN="center">1/4</TD><TD ALIGN="center">0</TD></TR><TR><TD ALIGN="center">Copper</TD><TD ALIGN="center">0</TD><TD ALIGN="center">1/5</TD><TD ALIGN="center">0</TD><TD ALIGN="center">1/5</TD></TR><TR><TD ALIGN="center">Corn</TD><TD ALIGN="center">0</TD><TD ALIGN="center">0</TD><TD ALIGN="center">0</TD><TD ALIGN="center">0</TD></TR></TABLE><P>This technology presents a problem of the choice of technique. The Alpha technique consists of the iron-producing process and the corn-producing process labeled Alpha. Similarly, the Beta technique consists of the copper-producing process and the corn-producing process labeled Beta. </P><P>The choice of technique is based on cost-minimization. Consider prices of production, which are stationary prices that allow the economy to be reproduced. A wage curve, showing a tradeoff between wages and the rate of profits, is associated with each technique. In drawing such a curve, I assume that a bushel corn is the numeraire and that labor is advanced. Hence, wages are paid out of the surplus product at the end of the year. The chosen technique, for, say, a given wage, maximizes the rate of profits. The wage curve for the cost-minizing technique at the given wage lies on the outer frontier formed from all wage curves. </P><B>3.0 Results</B><P>Consider variations in <I>u</I>, the input of labor in the copper industry, per unit copper produced. Figure 1 shows the effects of such variations. For a high value of this coefficient, a single switch point exists. The Alpha technique is cost-minimizing at high wages (or low rates of profits). The Beta technique is cost-minimizing at low wages (or high rates of profits). </P><P>Suppose that technical innovations reduce <I>u</I> to 3/2. Then the switch point occurs at the maximum wage. For all positive rates of profits (not exceeding the maximum), the Beta technique is cost-minimizing. At a rate of profits of zero, both techniques (or any linear combination of them) are eligible for adoption by cost-minimizing firms. </P><P>A third regime arises when technical innovations reduce <I>u</I> even more. The a technique is cost-minimizing for all feasible rates of profits, including a rate of profits of zero. </P><B>4.0 Discussion</B><P>So this example has illustrated that the bifurcation diagram at the top of this <A HREF="http://robertvienneau.blogspot.com/2017/07/a-switch-point-on-wage-axis.html">previous post</A>can be reflected across a vertical line where the bifurcation occurs. An abstract description of a bifurcation in which a switch point crosses the wage axis does not have a direction, in some sense. Either direction is possible. </P><P>The illustrated bifurcation is, in some sense, local. The illustrated phenomenon might occur in what is originally a reswitching example. That is, the bifurcation concerns only what happens around a small rate of profit (or near the maximum wage). It is compatible with wage curves that have a second intersection on the frontier at a higher rate of profits. In such a case, the switch point at the higher rate of profits will remain. But the bifurcation will transform it from a 'perverse' switch point to a 'normal' one. </P><P>As I understand it, such a bifurcation of a reswitching will be manifested in the labor market with 'paradoxical' behavior. Suppose the first switch point disappears over the wage axis. Around the second switch point, a comparison of long period (stationary) positions will find a higher wage associated with the adoption of a technique that requires less labor per (net) unit output, for the economy as a whole. But, in the corn industry, a higher wage will be associated with the adoption of a technique that requires more labor per (gross) unit corn produced. </P><P>This is just one of those possibilities that demonstrates the Cambridge Capital Controversy is not merely a critique of aggregation, macroeconomics, and the aggregate production function. It has implications for microeconomics, too. </P>Robert Vienneauhttp://www.blogger.com/profile/00872510108133281526noreply@blogger.com0