Tuesday, September 18, 2012

Gene Callahan: More Confused Than Paul Krugman

I thought confusion about Say's Law peaked with Paul Krugman, but Gene Callahan has chosen to advance confusion beyond Krugman.

He does this by creating two closed environments that are nothing like a real economy, a dance party and a picnic. In the dance party, he creates an environment where attendees must enter by twos. He somehow declares this an example of Say's Law:
 Every person by entering the room is simultaneously supplying and demanding a dance partner, surely the proper way to understand Keynes's formulation of Say's Law as "supply creates its own demand." So long as there is an even number of people in the room, no one can overproduce a supply of dance partners. Say's Law holds.
Note to Gene: The world is not a dance floor limited to one product. Suppose one male walks in with a pocketful of gold chains he made that afternoon and that this male likes to dance with multiple women at the same time. He offers the gold chains as compensation. The women dance with him. That's supply creating its own demand. Not your closed off environment.

Gene's second example is equally closed minded and involves a picnic where people bring more food than they can eat. Again Callahan assumes a closed environment where this issupposed proof that supply can't create its own demand. But what if one of the people attending the party is of a charitable bent and takes some of the extra food for the homeless? What if another has a father or husband at home that would just love the extra sweets?

Gene's environmentally limited constructs are pretty embarrassing. They prove nothing but his inability to create models that are of any value, perhaps that is how he is attempting to disprove Say's Law.

6 comments:

  1. Gene has really lost it. With respect to the first example, he sets the rules to get the result he wants and thinks it demonstrates a law? That's like saying:
    Let's have a market square that only allows previously agreed buyer-seller pairs to enter to carry out their previously-agreed upon transaction. In such a system, each seller will find a buyer. No shit, Sherlock.

    With respect to the second example, we had that situation last week at a BBQ. Guess what? The uneaten food was taken home. We did not just throw it in the woods. The market, represented by the picnic table, cleared.

    ReplyDelete
    Replies
    1. Bob Murphy finds my examples acceptable. He must have "really lost it" as well.

      "The uneaten food was taken home. We did not just throw it in the woods. The market, represented by the picnic table, cleared."

      Which is exactly what I said it would do. Read much?

      Delete
    2. "Why is it that born again Keynesians seem to have this weird feeling of obligation in trying their hand at refuting Say's Law?"

      So, when Say abandoned Say's Law in 1829, he must have been a born-again Keynesian, hey?

      Delete
  2. Why is it that born again Keynesians seem to have this weird feeling of obligation in trying their hand at refuting Say's Law?

    Is it a rite of passage or something? This lame attempt by Callahan makes the same mistake that pretty much every critique of Say's Law contains.

    The most important aspect of Say's Law is that it ONLY applies to an economy as a whole. Secondly, and almost equally as important, is the fact that Say's Law contains the caveat that each of the individual industries, or firms, or projects, are in particular proportion, or tending towards a particular proportion, that the classicals unfortunately used the term "equilibrium" to describe. The intuition here is that there is an absence of partial relative overproduction and an absence of partial relative underproduction.

    In typical criticisms of Say's Law however, both of these requirements are contradicted. In Callahan's case, both of his examples are examples of partial relative overproduction / underproduction. In the dance hall example, an odd person would represent an introduction of partial relative overproduction (or partial relative underproduction, depending on the frame of reference, that is, whether or not there is someone missing or someone extra). In the picnic example, there is a partial relative overproduction of food (and thus via Say's Law we can understand that there has been a partial relative underproduction of something else).

    What these Keynesians have to understand is the same thing that Henry Hazlitt tried to get people to understand about Say's Law in his critique of Keynes in the book "The Failure of the New Economics." Callahan should read it, it may help him understand that Say's Law does NOT claim that every individual instance of production, be it a dance training session or food for a picnic, will necessarily find a demand for it.

    The critics are not grasping the precise meaning of "supply creates its own demand." They believe it means every instance of supply creates a demand for that instance of supply. Not the case! It actually refers to the economy as a whole, where the only source of demand for one producer's products, is the supply produced by the demander of products. In other words, I demand products from others by providing supply to others. The money I earn as a medium of exchange is the intermediate step between the "supply from me" step, and the "supply from others" step. Say's Law refers to the economy as a whole, where the only source of demand is supply, with the important caveat that the various lines of production are in the proportions that align with relative marginal utilities.

    Finally, It should be noted that Say's Law is not an integral aspect of classical economics. It's not a core principle of lassez-faire. It is a footnote, a tangential point, a rebuttal to a common misconception held at the time (and still persists to this day) that it is possible for an entire population of market actors to produce more wealth IN GENERAL, as compared to demand IN GENERAL. This is the misconception to which Say responded.

    ReplyDelete
    Replies
    1. "What these Keynesians have to understand is the same thing that Henry Hazlitt tried to get people to understand about Say's Law in his critique of Keynes in the book "The Failure of the New Economics." Callahan should read it, it may help him understand that Say's Law does NOT claim that every individual instance of production, be it a dance training session or food for a picnic, will necessarily find a demand for it."

      OK Pete, I just re-read Hazlitt on Say's Law: he has no idea what the general glut theorists were saying, and "defends" Say's Law by incorporating *everyone* of their points into it. And it is clear you have no idea what you are talking about in terms of what the original debate was about.

      Delete
  3. What has happened to Callahan in the last few years? I read his intro work on Austrian econ years ago and enjoyed it but this is not like Gene!

    ReplyDelete